Posts Tagged ‘imf’

As to why changing the monetary system should be a priority in altering the political landscape

April 8, 2011

By way of premise, we must realize that not everyone wishes to change the political landscape. Because one man’s loss is another man’s gain, there are entities that are profiting handsomely from the status quo. This situation will persist for as long as those sustaining the losses can do so without hard feelings. or till they realize the game is rigged and how badly it is rigged.

Change is a constant of life or at least so we would like to think. In the West today we boast a political quilt of parties that ostensibly have different goals and/or different solutions to reach a presumably ideal state of general prosperity and well being and the masses are allowed to express their opinion as to whom they think will be better suited to bring about the change they desire.

The reality is of course that whatever the political party that  may take your fancy, it must necessarily and inevitably make use of exactly the same basic tool that everyone else must make use of: money.

Fascists, communists, marxists, socialists, republicans, democrats, libertarians or what have you must all inherently, necessarily and inevitably make use of money.

There is no alternative.

Since money is the most basic indispensable tool to crystallize ideas and theories into actions and facts, it is useful to understand how money comes into being, how it is managed, whether there are alternative ways to create and manage money and, if there are, what the ramifications of using one management method over another may be.

In The Evil of Inflation I highlight the relationship that exists between inflation and aberrant policies that lead to the devastation of the environment and or the depletion of resources sooner than otherwise would be the case. So, clearly, the nature of money shoulders significant responsibility in dictating how we lead our lives.

This particular iteration of the monetary system in use in the West today is a Debt Based Fiat Monetary System. This simply means that government gives the privilege to create the currency to a third party for which the third party will be paid a fee known as interest.

The defining characteristic of Debt Based Fiat Money (DBFM) is that it has no perceived intrinsic cost of production. It is just paper. Or linen to be exact (I’m skipping here the concept of credit and Fractional Reserve Accounting for ease of comprehension). But the cost of producing a 1 or a 100 Dollar unit of currency is grossly insignificant compared to the fee paid to the creator of the currency.

And here is the first problem. The creator of the currency has no significant cost of production and yet gets paid for what it produces. Clearly therefore, the creator of the currency has a vested interest in producing huge amounts of currency in order to earn ever more fees.

And here is the second problem. Not only is government (i.e. you and me) obligated to pay the creator of the currency a fee to make use of said currency but by law it may not make use of any other type of currency.

So our governments have bestowed the privilege to create currency at zero cost to a third party and then they make it a criminal offence to not make use of said currency all the while charging you and me interest that is paid to said third party for something that has no cost of production.

Nice work if you can get it. But the logical ramification of this construct is that as the party creating the currency at zero cost injects ever greater amounts of currency into the system, society must find ever greater productive sources in order to pay back the creator of the currency. The creator of the currency enjoys the dual privilege of zero cost of production and a guaranteed market at usurious rates. Society is thus forever beholden to the creator of the currency as not only is it a criminal offence not to make use of the currency but in making use of it society must also pay the currency back plus more of it in the form of interest.  This is the law.


The law of Western countries says that society must make use of the currency created by the central bank and it must pay it back plus more.

If it were not yet clear, the above construct means that there will never be enough physical currency in circulation to pay back the central bank. Because regardless of returning the entire stock of money in existence in the realm, the interest on said stock of money would still need to be paid. But having returned the entire stock of money to the creator of the currency, where would you get money to pay the interest?

Hence the vicious circle brought about by DBFM. Hence the permanent enslavement of the masses to the monetary authority.

And here is the third problem and this one is a doozie.

As society requires ever greater amounts of currency to be created because it must pay interest on the money it requires but, there not ever being sufficient quantities of money to do so, inflation is guaranteed i.e. the permanent and aggressive expansion of the monetary stock is assured.

