The nexus between politics and the monetary system

Subsequent governments of the left and the right run budget deficits year in and year out.

Budget deficits must be compensated with debt and taxes.

Debt pays interest.

Electoral politics guarantees that deficits only expand.

As deficits expand, debt must compensate.

As debt expands, interest payments rise.

As interest payments rise, tax revenue must keep pace.

So then, regulation is brought to bear in order to boost tax revenue.

But electoral politics guarantees debt expansion and, too, regulation requires regulators. So deficits expand.

As tax revenue declines anyway, the regulatory environment expands.

Increasing regulation promotes the expansion of the security apparatus.

As productive industries are pushed offshore they are replaced by financial services that can easily evade regulation and taxes.

Eventually the fiscal burden falls predominantly on individuals and small companies.

But government and the constellations of institutions that feed from it keep expanding

So now you have erected a political/administrative/military edifice that can no longer be sustained by the underlying economy.

What do you do?

Enter Public Private Partnership!

So now private/corporate capital enters public policy. Initially it is targeted and selective.

As deficits and debt continue to expand however, the criteria for PPP become looser.

In time, private capital becomes the only source that props up bankrupt institutions.

By now, you have a runaway security apparatus and private interests driving public policy.

The ascendency of the security apparatus goes hand in hand with the rise to office of politicians and regulators that are morally compromised. The official acceptance of private capital in public institutions reinforces this symbiotic relationship.

All along, the Social Contract undergoes changes that, though superficial at the outset, eventually render it completely one sided.

The process of bankruptcy of the state and the penetration of private capital in public policy goes through stages of acceptance and denial. The key is the management of perception.

Perception is managed through narratives. Hence the importance of allowing official channels of communication to be taken over by interests that are protected and facilitated by the state and the security apparatus, 

By 2000, the hegemon had a good handle on mass media and by 2002 with the implementation of the Patriot Act, information was fully controlled globally.

Enter the internet; the Gutenberg moment of the 21st Century.

Just as it happened in the 15th Century, the advent of the internet lowered the barriers to entry in mass communication and effectively blew up the model of perception management.

Though initially thought of as an asset in order to bring about certain realities especially in overseas theatres, soon the two-edged sword nature of independent mass communication became a problem for a bankrupt hegemon.

Suddenly, in an environment where news reporting has become capillary and independent from the state, the cost of managing perceptions increased geometrically.

Deficits and debt exploded in lockstep.

No amount of interest rate manipulation can put the genie back in the bottle today.

So, what do you do?

You have no choice but to do exactly the same thing. So you double down. 

Your institutions are bankrupt. Governments stumble from one emergency funding package to the next. Pension plans have blown up. Healthcare is reaching third world levels of quality. Education has been downgraded to the lowest common denominator. Infrastructure is decaying at a quick pace. Job insecurity is rising and wages are not keeping pace with inflation.

And, to top it all, other countries are quickly rising in economic and military power and are now running circles around you.

As debt spirals out of control, your domestic policies become more authoritarian and your military adventures more blatant. Political discourse becomes more strident and convoluted and the stratagems to corral the population more flagrant and therefore, more vicious.

If anyone today still believes that Covid was anything but theater, they are either driving an agenda or are truly intellectually captured.

As if the Patriot Act was not sufficient, new regulation and laws that are currently being debated are deliberately catchall, vague and designed to allow wide nets to be cast in order to tamp down on dissent. Journalists that do not toe the line and whistleblowers are thrown into solitary confinement and sentenced to terms that even rapists are not subject to; their families harassed and their livelihoods destroyed.

The UK, Canada and the USA have already destroyed the lives of many who stood up and spoke against the creeping totalitarianism that is gradually being implemented by an elite that is as tone deaf as they are desperate.

With the latest adventure in Ukraine, the elites have finally bitten off more than they can chew.

In 30 years of avid sacking, plundering and devastating countries that could not put up a significant fight, they set their sights on one of the wealthiest countries in the world thinking it was a disorganized, technologically inferior and fragmented opponent. There was a whole lotta chop licking going on as they had wet dreams about conquering vast mineral wealth and getting their hands on the central bank.

