Posts Tagged ‘inflation’

Inflation and growth (for CK)

August 8, 2012

The notion that inflation is necessary to the expansion of the economy is due to deliberate misdirection.

Before we can get into this discussion, we must define inflation. Inflation is the deliberate expansion of money supply and credit.

Without beating around the bush, inflation has nothing to do with growth.

Inflation is a political strategy.

Growth is action based.

Consumption occurs naturally and very well in the absence of inflation.

Growth occurs naturally and very well in the absence of inflation.

Inflation induces mal investment.

Inflation erodes and subverts the value of growth.

Inflation causes financial value to run away from intrinsic value.

The deliberate, aggressive, pervasive and sustained creation of inflation, leads to command economies characterized by the rise of an oligarchy and a GDP figure that is sustained purely by new debt. This dynamic inherently robs individuals of their wealth and their savings thus making the individual fully dependent on the state in the process. This is a self reinforcing dynamic (i.e. as the currency is debased, the individual spends all his savings till he must make use of credit; as savings are depleted government promises ever greater social support and protection thus justifying its own expansion and intrusion in the life of individuals; once the majority of individuals are dependent on government for their own survival more inflation is deemed necessary, nay, vital to continuation of life as we know it).

But….

Once the diminishing marginal utility of debt has thoroughly consumed the purchasing power of the currency, no amount of credit or money creation can induce an increase in asset values (GDP).

This is the point at which those promises that have made the individual dependent on the state must be rolled back and, eventually, revoked.

As asset values deflate and government gradually withdraws life support for individuals, you foster unemployment and alienation.

As this dynamic progresses, you end up with mobs of unemployed, homeless potentially hungry people whom are going to be very angry….

So what are you going to do?

—–

As to the nature of money.

Money is purely a vehicle of exchange. There is absolutely no reason why the creation of money should concurrently create a debt owed to a privileged third party.

If a country wishes to make use of fiat money, a quantity of money can be created without the need to award credit privileges to a third party. This quantity of money could remain fixed for some length of time (years) and could reasonably be increased in small increments to take into account population growth for example.

It is then up to economic actors to spend the money they earn or save it. If they should choose to save money, they can then lend their savings at interest to someone that wants to spend money.

The crucial thing is that interest here is charged between economic actors that contribute to society rather than between economic actors and a privileged third party that does not contribute to society.

If interest is charged at the moment of creation of the currency to a privileged third party, than, arithmetically speaking, the third party will in time, earn all the profits of society.

 

David Rhodes and Daniel Stelter via John Mauldin

January 1, 2012

John Mauldin shares with his readers a private letter from the Boston Consulting Group.

David Rhodes and Daniel Stelter analyze the current financial/economic situation and the solutions being devised by Western governments and go on to tut-tut what is being done, proposed and implemented.

http://www.johnmauldin.com/frontlinethoughts/collateral-damage

Let me just jump straight to the conclusion where we have this pearl:

The euro zone needs a comprehensive plan to deliver a combination of higher inflation (to reduce real debt and address diverging unit-labor costs), deleveraging in the periphery, and higher consumption in the northern countries.

And there you have it. Do more of the same and ensure that those that are not yet mired in stifling debt do get into it so that in time we should all be equally in the shit pool.

Throughout the entire analysis, not a mention of the monetary system. Not one. Not even by implication. But what Messers Rhodes and Stelter do say should be done is…. wait for it… deliver more inflation.

You can read the letter if you wish. You may have to subscribe to Mauldin’s letter which is free and, anyway, often contains interesting information and data. But the long and the short of this “analysis” is that governments should simply do more of what has already been done till now. The only difference is that now they should do it in spades… you know… go nuclear.

There are two ambiguous paragraphs in this letter. The first one states that: “Take, for example, the history of hyperinflation in Germany in the early 1920s. The German Reichsbank funded the government with newly printed money for several years without causing inflation. But once the public lost trust in money, people started to spend it fast. This led to higher demand and an inflationary spiral.Today the velocity of money in the U.S. is at an all-time low of 5.7. If the number of times a dollar circulates per year to make purchases returned to the long-term average of 17.7, price levels in the U.S. would rise by 294 percent over that periodóunless the Federal Reserve simultaneously reduced its balance sheet by $1.8 trillion. Some inflation is probably attractive to those seeking to reduce debt levels.