The final problem with this construct is this. From an arithmetical point of view, inflation cannot be and is not infinite. There is only so much purchasing power that can be eroded before you hit the singularity. But as you approach the singularity, you can be assured the monetary authority will do anything and everything to keep the system going as long as possible. Can you spell TARP? Can you spell Preferential Accounting Treatment? Can you spell rewarding deliberate and criminal colossal failure with a slap on the wrist? Can you not see that the same people that have perpetrated what would ordinarily be considered serious criminal actions are still in power and are given even more power? Is it not yet clear that if you are close to government or, indeed, are a primary dealer the rule of law does not apply to you?

How much more proof is needed in order for the ordianary citizen to see what is happening? What will it take?

The economic incompetence of the political class (Charles W. Kadlec)

December 9, 2010

It is human nature. We never give something much thought till something goes horribly wrong.

I often drive across Europe. I recently returned from just such trip and as I drove through the St Bernard’s tunnel I was discussing the inevitability of disaster in human endeavor with my passenger. By means of example, I told him, take these tunnels. Till the Mont Blanc tunnel did not suffer a devastating fire and killed scores, tunnel safety wasn’t really an issue. Then the fire happened and now going through the Mont Blanc is an experience akin to driving into the Starship Enterprise – there are sensors, multi-colored lights, markers, signs, cameras, there is a blanket radio signal that takes over your car radio and at the toll booth you are only allowed to enter the tunnel at some distance from other vehicles. But then, a few years later, the Gottard tunnel too suffered a devastating fire and, once again, scores were killed. Similarly, and despite the Mont Blanc precedent, Gottard’s tunnel security wasn’t really and issue till then.

As we were discussing these unique human traits of waiting for something to happen before we do something, not two days later the Frejus tunnel skirted disaster two weeks ago as a fire developed. Maybe because this is the oldest and least practical of all the trans alpine tunnels and is therefore not used by many or because of sheer luck, the fire was contained and no lives lost.

And through the soul searching, the hand wringing and the finger pointing during the aftermath of disaster, we are singularly incapable (or are we unwilling) to take preventive measures for situations that inherently breed disaster.

The opinion expressed by Mr. Kadlec in Forbes can be generally agreed with; “generally”. But of course, as is the case with Mr. Kadlec, we must ask where was the press and the punditry when all this was developing and when, by the year 2000, the trend was clear and unmistakable.

Here is the Forbes’ opinion piece with my comments interspersed:

The sovereign debt crisis now threatening Europe, as well as major American states and cities, discloses the sheer incompetence of a political class that has over-promised, under-delivered and squandered vast amounts of their citizens’ wealth.

Guido here: Right there from the get go I have to take exception. Politics, and electoral politics in particular, can only be manipulative thus expedient and self serving. It cannot be otherwise. The simple political dynamic requires that a politician must either convince or deceive people in order to acquire a base larger than his/her opponents. But in the particular case of the interaction of politics and the economy, no politician could  viably propose spending cuts or the termination of programs. Thus electoral politics will always and everywhere be devoted to increased spending because a case can always be made that change can be brought about without cutting any programs.

Greece, Ireland, Spain, Portugal, California, Illinois, Los Angeles and Chicago are simply the poster children for what happens when elected officials engage in reckless and irresponsible management of their economies, their banking system or their respective government’s public finances.

Guido here: if Mr. Kadlec were familiar with the variety of monetary system we currently employ in the West, he would realize that “mismanagement” of the system is built into the system as a necessity for the life of the system.

Greece’s debt stands at 144% of its gross domestic product, the highest in Europe. Ireland’s debt is 70% of GDP, due in large measure to the liabilities it assumed when it bailed out the Irish banking system. The just-announced European loan of 50 billion euros to Ireland is equal to nearly 50% of its GDP. Within the next year, Italy will have to borrow 20% of its GDP just to refinance its maturing debt.

California’s budget deficit has soared to $25 billion, or more than 25% of total spending. And, according to a recent study, the City of Chicago’s unfunded pension liabilities total $45 billion, or more than $40,000 per household.

Politicians may not be solely responsible for this fiscal mess. But they are responsible for using borrowed money to pay for current expenses until they had borrowed more than they now seem able to pay back. Furthermore, they agreed to generous pension plans without properly funding those future obligations. As a result, massive tax increases–or a renegotiation of those commitments–now seem unavoidable. Neither alternative is going to be very pleasant economically or politically.