The country that was looting chips from refrigerators and washing machines in order to sustain their war fighting capabilities and that was variously running out of munitions and missiles, has, in two years, exhausted the megre industrial capabilities of Europe. A direct result of years of deindustrialization and grift.

Doubling down conforms to the law of diminishing marginal utility. You double down enough till all you have left is the ultimate solution.

Build resilience in your families. If you are able to, leave the main land of the USA or Europe for smaller countries where the population density is lower.

Something nasty this way cometh

A warning

We are mere minutes from the clock striking midnight.

The globalists are losing ground.

For one, Bashar Al Assad is still in office.

But, more recently:

The Taliban too are still there and laughing all the way to the bank. 

Most people now know the US had biological “research” facilities in Ukraine.

Elections in the West are not going according to plan.

The Covid emergency has been discredited and uncomfortable questions are being asked.

Covid vaccines are being refused.

The EU’s seven year budget was depleted in two years.

Tax revenue is collapsing.

In Europe, attempts at expropriating farmers are faltering.

By their own admission, the mainstream press has lost relevance and their plan to frighten the public has been exposed.

In Europe, it is now acknowledged that the USA/UK have blown up Nord Stream

Yemen is a country of mostly Bedouin farmers that never made the transition to modernity. The USA and the UK have bombed Yemen mercilessly and indiscriminately for over ten years. Whatever infrastructure there may have been was mostly destroyed. Famine and cholera are rampant. Yet, today, Yemen is getting in the face of the UK and US navies in the Red Sea thereby reducing “Prosperity Guardian” to the level of a Three Stooges routine.

Ukraine is in retreat on all fronts. They have suffered hundreds of thousands of casualties. Those who could, got out of the country. Now Ukraine is not only press ganging random individuals in the street but they are also clearing officially registered invalids for military duty. Zelensky may have overplayed his hand and may be looking at mutiny. 

————

The globalists feel and are, cornered. 

And you know about cornered animals.

If you think our governments overreached during a fake pandemic, you have seen nothing yet!

It now appears that the most powerful elected position in the world is not going the way the globalists would prefer. This is a game worth Trillions of Dollars.

Build some resilience in your life. Safeguard your family to the best of your ability.

Something nasty this way cometh. Sooner rather than later.

Godspeed

How to spot a globalist: look for anyone that regurgitated the phrase “build back better”

Ruminations from the island

I am often told that it is impossible that people in positions of influence should all, simultaneously and in agreement, allow what I describe in these pages, to happen. 

A passing historical review of government malevolence should, one would think, suffice to, at the very least, awaken people to the potential threat posed by civic/security institutions that either by political mandate or by administrative usurpation, have been given irrevocable power over the lives of individuals.

Once again I will begin at an arbitrary point in time: the closing phases of WWII and the Nuremberg trials.

The narrative of the past 80 years amounts to: 

1 – Nazi = Bad 

2 – Soviets = Badder 

3 – The West is the bastion of freedom, democracy and, apparently, justice.

The above premises have shaped Western socio/cultural/political development of the past 80 years.

We will limit ourselves to facts that are known by the public and are publicly documented.

The “leader” and wealthiest country of the “free” world, dropped 2 weapons of mass destruction over civilians in Japan. We note here that in the 40s, for people in the West, Japan was an esoteric country of legend and fables. Most people at the time would be unable to point at Japan on a map. So the question arises. Had the Nazis not been defeated, would the USA have nuked Germany?

Mere months following the end of the occupation of France by mean, cruel Nazis, France, the land of Existential Philosophers, found nothing better to do than to, once again, go invade Indo-China. Indeed, at a time when the French were still reeling from the devastation and the cruelty suffered under the oppression of an occupying force, they went to try and occupy a country of “lesser” people in a far away land. This happened during the Nuremberg trials.

In 1945, the OSS, the then nascent CIA, went about recruiting Reinhard Gehlen, a career Nazi Intelligence officer. Gehlen was brought onboard with all his acolytes to carry on doing exactly what he was doing for the Nazis. Gehlen was subsequently folded into the government of the new Federal Republic of Germany that eventually played a leading role in NATO.  

