Posts Tagged ‘democracy’

Legal Ownership Of Money

November 13, 2014

I have run the idea of the legal ownership of money past a number of the people that have been responsible for my own awakening. But I have received no response at all.

The idea is getting no milage at all.

Yet, I don’t see how this concept is not the lynchpin of the entire construct.

The Kenynesians decry the glut of savings and argue for greater state intervention and centralisation. The Austrians decry the debasement of the currency and decry state intervention and the centralisation of power.

Neither theory however, takes into account the fundamental asymmetrical exchange brought about by the unilateral ownership of the currency.

Of course, the Austrians are closer to the mark because in advocating sound money they effectively advocate greater power for individuals and entities to freely interact. But as far as I can tell, even Austrians are not explicitly in favour of full unencumbered ownership of money by society.

The nature of money is the single fundamental construct upon which everything else is built. Politics, taxation, Collateralised Debt Obligations or Credit Default Swaps are all derivatives of the nature of money. Politics does not influence the nature of money but rather exploits it. Similarly, fiscality or any of the fancy credit instruments mentioned above, have no bearing on the nature of money. Quite the contrary rather. They exploit it.

Politics could of course take the upper hand in advocating a different monetary system. This would entail however taking some rather uncomfortable if not dangerous positions against rather powerful and entrenched interests.

In my view therefore, the fundamental reality of the exchange of something we own outright for something we do not own and owe interest on, is the ultimate driver of all political, economic and social development.

Not only that.

But the continuous exchange of something that is intrinsically valuable (skills, ideas and time) for something that arithmetically does not maintain its original value of exchange (money), must arithmetically and necessarily result in the concentration of wealth in the hands of the ultimate owner of the currency. Thus this is a dynamic that can only result in the concentration of power and the full dependence of society on a progressively ever more pervasive and obtrusive state with all the concomitant ramifications regarding personal liberty that entails.

The ultimate owner of the currency has successfully drawn a boundary around society. Regardless of what happens within that boundary at the political, economic or social levels, the owner of the currency will always and everywhere expand the amount of money and credit in circulation. Thus, regardless of what happens within the boundary, the owner of the currency will enjoy an increasing revenue stream fuelled by compound interest calculated on an ever increasing quantity of money and credit.

This monetary construct therefore, thoroughly neutralises the political process. Political infighting between the right, the center and the left is therefore but a distraction, albeit a very useful distraction. In fact, the greater the political polarisation becomes and the more complex regulation and fiscality become, the greater is the resultant revenue stream for the ultimate owner of the currency.

In this context, wars, famines, humanitarian interventions, economic depressions, unemployment and crisis are an absolute manna for the ultimate owner of the currency who stands to gain regardless the underlying conditions. The greater the activity, the more strident the politics and the larger the dislocation, the greater the revenue stream becomes for the ultimate owner of the currency.

This monetary system is arithmetically skewed to impoverish. It cannot be otherwise. Granted the time line may be rather long but the result is arithmetically inevitable and preordained.

This monetary system cannot contemplate prosperity for all because this would inherently distribute profit in the hands of the many.

The arithmetic of this monetary system are geared towards concentration. Politics has no bearing whatsoever in changing this fundamental dynamic. Politics only serve to bring about ever greater regulation, intervention and complexity thus driving ever greater profits towards the owner of the currency. And the evidence is everywhere.

Property rights

October 21, 2014

This is going to be a stream of consciousness post.

I have just finished watching an interview with one of the great hedge fund managers whom not only confirmed my recent epiphany but also illustrated that the problem is pervasive.

In the past few weeks I have finally been able to identify the crux of the problem as one of possession. When I started researching the how and why of what I was observing in real life, I quickly established that this monetary system cannot contemplate saving. Hence the reason banks discourage holding gold by charging you interest for example.

But it is not till a few weeks ago that I realised how throughly captive we are regardless of what we do or where we go.

The central bank has successfully drawn a boundary around society. The simple fact that you can only transact in the currency imposed by the state, whatever you do, wherever you go and whomever you elect to associate with, you are fully subject to the power of the central bank.

Western society is predicated on a handful of very clearly defined pillars.

One of these pillars is the definition of the individual.

Another pillar is the concept of private property.

But one of the most important pillars is economic freedom.