The second paragraph states that: “A recent article in The Economist compared the implied adjustments for the periphery of Europe with developments during the 1930s leading to the Great Depression. Back then, adherence to the constraints of the gold standard prevented an adjustment, and Germany had to achieve an internal devaluation to regain competitiveness. Although very few expect a repetition of the tragedy of the 1930s, it is obvious that a strategy of saving our way out of the crisis will not only fail but will run the risk of triggering significant tensions in Europe.

I am unclear as to whether Rhodes and Stelter are suggesting that German interwar inflation was a clever strategy that yielded positive results. It certainly reads that way to this reader. If indeed this should be the case, Rhodes and Stelter are way off the mark… in my humble opinion… the opinion of an uninitiated geezer typing away at an $800 computer in some obscure corner of the world.

I am no Boston Consulting Group contributor but I have two things to mention at this point. First, German productivity in the interwar period did not pick up till Hitler and his central banker Hijalmar Schacht devised a system that is in all respects similar to a Debt Free Fiat Monetary system. Essentially, they cut the central bank out of the monetary deal and created a currency (MEFOs) that was issued directly by the state. Essentially, Hitler made use of Fiat Money but the crucial difference was that the productivity and profit generated by this new money were no longer leaked out of society to third party banks banks. Rather, productivity and interest were recycled within German society thereby increasing wages, savings, disposable income and investment. This strategy in turn allowed Germany to rearm despite the embargoes that had been imposed by the sponsors of the Treaty of Versailles. This is not a judgment of what was done with those profits. It is simply a statement of fact. Which, by the way,  in turn may also explain Germany’s current reluctance to allow the ECB to create debt based inflation to monetize the sovereign debt of individual EU member states.

The second thing is this:

FRED Graph
Once again, I am no contributor to the Boston Consulting Group. But I look at this graph and then I look at the situation we are in and I have to wonder how more of the same is going to help us come out of this shit hole?
Now! Where did I put that application to become a financial consultant? Maybe I should just skip that and apply directly for a Nobel Prize.

When government becomes the largest actor in the economy

December 23, 2011

That is “when” not “if”.

Some thoughtful soul put online a diagram to illustrate the interconnectedness of government and big business.

http://www.techdirt.com/articles/20111221/17561617164/mapping-out-revolving-door-between-govt-big-business-venn-diagrams.shtml

If this diagram shocks you, you have not been paying attention.

By and large, people are happy to present a cynical stance vis-a-vis government. In truth, few can identify the processes by which government can become a threat to the economic health of individuals or to their personal freedoms. Generally speaking, government is perceived as an entity that owes us something because it is a well worn common place to hold that government over taxes us. Furthermore, there is a fundamental misunderstanding (is it deliberate?) as to what government money is, to the extent that individuals consecrate considerable time and effort to extracting as much financial support from government as possible.

Although I don’t know how accurate the information portrayed in the diagram may be and although I am not going to check, in a context of Debt Based Fiat Money and electoral politics the symbiotic relationship of government and big business is a mathematical certainty. It cannot be otherwise.

DBFM is predicated on inflation brought about by the constant expansion of credit markets. Inflation conforms to the law of diminishing marginal efficiency. All this means is that DBFM is inherently limited mathematically. If DBFM were allowed to follow its natural life cycle, the economy would undergo regular resets during which the sponsors of the system would naturally succumb to bankruptcy. And it is this particular feature of DBFM that is most dear to its sponsors because as DBFM guarantees recurring devastating crisis, the sponsors of the system are guaranteed several opportunities to trample due process in the name of fighting an ostensible emergency that risks fire and brimstone upon society.

But the diminishing marginal efficiency of inflation also guarantees that each recurring crisis is orders of magnitude larger than the previous one. Thus, as the sponsors of the system progressively inject greater degrees of debt into same, in order to avoid saturation and catastrophic failure not only does government have to curry favor with industry and business but the monetary system must perforce assimilate other currencies and other markets too. Naturally this is a self reinforcing dynamic.

Eventually, as you do that over decades, government must perforce become the largest and most influential actor in the economy not only at home but in other countries too.

Which brings us to the moral dilemma this situation represents.