From 1950 and for the following twenty-five years, the leader of the “free world” went on to fight two more wars; one in Korea and, ironically, one in Indo-China where the French were unable to subdue the natives. So the USA thought that with more fire power and a total disregard for human rights, they would prevail over the lesser people of that corner of the world. Using the fake Gulf of Tonkin event as an excuse, the USA ventured into a war of “liberation”. Despite the millions of tons of Agent Orange, despite Mai Lai, despite the millions of dead, tortured, mutilated and raped civilians, the war was stretched out for years to then end in apparent total humiliation for the exponents of the civilised free world. I say apparent because the usual suspects made away with Billions in pilfered and unaccounted funds. The Viet Nam war lasted till well after the Nuremberg trial and served as template for all following wars until Covid.

When all the above was going on, we remember here the various “health” and “medical” studies performed on lesser people in the USA like the Tuskegee Study or the forced sterilization of women. Eugenics as a “science” held sway in the USA and in Europe (mostly Sweden) from the 20s till the mid 70s. US foundations carried out dozens of mass sterilization programs in South America and Africa in many cases without consent of the victims. These programs lasted from the 20s well into the 70s and in some cases are still going on today. That is to say, some of these programs lasted well after the Nuremberg trials.

We also remember here the various medical scandals that could have been prevented or, at least, that once evidence of problems emerged, could have been stopped sooner rather than obfuscating the truth. Most notably the Swine Flu vaccine of the mid 70s in the USA and the contaminated blood scandal of the mid 70s in the UK; blood obtained from the USA. 

In 1986, legislation was passed in order to protect the pharmaceutical industry from liability. This law stands to this day.

Younger readers will remember the more recent war that was precipitated by a country accused to be in possession of Weapons of Mass Destruction. Iraq was a country of sandal wearing, donkey riding, tribal and religious zealots that, like all Arabs, are fragmented and fractious an only pose a threat to themselves. But, the civilized West had spent years financing an elite of Iraqis showering them with weapons and military toys to fight a war with Iran. Suddenly in 1990 the West had a change of heart and the new mantra was that Iraq posed a threat to the civilised world, therefore, Iraqis had to be liberated. Apart from the logical fallacy, the rest is history. Millions of dead, maimed and displaced civilians for what turned out to be adventurism for the purpose of a grand sack of public funds.

In no particular order we remember too the various and ongoing scandals involving “humanitarian” organizations like the UN (Anders Kompass book is a good primer on this but there is plenty of well documented abuse we could discuss) or Oxfam.

Even though well documented and exposed, instances of systematic and planned abuse of children and women are far too numerous to relate. Thousands of children go missing every year in Europe and the USA alone. This is all well documented.

The leader of the free world in collaboration with the UK also relocated entire populations of sundry islands in order to, variously, set up military bases or detonate nuclear devices. The people that have been displaced were never compensated. One presumes they should be grateful they were removed prior to their homes being nuked by the civilised West. This all happened well after the Nuremberg trias.

We come now to the more recent instances of government prevarications and abuse.

The Balcan War, Iraq II and the abuse and torture of civilians and prisoners, Afghanistan, Libya, the Patriot Act, Enron, Arthur Andersen, the €Billion Green Energy scandals in Europe, the Pentagon’s audit and the EU’s budget. Shall we spare a thought too for the priests, royalty and politicians still buggering children? And for TARP and Ukraine? And, dulcis in fundo ….. Covid.

This and more is well documented history. 

The sums pilfered, sacked and appropriated arbitrarily from the public treasury in order to perpetrate these crimes are astronomical. Few if anyone at all has ever been held accountable for anything.

There are of course, many more rather unsavory events that are not as well known or discussed by the public but that are nonetheless well documented. The SIGAR or the UNODC yearly reports of the past few years make for enlightening reading. Both reports are in the public domain for anyone to peruse. The well documented history of the West’s support for sanguinary military regimes in South and Central America or, indeed, in Africa and the Middle East is well documented too.