By imposing the use of one arbitrary type of money, the central bank has effectively neutralised the function of private property and economic freedom. In the process, the definition of the individual has become the essential tool that guarantees that your effort can be depredated.

From the legal point of view, the money imposed by the sovereign is the exclusive property of the central bank.

Society is obligated under penalty of law to make use of this arbitrary money.

On the other hand, the central bank has not reciprocal obligation to guarantee the value of the money.

Since money is the legal property of the central bank, it is only lent to society against payment of interest.

Therefore, money is inherently debt.

By accepting money in exchange for your work, you are effectively exchanging something you own outright, for something you do not own and owe interest on. Ergo, by simply accepting money in exchange for your effort, you are in debt.

This is borne out by the fact that even if you never take out a loan in your name, the simple fact that the central bank will always and everywhere increase the amount of money and credit in circulation, your earnings are gradually devalued.


purchasing power


The arithmetical outcome of this fundamental truth is that regardless the underlying economic conditions, compound interest guarantees that the more transactions take place and the deeper and more complex the economy becomes, the more profit is channeled to the owner of the currency. The inevitable outcome is a state that goes deeper in debt thus a state that becomes gradually more detached from society as it becomes more intrusive and authoritarian. All the while an ever larger slice of wealth is channelled towards the owner of the currency. This is an arithmetical reality.

This is the reason why in 60 years of presumed political plurality and “democracy”, regardless of the persuasion of successive governments and despite differences in style along the way, in the West the result across the board is the same. An increase in the cost of living and concomitant loss of purchasing power and wealth, high barrier to entry in business and industry thus a monopolisation of the economy thus an ever greater portion of the population that becomes unemployable. One of the preordained results of this dynamic is off shoring of course.

The political, religious, ethnic and territorial skirmishing that polarizes and divides society, is in fact a God send for the monetary dynamic. Be it Fascist, Communist or Democratic the ideology that is foisted upon the public and the increasingly byzantine legislation and growing fiscal complexity that derive thereof, are pure, unadulterated, high-octane fuel for this monetary system too. In fact, the greater the malaise, the more strident the rhetoric, the more truculent the pandering, the more frequent and complex the wars or, indeed, the humanitarian interventions, the greater the profits accumulated by the owner of the currency and the entities that gravitate around it.

Politics has nothing whatsoever to do with what afflicts us today and we cannot even hope to bring back some balance to society by participating in the political process. What needs changing is the monetary system itself.


As soon as I realised the enormity of what I discovered, I intuitively knew this might not exist in isolation.

Sure enough, other than what has already happened with the Robosigning Scandal or the London Whale, Raoul Pal confirms what I had deduced not only intuitively but also arithmetically.

Having deliberately established a system that precludes ownership of anything by gradually divesting society of wealth and independence, surely other areas of the economy have succumbed to this template?

Raoul Pal confirms that in fact the other area where presumed private property is compromised is in that institution where all titles are held on behalf of investors: the Depository Trust Clearing Corporation – DTCC.

Many decades ago, at a time when “Capitalism” still meant something, when individuals and institutions bought shares in a listed company or, indeed, government bonds, they would receive title of ownership in the form of physical paper certificates. Today, that is no longer the case. When your pension fund buys $100M of government bonds, these are held at the DTCC. If you buy shares in IBM, these will be held at the DTCC. The DTCC however, does not allocate these instruments in proprietary accounts. Bonds and shares are simply added to a pool of like instruments that the DTCC in turn makes use of for its own purposes.

If for whatever reason, as has already happened in 2007 to similar constructs ( think AIG but Fannie Mae was the bigger one), two or more parties to the DTCC pool should suddenly find themselves in dire straits, there is no legal guarantee that what you thought you owned after years of contributions to your pension fund for example, may be returned to you whole.

Pensions in fact, are technically bankrupt across the West so that a minor dislocation is certain to sink them entirely this next time around.

We are in a much bigger hole than we ever thought we might be in and if you work through the numbers, the options that will be foisted upon us shortly are few, dark and very well defined.

On the desirability of Debt Based Fiat Money

July 4, 2011

Recently, I had a discussion on another blog with someone who asked why Debt Based Fiat Money (DBFM) should be such an evil construct and how it is that it should be better or worse than any other monetary system.