Graph of Federal Government Debt: Total Public Debt

*

Graph of Real Gross Domestic Product, 1 Decimal

 

What this country needs is a good 5% CPI

June 20, 2011

And this, from no other than the Wall Street Journal. Granted it is but the opinion of Mr. Brett Arends but he’s given space on the WSJ.

http://online.wsj.com/article/SB10001424052702304451504576394002810246540.html?mod=googlenews_wsj

Inflation cures a debt hangover. It may be the only known cure. The reason? The value of the debt stays the same in dollars, but there are more and more dollars to go around and pay the debt off.

Mr. Arends’ opinion is not surprising. This is exactly the rationale that has been inculcated into most main stream economists and politicians for the past 100 years so that it is unreasonable to expect anyone else to understand the problem inherent in this strategy. After all, despite empirical evidence to the contrary, to anyone unwilling to question the received wisdom,  inflation does appear  to have served us well for the past century.

Mr. Arends of course fails to realize or understand that inflation is limited mathematically. But even for those that understand the inherently limited nature of inflation few realize the darker side of this dynamic when it is used within the context of Debt Based Fiat Money.

Inflation can only be induced for as long as a currency can be debased. Debasement of the purchasing power of a currency cannot go below zero and that is your mathematical limit. Said limit was reached in 1929, in 1969 and again now. The only way debasement can be stretched out in time is if the currency in question can assimilate other markets and currencies thereby extending the time line to total debasement. Hence the Lend Lease Act of the late 30s, then the Marshall Plan and Bretton Woods, then the abrogation of Bretton Woods and the adoption of Floating Exchange Rates. At that point, the currencies of all major Western industrialized countries became de facto dollarized thereby extending the capacity of the US Dollar to be debased. Unable to assimilate any other markets of consequence such as the Chinese currency (yet), the last major effort to extend the life of the US Dollar was the creation of the Euro. The creation of the Euro induced an immediate devaluation of all European currencies of between 20% for Germany to 50% for Italy thereby affording the US Dollar some respite.

The other problem is that inflation conforms to the law of diminishing marginal utility. This means that as the dynamic evolves, you always need greater degrees of inflation in order to get the same result. This is evidenced by any number of metrics the most glaring of which is the Money Multiplier:

***

***
The above metric evidences what happens when you induce inflation artificially, aggressively and persistently; each further  Dollar of debt gets you less and less bang for your buck. Hence the reason why since 1980 Federal Debt progressed from about US$1Trillion to currently US$14Trillion (that’s only Federal Debt not including personal and corporate debt… that’s a rise in excess of 1000%) whereas GDP barely doubled from US$6Trillion to currently US$14Trillion.
Naturally, one of the tangible results of unbridled inflation over long periods of time that everyone has felt but nobody can explain, is why and how a family could get by quite nicely on one salary till the 40s but then gradually not even two salaries have been sufficient to keep up with the Joneses and why debt has become such a prevalent feature of people’s lives.

That’s for the mechanics of inflation.

But inflation within the context of DBFM is a much more insidious and devastating dynamic and it is deliberate. This is where the vast majority of people are unable to venture intellectually hence believing inflation is as a panacea.

DBFM arbitrarily and unilaterally bestows the privilege to create the currency to an entity that is separate and protected from society. This entity is allowed to make a profit on something that has no cost of production but that society, under penalty of incarceration, must make use of and pay for AND must pledge to pay back fully. In other words, here is one single entity that stands apart from the entirety of society and that is allowed by decree to make 100% profit on something that costs nothing.

Thus, in the particular case of DBFM, inflation not only guarantees fabulous profits to the monetary authority and its cohorts, but it also guarantees that as the currency is debased, the productive capacity of society is gradually transferred to those entities that gravitate around the monetary authority. This is simple arithmetic. By dint of not having any capital, temporal or labor costs the monetary authority’s profit potential is unlimited. The more inflation is injected into the system, the greater the profits and the more productive capacity leaks out of society. On the other hand, society’s profit potential is limited not only by all input costs but also by virtue of the cost of money (interest rate) AND by the deliberate debasement of the currency on the part of the monetary authority. Thus society always needs greater amounts of currency units not only to expand production but also in order to pay for the use of all units of currency circulated prior. This of course leads us straight to the paradox of DBFM. That is; if someone decided to gather all the currency in circulation to return it to the monetary authority this individual, though noble this individual would still be out of pocket to the tune of the interest owed on the currency that was just returned. But having already returned the entirety of the currency in circulation there is no currency left with which to pay said interest.