Your take away

The only constant in human history is war. Humans that either are put in charge or take charge to lead and organize society, at any level, eventually will corrupt the system. From the arithmetical point of view, those that will corrupt the system will eventually gain the upper hand till the moment the whole system comes crashing down.

Throughout history, elected and un-elected individuals that are given power to enact laws and create regulations by fiat will do just that. When you’ve created enough regulation and enacted enough laws to stifle society, you need to expand the security apparatus. This process continues till enough people have been disenfranchised and divested of the means to make a living that they will have nothing to loose to revolt.

The bastion of freedom, democracy and justice was merely a temporary interlude. It was that bastion of freedom, democracy and justice that whilst mollifying the domestic public with panem et circenses precipitated hardship, famine, war and devastation upon people in far away lands in Central and South America, Africa and South East Asia in order to pilfer Trillions in wealth.

Eventually however, the cows must come home. The sheer amount of public debt guarantees that what has been perpetrated on lesser people in faraway lands, must eventually be perpetrated at home.

————-

I like to portray the history of human development to a breathing system. That is, it is subject to alternating cycles of concentration and decentralisation of power . Neither force is ever vanquished thoroughly and definitively. They merely alternate.

I argue that in the West, from the Black Plague till about the early 1900s, humanity went through the last great phase of decentralization of power. This is a period of time where society emerged culturally, scientifically and religiously from the dark ages. It was a time of turmoil and bloodshed to be sure. But the gradual mental and physical unshackling of the masses also enabled men and women to do the heavy lifting in culture, philosophy, science and technology that brought us directly to where we are today. 

Too this is the time during which some of the greatest historical fortunes in the world were created. 

Significantly, it was also the time when the first ever mass transfer of wealth occurred by government mandate. The Homestead Act of 1862 drove the settlement of the American West and like all government programs, it arbitrarily took from some to give to others. This is the illustration of government picking champions and it is a favorite tactic that is still used today; quite liberally I might add and, contrary to the first transfer of wealth that benefited the masses, is today quite concentrated and selective.

From the early 1900s, we have entered a phase of concentration of power. I arbitrarily put the date at 1913 or, unsurprisingly if you know me, at the moment the Federal Reserve was created. Like all compounding dynamics however, things really got going in 1971 with the abrogation of Bretton Woods.

It is the introduction of the Patriot Act of 2002 however that put in place the foundations to allow the coalescing of a constellation of public, private and security institutions to allow both elected, but, more so, un-elected, officials to wield immense power that is manifestly not consistent with, neither presumed “democratic values”, nor the spirit of the law nor, indeed, the law. The United Nations are a particular case in point.

—–

We are living the tail end of this phase of concentration of wealth and power. 

The state and all the institutions that surround it and that feed from it are bankrupt.

The individuals leading the corporations that have been designated as allies of the system, the champions, are mopping up all the wealth. This allows them to finance politicians of their choice as well as those bankrupt institutions that, in turn, will do their bidding. The UN is, once again, a particular case in point.

In successive waves of legislation that is at  best, absurd but that is criminal under many aspects of the law, the population is being corralled, hemmed in.

The security apparatus is running amock creating narratives and fashioning perceptions of realities that cannot and do not stand up to scrutiny.

Escape is a luxury that the majority cannot afford. Most will be thrown into the grinder.

Today, if you still believe the Covid emergency was anything other than a charade, you are likely incapable to understand the foregoing.

For those of you that know history, think of Russia 1905. I find interesting parallels with that period of time. Revolution brewing at home brought about by a system that is oppressive and exploitative. At the same time, war is brewing at the border.

A note about the Saudi desert project NEOM

In the following post, I arbitrarily pick France to give an idea of scale.

Saudi Arabia

Size – 4 x the size of France

General Population – 36 million or half the population of France

Population of Saudi Nationals – 20 million or, 1/3 the population of France

Population density – 12 per square Km or less than 10% the density of France

Country area that is suitable for habitation – less than 30%

NB: I have to note here that in recent years, Crown Prince Mohammed bin Salman has spearheaded an effort to separate religion from the state in Saudi Arabia. What follows therefore though still largely true may have changed to some degree.