As expected, I launched in my usual rant about exponentiality, diminishing marginal utility, transfer of productive capital yada, yada, yada till, I thought, I had defined the issue in its entirety. Whether she was being kind or whether she just wanted me to stop, my interlocutor acknowledged she now understood the mechanics of DBFM. However, she wondered, how much worse can DBFM be than any other variety of money?

It is only some time later I thought of something that should finally clarify the evil of DBFM.

In a non debt based monetary system (that could be either value based or predicated on a fixed amount of fiat money), an individual may choose to work less and, provided he at the same time chooses to consume less, said individual could still be able to save a portion of his earnings.

On the other hand, DBFM does not allow this choice. In a DBFM system, the same individual could not choose to work less because even assuming he decided to consume less, government would overspend on his behalf thus not only devaluing the little income the individual may have saved, but also saddling him with public debt which he is going to have to pay through taxes and/or through an increase in the cost of living.

March 1st, 2012 addendum

In the case of individuals that cannot or do not want to work, DBFM allows politicians to promise all sorts of state aid under the guise of social safety nets and safe in the knowledge that outlays can always be covered by newly minted currency. A cursory look at the creation of credit and currency over the past forty years will readily evidence the profligacy of our expedient political/monetary system. And, by the way, we ain’t seen nothing yet. The diminishing marginal utility of debt ensures that as the mathematical limit of the construct is reached, credit and money creation must go exponential:

FRED Graph
This picture requires little comment me thinks.

So even though, given political will, either monetary system can be subverted, a non debt based monetary system has the virtue to at least allow a 50% chance that the system can be managed properly ensuring fiduciary duty, true free markets, true freedom of choice and true democracy. Not so DBFM which from the get go is geared towards statism via the debasement of the currency and which is set up to transfer the productive capital of society into the hands of a financial elite and its cronies.

Ireland; a post modernist hero…

February 27, 2011

Not quite yet but Ireland most certainly could turn out to be so.

So many significant excerpts I’ll post the entire article and intersperse my comments throughout – emphasis added:

“Ireland’s new government is headed for confrontation with Brussels after the country’s ruling party was wiped out on Saturday by voters in a huge popular backlash against a European-IMF austerity programme.

Exit polls and early tallies from Ireland’s general election heralded political annihilation for Fianna Fail (FF), the party which has ruled Ireland for more than 60 years of the Irish Republic’s eight decades of independence.

The unprecedented and historic defeat, Fianna Fail’s worst result in 85 years, makes the Irish government the first eurozone administration to be punished by voters in the aftermath of the EU’s debt crisis. Voter turn-out was exceptionally high at more than 70 per cent, indicating public anger at the government and the EU.

Late last year, Ireland was forced to accept a £72 billion EU-IMF bailout to cover huge public debts that were ran up to save failed Irish banks.

The bail-out was designed to prevent financial contagion that threatened the existence of the euro, but according to economic forecasts, the cost of servicing Irish bank debt and the EU-IMF bank loans will consume 85 per cent of Ireland’s income tax revenue by 2012, a burden that a majority of voters find intolerable.

GUIDO COMMENT: The bailout was most certainly not designed to “prevent” contagion. If the banks in question did not enjoy preferential accounting and legal treatment they would have failed long ago thus never achieving the position that allows them to threaten the system. Also, the author of the article should be careful how he constructs his sentences. “Voters find intolerable” to pay 85% of fiscal revenue to service a debt that rightly does not belong to them? Really? Is it only the voters find it intolerable?

Brian Cowen, the Irish Prime Minister and Fianna Fail leader, who stood down last month rather than face furious voters, was also pressured into implementing a savage £13billion austerity programme of tax rises and spending cuts drawn up by the EU.

The cost of the EU-IMF bailout in extra taxes for an average Irish family has been estimated at over £3,900 a year. Other deeply unpopular measures include controversial reductions to the minimum wage, unprecedented cuts to public services and 90,000 jobs losses in a country where unemployment is already running at almost 14 per cent.

GUIDO COMMENT: The IMF and the World Bank are finally doing to the EU what they to date were only able to do to dinky fringe countries around the world. Namely, ride in under the guise of lending assistance and saddling society with un-payable debt thus finally and effectively achieving the ultimate transfer of wealth from society to a restricted band of bankers and politicians.

