Posts Tagged ‘revolution’

Mobs roaming the streets

June 9, 2011

My “tic,toc… tic, toc” posts of the recent past must now give way to the proverbial resounding “boing” of high noon.

Gangs are now openly threatening our city centers in Europe and in the USA.

Count down to global conflict very much on track for 2012/2015

http://www.businessinsider.com/third-world-america-2011-forget-fast-tracking-to-anarchy-weve-arrived-2011-6

Memorial Day Mobs: Boston, Nashville, Long Island, Miami, Rochester, and Charlotte

Wildings occurred in other cities on Memorial Day weekend in what may have been coordinated flash wildings. Gangs swarmed beaches in Boston, Nashville, Long Island, Miami, Rochester, and Charlotte in what some believe was a social media coordinated effort. (Hat tip: Second City Cop)

Read more: http://www.huffingtonpost.com/janet-tavakoli/third-world-america-2011_b_873200.html#ixzz1OktjB3wK
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The stuff revolutions are made of (re-post)

December 5, 2010

I am still on the road. But this post from early 2009 is as topical as ever.

 

The stuff revolutions are made of

By guidoamm

I think it is by now a foregone conclusion that before the end of this year, regardless of what official statistics may show, most countries in the West will have to contend with unemployment in excess of 15% in real terms. It can be argued that at least the USA is already approaching that level and Spain, Greece and Italy aren’t far behind if not alrady at that level too. That in itself is cause for serious concern for governments. As unemployment grows and, necessarily, as the credit market collapses, inflation and demand collapse too engendering lower earnings and therefore lower tax revenue for municipalities, states and the government. As unemployment grows and the ability of governments to raise finance is diminished (rating agencies lowering credit worthyness of sovereign debt), government will have to redirect resources towards maintaining those promises and services the absence of which would more readily indicate that not all is well with the state: i.e. pension payments and any monetary disbursments perceived directly by the public. This of course will drain resources from departments such as the postal service, road works, civil administration, education, forestry services, fire fighting, international aid and so forth. Naturally, this will not be an event but a process whereby services will be gradually curtailed in order to conserve liquidity and pay those direct disbursements to the public. At some point though, something may happen to trigger the anger of the masses. It could be the death of a child because an ambulance did not show up in time or the death of a bunch of passengers on a bus or train due to absence of safety infrastructure or its state of disrepair. The trigger is not what matters; anything will do. What matters is that when unemployment is high, savings are low and prospects hazy, the masses get twitchy and can go on a rampage for any number of reasons. Politicians and administration officials don’t need me to tell them that even in a recession, let alone a depression, maintaining social harmony is a tall order particularly when the shenanigans of the power elite come to light as they inevitably do – that’s because as the tide goes out, you get to see who was swimming naked (think Madoff but count on many more to come out down the road). So, before we get to that stage which, in the current environment, could be as soon as the end of this year, governments will have to do something to shift the attention of the masses and keep them focused on something, or someone, that will be made out to be a threat to their well being. Therefore, unless some very bright government minion comes up with a brilliant solution to kick inflation up the ass and send it soaring again soon, that will be all she wrote folks. War will be upon us sooner than you can imagine.

Count down to global war

November 25, 2010

http://www.telegraph.co.uk/news/uknews/law-and-order/8159544/Police-chief-warns-of-new-era-of-violent-protests.html

Sir Paul Stephenson said his officers had failed to predict the change in mood among demonstrators before the Millbank riot two weeks ago.

Britain’s most senior police officer said the violence, which saw anarchists and students run amok through buildings housing the Conservative Party headquarters illustrated that “the game has changed”.

This is exactly what will lead us into a global war.

As monetary policy has lost traction, social expenditure is being cut right at the time that social costs are rising. Across the West, students, pensioners, the unemployed, the marginally employed and, eventually, even the employed will not be happy with their situation and with the outlook life is presenting them with.