Guido here: Politicians are absolutely and solely responsible for this crisis. It is the politicians that have allowed the banks to propose and impose this particular variety of monetary system. It is the politicians that then and now continually fail to inform themselves on the characteristics and ramifications of the use of one system over another. It is the politicians that have imposed this particular variety of monetary system on society unilaterally and arbitrarily. Finally, for the same reasons I outlined just above, it is the politicians that insist on curing any political or economic crisis with excess spending and excess debt.

Prior to the euro, the political class in Europe could cover up its incompetence through a devaluation of the country currency in question. The ensuing inflation reduced the real value of the debt, providing elected officials and their economic advisors a face-saving way to force lenders to take a “haircut” on the value of their government bonds.

But with the euro, devaluation is off the table, and capital markets are beginning to bring the political class–and the supporters of big government–to account. In fact, capital markets were further empowered to check government excess by an agreement among European leaders that after 2013, bondholders will face a loss of principal in the event of a financial rescue of a European state. Lenders, as well as taxpayers, will be at risk from wasteful government spending.

Guido here: devaluation of the Euro is alive and well. Mr. Kadlec is either not familiar with the concept of Floating Exchange Rates or he does not understand it. But the Euro has been grossly and steadily devalued against a bunch of other things. What Mr. Kadlec intends to say here, is that being members of the Euro monetary system, European countries cannot devalue “against each other”. For a graphic representation of devaluation, check my charts (link at right) on page 4, 5 and 6.

In the meantime, however, the European strategy of enabling more borrowing while imposing austerity plans, including higher tax rates, on overly leveraged countries may prove counterproductive. Increasing tax rates slows growth, reducing GDP, employment and the tax base necessary to service the debt.

A shrinking economy and rising unemployment also increase the demand for higher government spending to support failing businesses and the unemployed. Moreover, lenders are already demanding higher interest rates, increasing the cost of refinancing past debts, which are now coming due.

At some point, there is a risk that one or more European countries may be unable to avoid a de facto, if not de jure default on their debt, requiring a complete restructuring. And that creates the risk that the European Central Bank will be forced to bail out the political class by buying that country’s sovereign debt and devaluing the euro–hence the current weakness of the European currency.

Guido here: Correction. Corrections aplenty. Higher government spending is the de-facto natural inclination of government whether the economy is doing well or not. Why else would anyone choose to adopt a Debt Based Fiat Monetary System? Hence the reason that, for example, since 1980 in the USA, Federal debt increased well over 1000% but GDP barely doubled. Besides; we are already bailing out the political class as we are bailing out the banks quite successfully too for now I might add.

In the U.S. at least, the looming debt crisis among states and municipalities also reflects a lack of diligence on the part of the citizenry. This can be attributed in part to a naïve assumption by the electorate that those in government, freed from the profit motive, could be trusted to do what was “right” for the community as a whole.

Guido here: ooooohhh so wrong. The debt crisis is the result of government deliberately debasing the currency. When interest rates move inexhorably from the top left to the bottom right, individuals are put in a position whereby if they do not spend they stand to loose all their savings. When government constantly and repeatedly lowers interest rates and regularly spends in excess of what the economy could sustain, the individual cannot do otherwise but spend because saving makes no sense.

Instead, what we now can see is that elected officials, following a power motive, can be as greedy and irresponsible as anyone in the private sector. In many cases, officials from both parties have been captured by powerful interests, including public sector unions and recipients of transfer payments. As a consequence, they have willfully committed current and future taxpayer money to benefit those with political power at the expense of the community as a whole.

Guido here: yeah. That’s the political dynamic in an electoral context. In an ideal world, it is the degree of fiduciary duty the higher echelons of government are willing to extend to society that could make the difference. But, again. The electoral politics dynamic pretty much precludes that.

One lesson is that to live in liberty requires an elevated level of diligence, oversight and skepticism of our elected officials. Taxpayers and financial market regulators need to insist on more honest accounting and disclosure of the true costs of the government programs in general, and government employee pensions and benefits in particular.