“When people are angry, when you’ve just cut their pay packets, you are not going to be top of the pops,” admitted Tony Killeen, Fianna Fail’s campaign director yesterday.

GUIDO COMMENT: Wrong mate!!! The people are not angry because you cut their pay packets you idiot. The people are angry because you sold them down the river you blathering nitwit. You and your acolytes have betrayed not only the trust of the people but you have betrayed a swathe of ideals that range from democracy to plain vanilla decency without even mentioning fiduciary duty. You, sir, along with your accomplices are the archetype of the worse possible kind of politician in an interpretation of politicians that cannot inherently ever be positive because your only sorry excuse to do what you do is that the political process needs politicians.

In Dublin, Fianna Fail won just eight per cent of the vote in an electoral decimation that called into question the future of previously unassailable politicians such Brian Lenihan, the Irish finance minister.

“However bad people thought it would get for Fianna Fail, nobody thought it would get this bad,” said Michael Marsh, professor of political politics at Trinity College Dublin. “That is highly significant.”

According to exit polling carried out by the Irish RTE broadcaster, Fine Gael (FG), Ireland’s main centre-right opposition, had won 36.1 per cent of the vote. Labour, traditional FG’s traditional coalition partner, took 20.5 per cent, its best result ever. Fianna Fail took just 15.1 per cent share of the vote, representing a loss of 58 seats.

Sinn Fein, usually outsiders in southern Irish politics, recorded its own best result with 10.1 per cent, up almost five per cent on the last 2007 election. The vote share for Greens, FF’s junior coalition partner, plummeted to 2.7 per cent, possibly robbing the party of MPs.

“The political landscape of Ireland is completely and utterly redrawn,” said Roger Jupp, the chairman of the Millward Brown Lansdowne pollsters which conducted the exit polls for RTE.

Enda Kenny, Fine Gael’s leader, will later on Sunday, start to form a new government, almost certainly with Labour, after full election results under Ireland’s complicated PR system come through.

Both Mr Kenny and Eamonn Gilmore, Labour’s leader, have promised Irish voters that they will renegotiate the EU-IMF austerity programme to reduce the burden for taxpayers and to force financial investors to shoulder some of the bank debts currently paid out of the public purse.

GUIDO COMMENT: Investors should not shoulder “some of the bank debts”. Investors should shoulder 100% of the bank debts. That’s what investors do in all other industries. Indeed, that is the very definition of investor. So far, all I can say is that End Kenny is the best of the worst of political choices. He may yet turn out to be the William Wallace of the situation but, so far, the indications are that he’s going to be a politician with a different slant… but only a slant… Enda Kenny would do well to have a chat with Iceland President Ólafur Ragnar Grímsson to get lessons in the use of moral compasses.

At a summit of centre-right EU leaders in Helsinki next Friday, Mr Kenny will use his position as Ireland’s new Prime Minister to beg the German Chancellor, Angela Merkel, and French President, Nicolas Sarkozy, for concessions ahead of an emergency March 11 Brussels summit to restructure the euro zone.

GUIDO COMMENT: The author of this article is out of his mind. “Beg”!!!??? Mr. Kenny is holding all the fucking cards. He needn’t beg anything. The only thing Mr. Kenny must do is decide whether he’s going to be a politician or whether he is going to grow a pair of balls and be a servant of the people thus acting in the best interest of the people that put him in power. Mr. B. Obama was in a similar position and he chose to be a politician. Mr. Kenny now has the opportunity to join other democratic luminaries like Vaclav Klaus, Ron Paul and Olafur Ragnar Grimsson to show what fiduciary duty means.

But neither the two European leaders nor the European Central Bank or EU will permit any substantial changes, despite the huge popular Irish revolt against the bailout.

Chancellor Merkel will tell Mr Kenny that if he wants to reduce the high, punitive 5.8 per cent interest rate charged on EU loans then Ireland will have to give up its low corporate tax rates – a measure regarded as vital to Ireland’s recovery and one of the few economic policies it has not yet handed over to Brussels or Frankfurt.

The new Irish premier will also be warned that there is no question of forcing privately-owned financial institutions to assume Ireland’s £85 billion bank debts because the resulting market panic would spread to Germany and France, tearing the euro single currency apart.