Saudi Arabia is a very wealthy desert country. The desert expanse is dotted by a handful of gleaming cities as well as several less remarkable towns separated by hundreds of kilometers of arid, desolate desert.

A privileged fraction of the population of Saudi Arabia studies overseas. A somewhat larger proportion of still wealthy Saudis study in local private institutions where they are taught by foreigners, mostly Westerners. This is particularly the case for women of wealthy families because the tribe would frown upon a female member of the tribe travelling unsupervised outside the borders of the country.

The vast majority of Saudis are schooled in local public institutions featuring a curriculum steeped in religious doctrine. Girls are generally not put through the same curriculum as boys. 

All resident non Muslim foreigners live in segregated compounds of various degrees of luxury and comfort. If you are a Bangladeshi labourer your compound will consist of a bunch of shipping containers fenced off and guarded in a corner of the desert. If you are the Country Representative for Boeing, your compound will consist of villas, supermarkets and swimming pools. The reason foreigners are segregated from the rest of Saudi society is two fold. On one hand, the Saudi leadership does not want Saudis to be exposed to mores and customs of other cultures that could corrupt the morals of Saudi society. On the other hand, the behaviour of freely roaming foreigners may well fall foul of the sensitivities of the locals or, even, the religious police, resulting in very unpleasant consequences that may well turn out to be life terminating. Once again, punishment is, to a large extent, dependent on who you are.

Generally speaking, if you are a foreigner residing in Saudi Arabia, your passport will be held by the authorities. Once again, this rule varies depending on who you are. 

Other than oil, Saudi Arabia produces nothing that is economically viable. 

Although economical, oil is not, strictly speaking, produced by Saudis.  

Saudi Intellectual output consists of Islamic Sunni theology.

Other than some Islamic theological disquisitions, book publishing in Saudi Arabia is non-existent. In fact, even merely moving personal books through Saudi Arabia is forbidden. This causes not few difficulties when individuals need to relocate across the Arabian Peninsula from, say, the UAE to Jordan.

What intellectual or material output there is, comes about strictly through exogenous input. Hence the native-to-expatriate population ratio skew.

Saudi Arabia does not recognize any religion other than Sunni Islam. Worship of any other religion is not allowed and, if caught flouting this rule, the result can go as far as death by execution for heresy.

Unmarried women are not allowed to enter Saudi Arabia. Married women can only enter Saudi Arabia if accompanied by either their husbands, or brothers or fathers.

Although an effort has been initiated in recent years to boost tourism, spontaneous tourism does not exist in Saudi Arabia. Till recently, one could only enter the desert Kingdom upon invitation.

Although there is a secular framework of laws complete with a veneer of lawyers, judges and courts of law, the legal environment is dominated by Sharia law that supersedes everything else.

Online information about Saudi Arabia is heavily managed thus hampering objective research. But, Saudi Arabia’s climate is extreme and although an internet search will indicate balmy temperatures in the high 30 Celsius, the reality is that from March to November day temperatures will reach as high as 48 and in some areas, will exceed 50 Celsius.

Saudi Arabia is the largest sponsor of Salafi / Wahhabi mosques around the world.

Geographically speaking, Saudi Arabia is located in one of the most politically and religiously volatile and unstable regions in the world.

——-

In this environment, NEOM will build the city of the future that will house 9 million individuals.

Pause for reflection.

The project hits all the buzzwords of the modern zeitgeist: zero emissions, five minute city, sustainable and presumably, desirable.

The idea is to carve a 200m wide, 170km long trench, in a straight line, from the coast on the Red Sea, towards the East, straight into the desert and erect a mirror clad, 500m tall prism within. 

Ergo, the plan consists in building a 200m x 170km x 500m terrarium. In the desert. In Saudi Arabia.

Tangential thought. The structure will be 100m taller than the Empire State Building.

——-

Interesting factoid. A high speed rail is planned within this structure that will shuttle residents from one end of the prism to the other in a staggering 20 minutes apparently…. 170km in 20 minutes, all in, from acceleration at one end to deceleration at the opposite end… someone smarter than me should calculate the top speed required in order to achieve this….