Guido here: Indeed. Liberty does require diligence and, I might add, sacrifice. That and pundits that can inform themselves.

The sovereign debt crisis now encircling Europe may well prove to be a preview of what lies ahead for the political class in the U.S. Like their European counterparts, they may be participants in an end-game in which capital markets force a reassessment of debt-financed government spending, especially on transfer payments, government pensions and wealth-destroying investments in bridges to nowhere, green energy and other government boondoggles with negative rates of return.

Charles W. Kadlec is an author and the founder of the Community of Liberty. He can be reached at

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.

Something is not confirmed till government officially denies it (re-post)

November 15, 2010

I re-post because I can… :))… and because had anyone actually put money down on the bet, I’d be a rich man by now… by the way, other than the re-post below, notice that the Irish government is bending over backwards to deny they are in talks with the ECB/IMF.

Begin re-post:

My favorite theme. Check out any of these prior posts…

Obviously having learned nothing from Almunia and his histrionics, today we have none other than the Prime Minister of Spain declaring:

Euro Debt Crisis is Over

Now, I can understand how politicians can never learn from their and other politicians’ mistakes past and present. Politics is inherently and by necessity expedient and manipulative in nature so politicians do and say what they do and say.

What I have a harder time understanding is how presumably “informed” media agents, media companies, professionals and, indeed, members of the public can so regularly not see political statements for what they are.

Once again. As I did with Almunia whom, incidentally, has disappeared from the public scene, I will gladly take the other side of this bet. Sovereign credit spreads as well as fiscal revenue trends say this is easy money. So easy in fact, it could qualify as hustling.

We are all Iceland… or we should be….

January 7, 2010

Iceland’s President has my vote. I may even go as far as seeking citizenship in Iceland.

Add President Olafur Grimsson to my favorite list of politicians that includes Vaklav Klaus and Ron Paul.

The EU threatens to isolate Iceland? They should be so lucky the Icelanders. Fitch moved to immediately downgrade Iceland’s credit rating? Really! Since when has Fitch or any of the other two corrupt credit agencies ever moved so swiftly on something that is purportedly so unworthy of their credit rating? These are the same idiots that had AAA ratings on Lehman and Bear Sterns hours before the two imploded. And, by the way, these clowns still carry triple A ratings for countries and banks that are fundamentally, bankrupt by any accounting parameter you wish to apply.

The bankers and the financiers got Iceland into this mess. The bankers and the financiers have to be forced to take their lumps. Well done president Grimsson to stand up for the citizens of Iceland.

I’m off to go get a citizenship application for Icelandic citizenship.

ECB attacks G20 plan to boost IMF drawing rights to pump cash into global economy

April 8, 2009

… well, not quite the ECB but certainly someone within the ECB. Namely, Mr. Jürgen Stark, the ECB’s chief economist and Germany’s member on the bank’s executive board.

As outlined in previous comments like this one for example, a world currency is a dangerous thing. It is dangerous to individual liberty it is dangerous economically and it is dangerous socially and politically.

What is regrettable across the global political spectrum is the total lack of rationality and the egregious abandonment of fiduciary duty in favor of expedient political actions aimed at keeping the real criminals in place as they loot and plunder whatever wealth may be left.

It is comforting that though a minority, people like Mr. Jurgen Stark and Mr. Vaclav Klaus still do exist and still put up resistance where and when possible. These are the leaders that deserve to be supported by the public.

IMF poised to print billions of dollars in ‘global quantitative easing’

March 17, 2009

Jeez!!!… That was fast. Here you go guys. The IMF is to take out SDR and flood the planet with newly minted currency.

If you understand the following comment, you are a much smarter person than I am:

“Simon Johnson, former chief economist at the IMF, said: “The principle behind it is that everyone would get bonus dollars and instead of the Federal Reserve having to print them, everyone gets them.”

So then, nobody prints this confetti??? Is it me or this sentence makes no sense?