GUIDO COMMENT: The only appropriate response to the “two European leaders” whom the author evidently feels is a foregone conclusion as to whom they are, as well as to Merkel, the ECB, the EU or the IMF is a plain “no!’. Personally a more appropriate response would be to tell them to fudge cake but, though devoid of emotional charge, a simple “no” will do. The EU has no power to allow or forbid anything. Once again. Ireland holds all the cards. More prosaically, Ireland has the EU and the Euro by the balls. Moreover, Merkel has no business dictating what economic model anyone should follow. Indeed, this is the essence of economic freedom. It is true that just like Vaclav Klaus has warned long ago the EU is hard at work to destroy the last vestiges of personal and economic freedoms but for the time being, people and nations still have a degree of freedom in choosing what to run and how to run it. Enda Kenny has the power to re-assert those freedoms and he needs not beg anyone. Enda Kenny now has the mandate of his people to tell these idiots “how it is and how it’s going to be”!

As Irish voters headed for the polling booths on Friday, the European Commission bluntly declared that the terms of the EU-IMF bailout “must be applied” whatever the will of Ireland’s people or regardless of any change of government.

GUIDO COMMENT: And there you have it. In an unwitting moment of candor, the EU admits to being nothing but a bunch of fascist statists hell bent on subjugating the people: “whatever the will of Ireland’s people”. Notice here the similarities with the prevarication of the US Government upon the constitutional rights of the people as reported here for example and in many other posts on this blog.

“It’s an agreement between the EU and the Republic of Ireland, it’s not an agreement between an institution and a particular government,” said a Brussels spokesman.

GUIDO COMMENT: Yeah and???!!

A European diplomat, from a large eurozone country, told The Sunday Telegraph that “the more the Irish make a big deal about renegotiation in public, the more attitudes will harden”.


“It is not even take it or leave it. It’s done. Ireland’s only role in this now is to implement the programme agreed with the EU, IMF and European Central Bank. Irish voters are not a party in this process, whatever they have been told,” said the diplomat.

GUIDO COMMENT: This idiot is reiterating that the political will of the people is of no consequence. How much more evidence do you need to realize that the Berlin wall may have come down but these traitors are hard at work to build a much more imposing wall this time encompassing the entire West?

In the face of the EU’s refusal to substantially renegotiate the austerity programme, Mr Kenny’s new government will face a grassroots campaign for a referendum.

Dessie Shiels, an independent candidate in Donegal, said: “People have not been given the basic right of deciding whether or not they should have their taxes increased in order to repay bondholders who have lent to the banks.

David McWilliams, an economist and former official at the Ireland’s Central Bank, has led calls for a popular vote under Article 27 of the Irish constitution, which requires on a matter of “such national importance that the will of the people ought to be ascertained”.

“We have to re-negotiate everything,” he said. “Obviously, the first way to do this is to make them aware that if they force us to pay everything, we will default and they will get nothing. So they had better get a little bit of something, than all of nothing. To make this financial pill easier to swallow, we must take the initiative politically. We can do this via a referendum.

“If the Irish people hold a referendum on the bank debts now, we can go to the EU with a mandate from the people which says No. This will allow our politicians to play hard-ball, because to do otherwise would be an anti-democratic endgame.”

Declan Ganley, the Irish businessman who led the 2008 No vote to the Lisbon Treaty, said Ireland must “have the balls” to threaten debt default and withdrawal from the single currency.

“We have a hostage, it is called the euro,” he said. “The euro is insolvent. The only question is whether Ireland should be sacrificed to keep the Ponzi scheme going. We have to have a Plan B to the misnamed bailout, which is to go back to the Irish Punt.””

GUIDO COMMENT: There evidently are some clear thinking people still around. Let’s all help the Irish do the right thing, the moral thing and the only thing that can ensure that a modicum of democracy is preserved.

Who do the IMF or the ECB really want to bailout?

November 17, 2010

As the mainstream press appears to steadily if hesitantly move towards a more objective role, the Wall Steet Journal today reports who the real beneficiaries of the bailouts really are.

Not news to us of course.

All told, European banks were sitting on more than $650 billion of exposure to Ireland as of March 31, according to the Bank for International Settlements.”