So, then, what of it?

My very first thought was that this project should be managed by Micky Mouse @ Disney. This is not meant as sarcasm. Some of you will no doubt be familiar with Disney’s forey in creating a planned town for real living with the creation of Celebration in the late 1990s in Florida.

That notwithstanding, linear cities are not new. At least the idea is not new. Since antiquity, planned cities have been discussed and sometimes even built. The common thread is that planned cities always and everywhere are the expression of the desire of an elite that wishes to impose “order” from above. All planned cities to date have failed of course.

Also, just like the political adventures in Afghanistan of incumbent bien pensants, the mere track record of linear cities should give one pause. Just like all Western failed political adventures of the past two centuries in Afghanistan however, that is obviously not a deterrent for the current crop of investors and politicians.

Moving swiftly along.

Saudi Arabia is, by a wide margin, the most conservative society in the world bar none. Although their wealth allows the elite to buy a lot of material bling, the customs and mores of Saudi culture are alien to most non Muslims and, in some cases, can be abhorrent to other cultures, especially Western. Once again, I must reiterate that in the recent past there have been efforts to move the country into modernity. The jury is still out as to whether or not this will yield desirable results.

So this futuristic project is plonked down in the midst of one of the least populated areas in the world, in a climatically hostile environment, within a society that is only just attempting to emerge from an imposed cultural dark age, in a country where religious diversity is harshly punished and where other than Sharia Law, the rule of law in the Western sense of the word, does not exist and all this, in a region that is politically unstable since antiquity. I may be forgetting some other interesting characteristics I am sure but you get the jist.

Not to worry however. The solution to the foregoing, apparently, is that NEOM will be a duty free, independent jurisdiction.

Another interesting factoid. The price tag has been updated to US$1Trillion which happens to be 100% higher than the initially estimated US$500B of a few years ago.

For purposes of comparison, the GDP of France is US$3Trillion.

So then, who will inhabit this world? Why would anyone want to live in this world?

How and why are 9 million individuals going to travel to this remote and, for all intents and purposes, desolate corner of earth to take up residence in complete isolation in a terrarium?

Assuming that all of the 3 million Saudi elite will take up residence in this structure, that still leaves 6 million spots available. 

Who for? Why?

The rationale for NEOM seems to borrow from the “success” of Dubai.

Quite aside from comparisons between the two countries, we are talking here about a part of the world where violent political and social change is always lurking around the corner. 

These are countries where civic institutions, to the extent that they exist at all, have a tenuous hold on society. We are talking about shooting confrontations between individuals and/or tribes here. We are talking about shooting wars between countries. We are talking about coups that, though bloodless as was the case in Bahrain in the recent past, are nonetheless a permanent possibility with potentially violent ramifications. We are talking about overnight total social change as was the case in the Emirate of Sharja in the early 80s. 

We are talking about large degrees of instability here. Instability that is overt and visible as I type this.

The Countries of the Arabian peninsula have been created by Western hands in the past 100 years. Iraq, Jordan, Lebanon, Saudi Arabia, Kuwait, the UAE, Oman and Yemen were carved out by the hands of Western politicians to satisfy their own geopolitical and economic ambitions.

Although dormant to various degrees, political, territorial and tribal resentment between people and amongst sovereigns in the Middle East is always palpable and flares up at the slightest perceived provocation. Tribal blood feuds are still rampant in the region. Saudi Arabia or Bahrain are prime candidates to be the next Yemens. Religious zealotry is on the rise especially in countries that till recently seemed to have achieved a greater degree of separation between Mosque and state (key words here are “greater degree”) as is the case in Jordan.

So, in this politically fragile and volatile chunk of desolate, arid, desert, sitting within the boundaries of some of the most conservative, tetchy and warring societies in the world, someone will apparently invest One Trillion US Dollars to create a Super Duper Disneyland.

What you can do

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

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

Read on.

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

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

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

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

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

https://guidoromero.wordpress.com/2009/11/07/the-utility-of-a-fiat-monetary-system/

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

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

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

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

But enough ranting.