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. http://www.timeslive.co.za/opinion/columnists/article1047462.ece/Buffett-sticking-to-his-guns

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…

http://stockcharts.com/h-sc/ui?s=BRK/A:$GOLD&p=M&b=4&g=0&id=p56448948924&a=235108746

A bon entendeur…

Just what it is

April 15, 2011

Because it bears repeating till people finally realize the absurdity of it all. The use of debt based fiat money can only result in selective justice because the system is inherently limited mathematically. The lack of prosecution of those elements that are the linchpins of the monetary construct is as deliberate as it sadly is perceived to be necessary policy.

http://www.salon.com/news/opinion/glenn_greenwald/2011/04/14/justice/index.html

Glenn Greenwald at Salon.com:

Of all the topics on which I’ve focused, I’ve likely written most about America’s two-tiered justice system — the way in which political and financial elites now enjoy virtually full-scale legal immunity for even the most egregious lawbreaking, while ordinary Americans, especially the poor and racial and ethnic minorities, are subjected to exactly the opposite treatment: the world’s largest prison state and most merciless justice system. That full-scale destruction of the rule of law is also the topic of my forthcoming book. But The New York Times this morning has a long article so perfectly illustrating what I mean by “two-tiered justice system” — and the way in which it obliterates the core covenant of the American Founding: equality before the law — that it’s impossible for me not to highlight it.

The article’s headline tells most of the story: “In Financial Crisis, No Prosecutions of Top Figures.” It asks: “why, in the aftermath of a financial mess that generated hundreds of billions in losses, have no high-profile participants in the disaster been prosecuted?” And it recounts that not only have no high-level culprits been indicted (or even subjected to meaningful criminal investigations), but few have suffered any financial repercussions in the form of civil enforcements or other lawsuits. The evidence of rampant criminality that led to the 2008 financial crisis is overwhelming, but perhaps the clearest and most compelling such evidence comes from long-time Wall-Street-servant Alan Greenspan; even he was forced to acknowledge that much of the precipitating conduct was “certainly illegal and clearly criminaland thata lot of that stuff was just plain fraud.”

Despite that clarity and abundance of the evidence proving pervasive criminality, it’s entirely unsurprising that there have been no real criminal investigations or prosecutions. That’s because the overarching “principle” of our justice system is that criminal prosecutions are only for ordinary rabble, not for those who are most politically and financially empowered. We have thus created precisely the two-tiered justice system against which the Founders most stridently warned and which contemporary legal scholars all agree is the hallmark of a lawless political culture. Lest there be any doubt about that claim, just consider the following facts and events:

When Bush officials were revealed to have established a worldwide torture regime (including tactics which Obama’s Attorney General flatly stated were illegal) and spied on Americans without the warrants required by law (which Obama himself insisted was criminal), what happened? This, from The New York Times, January 11, 2009:

And when Spanish prosecutors decided, in light of Obama’s refusal, that it would criminally investigate the torture by American officials to which its citizens were subjected by the U.S., what happened? This, from Mother Jones, December 1, 2010:

When telecoms get caught participating in Bush’s illegal eavesdropping program in violation of multiple federal statutes, what happened? This, from TPM, February 12, 2008:

And that, in turn, led to this, from The New York Times, June 3, 2009:

And when the CIA got caught destroying videotapes of its “interrogation” sessions with accused Terrorists even in the face of multiple court orders directing that they preserve such evidence — acts which even the establishment-serving, rhetorically restrained co-Chairmen of the 9/11 Commission strongly suggested constituted “obstruction” of justice — what happened? This, from Politico, November 9, 2010:

And when it came time to decide what to do with one of the most brazen and egregious lawbreakers in the financial world — former Countrywide CEO Angelo Mozilo, whose fraud was so glaring that he was one of the very few to suffer any consequences (forced to pay a paltry $40 million out of his $500 million fortune) — what happened? This, from AP, February 10, 2011:

All of that stands in the starkest possible contrast to how ordinary Americans — especially the poor and racial and ethnic minorities — are treated by this same “justice system”: with incomparably harsh and merciless punishment. From The New York Times, April 23, 2008:

The virtually full-scale immunity now vested in political and financial elites stands in just as stark contrast to the treatment received by those who reveal wrongdoing, corruption and illegality by those elites — from The New York Times, June 11, 2010:

And, from CBS News, March 11, 2011:

And this overflowing forgiveness and generosity toward elites stands in starkest contrast to foreign nationals accused of Terrorism, who are literally rendered non-persons and denied all rights – from The Washington Post, March 11, 2011:

And, from the ACLU, September 15, 2009:

In a 1795 letter, George Washington vowed that “the executive branch of this government never has, nor will suffer, while I preside, any improper conduct of its officers to escape with impunity.” Thomas Jefferson — in an April 16, 1784, letter to Washington — argued that the foundation on which American justice must rest is “the denial of every preeminence.” It’s literally difficult to imagine how we could be further away from those core principles. That the culprits who caused one of the worst financial crises in modern history have been fully shielded from the consequences of their acts — set along side the torturers and illegal eavesdroppers who have been similarly protected — illustrates that quite compellingly.

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

 

 

Employment in an inflationary environment

March 22, 2011

This post is lifted from the blog of one of the best non-main stream commentators I know, Mike Shedlock whom I often reference anyway.

His post along with the articles that gave rise to the post are worthwhile reading. The jist of the whole thing is that in a debt based fiat monetary system, government must necessarily, if gradually, become the largest actor in the economy. And of this, more proof follows:

http://globaleconomicanalysis.blogspot.com/2011/03/current-decade-of-job-losses-vs-great.html

Follows entire article and graphs:

Current Decade of Job Losses vs. Great Depression; How Did Quasi-Public Jobs Fare? Who is Whining?

It may surprise you to learn that job losses in the most recent decade ending February 2011 are reasonably comparable to the job losses from 1929-1939. Moreover, if we exclude government and “quasi- government” jobs, the latest decade is the worst ever, by far.

Please consider A Decade of Labor Market Pain by Mike Mandel.

In February 2001, nonfarm payrolls hit their business cycle peak of 132.5 million. Ten years later, the latest data pegs February 2011 payrolls at 130.5 million, a 1.5% decline. To put this in perspective, the ten-year period of the Great Depression, 1929-39 saw a 2.3% decline in nonfarm employment, roughly the same magnitude.

But even that 1.5% understates the extent of the pain for most of the workforce. I divide the economy into two parts. On the one side are the combined public and quasi-public sectors, and on the other side is the rest of the economy. Public, of course, refers to government employees. ‘Quasi-public’, a term I just invented, includes the nominal private-sector education, healthcare, and social assistance industries. I call them ’quasi-public’ because these industries depend very heavily on government funding. For example, social assistance includes ‘child and youth services’ and ‘services for the elderly and disabled’, which are often provided under government contract.

The chart below shows employment growth in the public/quasi-public sector, compared to employment growth in the rest of the economy, with February 2001 set to 100. We can see that public/quasi-public employment rose steadily over the past ten years, and is now up 16%. By comparison, the rest of the private sector is down 8% in jobs over the past 10 years.

Once again, we look at the Great Depression for an analogy. From 1929 to 1939, government employment rose by about 30%. If we back that out, then private sector non-ag jobs fell by 6% over the Depression decade. That compares to the contemporary 8% decline in private non-ag non-quasi-public jobs since 2001. So by this measure, the past 10 years have been worse for the labor market than the decade of the Great Depression.

The first chart below is from the BLS, the second chart below is from Mandel.

Nonfarm Payroll Employment – Seasonally Adjusted Total

The above chart shows the 1.5% drop between February 2001 and February 2011. Note that nonfarm employment is below where it was 11 years ago dating back to February 2000.

The next chart is the one Mandel created.

Public and Quasi-Public Jobs vs. Everything Else

Please see Mandel’s article for a state-by-state breakdown.

Who is Doing all the Whining?

Who is doing all the whining and all the pissing and moaning? The answer of course is those who fared the best in the last decade: the police and fire unions, the teachers’ unions, transit unions, and public unions in general.

Many in private sector fields have been hammered silly with rapidly rising healthcare costs and lower paychecks (assuming they have a job at all). Meanwhile those with the most benefits and those who have suffered the least are the ones unjustifiably bitching to high heavens about how unfairly they are being treated.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

End article

 

I can only see deflation

March 20, 2011

Graph lifted from Zero Hedge: http://www.zerohedge.com/article/charting-ten-year-prelude-keynesian-endgame – 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).

 

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/von%20havenstein/Keynesian%20Endgame.png

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.