And there you have it.
Banks are once again trying to skirt their primary legal and fiduciary responsibilities. Banks are businesses. Businesses make strategic decisions in an attempt to earn a profit. When decisions turn out to have been wrong, a business takes the loss or goes bankrupt. It is how it is supposed to work in open free economies.
But in our bank imposed, debt based, fiat monetary system, not only are banks perceived as indispensable to the normal functioning of the system but they have also placed themselves above the law. This would not be such a bad thing if it weren’t for the fact that banks have successfully maneuvered into this position with the ongoing connivance of the political, legislative, judicial and executive framework of presumably sovereign democratic countries.
Hence the reason banks can disregard entire swathes of accounting rules that apply to everyone else. Hence the reason banks enjoy selective legal treatment. Hence the reason banks get fined token amounts in cases where they have clearly and deliberately committed fraud, if not been criminally negligent, as is the case with the ongoing foreclosure debacle that incidentally is in the process of getting “settled” for yet more token amounts and where nobody will go to jail… yet again.
Mathematically, we’ve reached the limits of this monetary system. The upshot of this situation is that debt based fiat money conforms to the law of diminishing marginal utility so that as you reach the mathematical limits of the system, the progression accelerates till it implodes. We are literally 3 to 5 years away from total implosion.
You know my position. This implosion will bring global conflict just because neither our politicians nor, indeed, our electoral political systems are geared towards doing what needs to be done or taking responsibility for a crisis years in the making. Politicians and electoral politics are inherently expedient and short-termist in inspiration and in deed thus guaranteeing immunity from responsibility. A fall-guy will be found, a sacrificial lamb will be slaughtered and a war precipitated.
Ireland like Iceland before it, should tell the banks to go pack fudge. Bank bondholders should be forced to assume their roles as prescribed by law and take the loss. Public funds must no longer be used to safeguard bank’s deliberately reckless behavior. Bondholders must no longer be saved from the scheming ways of their own creation.
Someone has suggested recently that each citizen should buy a silver coin or a silver ingot. You needn’t spend much; less than US$50 will do. But each and every person in the world should buy a small quantity of physical silver either in coin form or in ingot form. Buy it and put it in your pocket; i.e. do not buy a certificate. Buy the real physical item. Whilst you are at it, you can do the same with gold. If every sentient and reasonable person in the world did so, the monetary authorities would be quickly brought under control. Help reason and decency prevail. Buy a little bullion.

545 People responsible for all US woes

September 8, 2010

Hat tip to poster ROAN on Voy for pointing out this article

BY Charley Reese

(Date of publication unknown)– — –  Politicians are the only people in the world who create problems and then campaign against them.

Have you ever wondered why, if both the Democrats and the Republicans are against deficits, we have deficits? Have you ever wondered why, if all the politicians are against inflation and high taxes, we have inflation and high taxes?

You and I don’t propose a federal budget. The president does. You and I don’t have the Constitutional authority to vote on appropriations. The House of Representatives does. You and I don’t write the tax code. Congress does. You and I don’t set fiscal policy. Congress does. You and I don’t control monetary policy. The Federal Reserve Bank does.

One hundred senators, 435 congressmen, one president and nine Supreme Court justices – 545 human beings out of the 235 million – are directly, legally, morally and individually responsible for the domestic problems that plague this country.

I excluded the members of the Federal Reserve Board because that problem was created by the Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered but private central bank.

I excluded all but the special interests and lobbyists for a sound reason. They have no legal authority. They have no ability to coerce a senator, a congressman or a president to do one cotton-picking thing. I don’t care if they offer a politician $1 million dollars in cash. The politician has the power to accept or reject it.

No matter what the lobbyist promises, it is the legislation’s responsibility to determine how he votes.


Don’t you see how the con game that is played on the people by the politicians? Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common con regardless of party.

What separates a politician from a normal human being is an excessive amount of gall. No normal human being would have the gall of Tip O’Neill, who stood up and criticized Ronald Reagan for creating deficits.

The president can only propose a budget. He cannot force the Congress to accept it. The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating appropriations and taxes.

O’neill is the speaker of the House. He is the leader of the majority party. He and his fellow Democrats, not the president, can approve any budget they want. If the president vetos it, they can pass it over his veto.