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

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

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

WHAT YOU CAN DO

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

You want to bring down currently sitting politicians and institutions?

Then you can prevent the expansion of the credit markets.

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

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

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

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

to curtail their leveraged exposure.

WARNING!!!

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

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

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

Any of the above is possible and more.

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

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

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

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

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

A bon entendeur…

Some interesting articles this morning…

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

Let’s start with Bloomberg and Stiglitz:

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

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

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

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

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

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

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

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

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

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

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

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

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

Solution?

Abrogate Bretton Woods.

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

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

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

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

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

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

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

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

Moving on.

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

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

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

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

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

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

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Now look at this:

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Since hockey stick shaped graphs seem to be the topic du jour albeit in different discussions, how’s that for a hockey stick?

The hockey stick shape representing the acceleration of debt at government level (not included in this graph is corporate and household debt which must be added for full effect) is matched by a multiplier that literally sank like a lead balloon.

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That, dear reader, in my opinion represents the limit of the “beneficial” effect of a fiat monetary system. That, in my opinion, is the end of the inflationary cycle and the end of what can be done to keep GDP on an expansionary trajectory. That, in my opinion, is the end of this iteration of this monetary system. As a by the by, there have been so far 3 iterations to this monetary system: 1913 – 1929, 1929 – 1970, 1970 – today. The first iteration was saved by WWII, the second iteration was saved by bringing in new markets and currencies in on the US$ fiat monetary system. How will we solve this iteration of the monetary system…??? (For those of you that are mumbling that a new reserve currency will solve our problems you get a goose egg. A new currency will buy us some time; think Euro. Ultimately, the problem remains excess debt, excess industrial capacity, overbearing government and insufficient revenue to service debt.)

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But more importantly, if any of my contentions as outlined above are true, that is the reason our “leaders” are about to throw us into a conflict of global proportions.

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But let me be clear about something here. Most of you reading this post have been indoctrinated by the facile cliche that wars are profitable. As a matter of fact, wars are profitable. Not only are wars profitable, but they also keep research and development alive and a large number of military applications then make their way into civilian life too. So limited back water wars are inevitable if for no other reason that when you build weapons you cannot stock them unused forever.

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But this next war is not going to be an inventory management war. This next war has a well defined economic and social focus. This next war serves to reset the fiat monetary system and create the conditions that allow us to re-start inflation. This next war will be a world war complete with civilians called up and packed off to the front and energy and food rationing at home. This next war must deal with one of the inevitable outcomes of fiat money; this next war needs to address industrial and infrastructure overcapacity.

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Since I can virtually guarantee that no main stream politician today could contemplate any other monetary system than fiat, then the present system must be reset. Thus a world war is inevitable.

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Got bullion?

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PS – The war is inevitable and must involve civilians packed-off to the front for the simple reason that currency seems to have lost its multiplier role. If that is true, it means that unemployment will increase significantly. The trouble is that if the currency no longer has a multiplier effect on the overall economy, then revenues will necessarily dwindle at individual and corporate level thus at government level. As revenues dwindle, government must curtail public spending. And that’s the flash point. Rising unemployment must now confront lower social expenditure if not discontinuation of certain social services. Thus, unless someone somewhere can find a way to restore to the currency its multiplying powers as contemplated by Keynesian economics (the prevalent economic model of the past century), then we are looking at horrendous levels of unemployment (by taking the broadest measure in the US, unemployment is already well in the 20% according to labor statistics measure U6 as opposed to U3 which is the figure government uses for its official calculations). Thus it looks to me that the next war not only has to address infrastructure and industrial overcapacity but also a pernicious problem of unemployment because the unemployed poor have a nasty but historic tradition of rising up against the power elites and hang them.

Walk away from your mortgage (New York Times)

Is this more anecdotal evidence of media awakening?

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

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

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

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

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

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

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

Treasury removes cap for Fannie and Freddie aid

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

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

How much more blatant can criminal behavior get?

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

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

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

…. tic, toc…. tic, toc….

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

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

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

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

Lets see how this prediction pans out.

Curtailing public spending… a precursor to war…

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

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

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

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