It seems inconceivable to me that a nation of 235 million cannot replace 545 people who stand convicted — by present facts – of incompetence and irresponsibility.

I can’t think of a single domestic problem, from an unfair tax code to defense overruns, that is not traceable directly to those 545 people.

When you fully grasp the plain truth that 545 people exercise power of the federal government, then it must follow that what exists is what they want to exist.

If the tax code is unfair, it’s because they want it unfair. If the budget is in the red, it’s because they want it in the red. If the Marines are in Lebanon, it’s because they want them in Lebanon.

There are no insoluble government problems. Do not let these 545 people shift the blame to bureaucrats, whom they hire and whose jobs they can abolish; to lobbyists, whose gifts and advice they can reject; to regulators, to whom they give the power to regulate and from whom they can take it.

Above all, do not let them con you into the belief that there exist disembodied mystical forces like “the economy,” “inflation” or “politics” that prevent them from doing what they take an oath to do.

Those 545 people and they alone are responsible. They and they alone have the power. They and they alone should be held accountable by the people who are their bosses – provided they have the gumption to manage their own employees.

This article was first published by the Orlando Sentinel Star newspaper

WHACK!! … (you feel whacked upside the head yet?)

June 20, 2010

If you read no other post on this blog, you must read this Globe and Mail article.

In a succinct and lucid report, Barrie McKenna outlines the end game that some of us have always maintained is inevitable and that now has become reality. There is no particular satisfaction in vindication. Not at this cost. Not when it is largely avoidable.

And still! Even though the report is lucid, it is but a picture of real life today. Mr. McKenna like most people, is unaware of the how and why and, like most people, gets lost in pointing the finger of blame at one court decision or a one administrative system. People are thoroughly unaware (blissfully?) that this is not the failure of a policy or the failure of some administrative system. This is a failure that is designed into our monetary/political system at the outset. This is human failure at the largest degree.

Excerpts with comments interspersed throughout:

Arnella Sims has seen a lot in her 34 years as a Los Angeles County court reporter, but nothing like this.

Case files piling up by the thousands, phones ringing off the hook, forced midweek courthouse closings and occasional brawls as frustrated citizens queue for hours to pay parking fines.

“People think we’re becoming a Third World country,” said Ms. Sims, 55. “They don’t understand.”

It’s a story that’s being repeated all across California – and throughout the United States – as cash-strapped state and local governments grapple with collapsed tax revenues and swelling budget gaps. Mass layoffs, slashed health and welfare services, closed parks, crumbling superhighways and ever-larger public school class sizes are all part of the new normal.
The epiphany

None of this would matter much to anyone outside the not-so-Golden State except that California’s budget crisis is a harbinger of a grim dilemma that all Americans will soon confront. The country has built an elaborate and costly government machine, tied to a regressive tax system that can’t generate enough revenue to pay for it all.

Guido here – The problem is just that – an elaborate and costly government machine. However, the problem is not that this costly machine is tied to a regressive tax system. The elaborate and costly machine has always been tied to a regressive tax system that everyone knows is regressive… but for as long as people have the impression that the economy is expanding, nobody cares. This a typical political dilemma of democratic societies. Even assuming that a politician should rightfully embrace the regressive tax system as his/her platform, he/she would stand very little chance to be elected because the electorate cannot and does not see a problem in advance. Our political system and, indeed, our educational system do not encourage the prevention of problems at national level. Certainly, democratic politics are not designed to offer the electorate solution to potential future problems because the problem is “potential”. Democratic politics are designed to offer the electorate what it wants now and offer solutions to what the electorate perceives to be a problem now.

“This is a classic American dilemma,” explained Peter Dreier, a professor of politics and director of urban and environmental policy at Occidental College in Los Angeles. “Americans expect a lot of their government. But politicians have convinced them they’re not getting what they want.”

Guido here – Of course this is not a “classic American dilemma”. It is the dilemma of all societies and countries and it is particularly a dilemma for societies based on democratic principles.

Experts say the U.S. government will inevitably have to come to the rescue, using its borrowing clout to save the state from near-bankruptcy or devastating service cuts. Do nothing, and the entire U.S. economy could be put at risk. California, like the country’s banks, may be too big to fail.

Guido here – And right there in that paragraph is proof that “experts”, like most people, do not understand that government is nothing but the sum total of the people of a country. If people have no money, then the state has no money and, by definition, neither does the government. The experts claim that government has “borrowing clout” which may be true. But even borrowing clout cannot be infinite. And this is where main stream economics of the past century differs from those that have a more realistic view of life. Politicians and economists of all stripes believe that the government’s borrowing clout is infinite and can heal all. Clearly though, borrowing has some very real arithmetical limits that we are now pushing against after almost 100 years of borrowing that today is counted in numbers that till very recently could only be found in Carl Sagan’s lectures.

And California isn’t alone in angling for a bailout. U.S. states are facing shortfalls totalling nearly $300-billion in 2010 and 2011; they also must wrestle with hundreds of billions more in unfunded pension obligations to their workers. “There are a few Greek crises brewing among the United States of America,” said economist Ed Yardeni of Yardeni Research Inc.

Soul searching

How California, the largest and once most-prosperous state, got in this mess is a story decades in the making. It began with middle-class angst and a property tax revolt in the sprawling suburbs of Los Angeles. The movement would eventually sweep the country in the inflation-ravaged economy of the late 1970s, leaving government unable to pay for many of the services and entitlements people now take for granted.

Guido here – It is correct to say that this mess was decades in the making. It is not correct to blame exclusively property tax law. The problem begins much further upstream than property tax law. The problem is the fiat monetary system.

In the years since Prop. 13, California has come to the rescue of local governments, taking on ever-greater responsibility for schools, low-income health care and welfare. And it has paid for all that with volatile sales and income tax revenue, making it tough to balance its budget when the economy stalls.

“A lot of people predicted doom and gloom in 1978. It just took a long time,” said John Tanner, executive director of Local 721 of the Service Employees International Union, which represents 85,000 government workers in Los Angeles and throughout Southern California.

Experts say tax reform is the only option for California, short of a massive and unprecedented shrinking of government. And that requires an “open conversation” between voters and their elected leaders, and almost certainly higher taxes, according to Ms. Ross, the economist.

Guido hereThe experts are wrong again. It is not the tax system that needs reforming. What needs to change is our spending habits. Democratic politics ensures that state expenditure will always follow a positive slope. In a fiat monetary system, democratic politics guarantees that spending will always and everywhere exceed what the underlying economy otherwise justifies. Fiat money and democracy guarantee and inflationary blow off phase followed by a deflationary bust. The only unknown variable is how long government intervention can stretch out the time line of the cycle. But bust it will and busting it is.

“We have tried to be all things to all people and we can’t afford to do that any more.”

Guido here – That’s a ding-ding-ding cigar moment for the comment. Trying to be all things to all people is the hallmark of democratic politics. And how can you be all things to all people? You spend money of course. Spend money on programs, spend money on projects, spend money on adventures… spend, spend, spend…. and when the tax base is not sufficient to finance your ambitions? Go on… borrow…

Borrow and spend… borrow and spend…

And it all works as gradually all countries around the globe get onto the same policy…

But once everyone has borrowed beyond their limits and has spent grossly in excess of their income and when global GDP stalls…. then what?

Today the “what” is whacking us upside the head.

Cameras; the new guns?… (fascism on the march)

June 18, 2010

Par for the course. As inflation looses traction on the economy government must concentrate power in order to apply remedies that otherwise would be disputed via traditional democratic methods.

Empirical evidence of secular change

February 3, 2010

On page 5 of the charts I maintain I have added a series of 10, 5, 3, and 1 year performance charts comparing the performance of various markets to one another.

Gold may be a barbarous relic in the eyes of our leaders. However, our leaders must contend with a history of well over 5000 years whereby gold has provided a store of value in good and bad times alike. Remember that currencies come and go. As currencies go, the current version of the US$ is almost 100 years old; as fiat currencies go, that’s pretty good.

Be that as it may. The fact that market participants are accumulating gold contrary to what our leaders are recommending, is saying something. Gold is a good investment now until it will no longer be. As the antithesis of fiat money, gold is saying that not everything is right in the institutions of power. Right now, gold is flashing a big honking warning sign on the health of our monetary system thus our freedom, our political system, our democracies.

A bon entendeur salut.[s190536567]&disp=O

Why inflation leads to concentration of profits in the finance sector

November 8, 2009

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.

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.