Demonstrations will become gradually more intense and large. Soon, as mobs will be looking for politicians and bankers to lynch, our virtuous leaders will plunge us into a world war.The reason is simple. The West cannot contemplate a revolution in the purportedly civilized and industrialized world. So that when sufficient numbers of people will be angry, hungry and homeless and, simultaneously, the elite will be caught-up in scandal after scandal, revolution is sure to follow.

At that point. We’ll have us a war on our hands.

No joy in confirmation (re-post)

November 12, 2010

No joy in confirmation…

By guidoamm

Greece, Spain, Latvia, California, the UK, Italy… it could be anyone.  It really does not matter. What matters is that this is the clearest indication yet that our monetary system has hit a brick wall; a mathematical brick wall that is enshrined in a monetary logic predicated on accelerating credit and money creation at rates that far exceed the rate of growth of the economy.

The rationale for the use of an unchecked fiat monetary system is well established. Fine. Now we have to deal with the political and social consequences of said system. Namely, when the monetary system hits the wall as it did in the 30s and again in the late 60s and again today, the result is always the same i.e. excess debt, gross industrial overcapacity thus rising unemployment, declining purchasing power,  implosion of asset values with the direct result of a collapse of state tax revenues.

Under these circumstances, rolling over debt becomes increasingly difficult till the moment it becomes impossible. Try this for size. Just in the current year 2010 the USA will have to roll over something in the region of US$450Billion. That’s just the USA.

If you cannot spot the problem, here it is. In a US$ based fiat monetary system predicated on floating exchange rates as we have today globally, sovereign currencies derive their value from the value of other currencies. Hence, sovereign currencies derive their value from other sovereigns buying each other’s sovereign debt.

$450Billion is pretty much a whole chunk of the entire global sovereign ability to buy debt. This means that in order to succeed, the US government must attract virtually the entirety of budgets of most sovereigns thus leaving no funds available for countries to buy any other country’s debt…. ergo… the floating exchange rate mechanism as contemplated by our current monetary system is broken…. kaput; dead; it is no more; it is pushing up daisies;

Where do we go from here?

If our politicians were a sober well meaning bunch, I’d say we have nothing to worry about. A bit of austerity for a few years and we’ll be on our way again.

But politicians being what they are and operating in a legal and political environment that is geared towards ensuring expediency over efficiency or intrinsic value, I say a world war is a lock-in.

The problem starts with the inability of government to finance its requirements via tax revenue.  Thus government increasingly relies on the capital markets. As even the capital markets begin to show the strain, governments must curtail public spending.

http://cbs13.com/local/tracy.911.calls.2.1502690.html

Curtailing public spending brings you this:

http://news.sky.com/skynews/Home/World-News/Greece-Mass-Strike-Over-Tough-Economic-Measures-Sees-Country-Grind-To-A-Halt/Article/201002415558481?lpos=World_News_Second_Home_Page_Feature_Teaser_Region_0&lid=ARTICLE_15558481_Greece%3A_Mass_Strike_Over_Tough_Economic_Measures_Sees_Country_Grind_To_A_Halt_

http://www.businessweek.com/globalbiz/content/feb2010/gb20100224_114271.htm

http://www.independent.co.uk/news/world/europe/europes-winter-of-discontent-1908527.html

As you curtail public spending and as public anger rises, and as the shenanigans of the power elite keep coming to light(http://www.mcclatchydc.com/2010/02/24/88119/as-insurer-hiked-rates-39-executives.html

the public is sure to turn violent.

As the public turns violent, governments take the brunt of the violence and political control may be lost and anarchy and/or revolution ensue.

That’s the point at which governments must have done their homework well in advance and prepared a bogeyman somewhere off their shores so as to be able to, the moment come, turn the attention of the masses away from their own failings and the failings or our entire economic/social/political models.

Count-down to global war… tic, toc… tic, toc…

November 10, 2010

Thoughts of demonstration, passive resistance and eventually all out rebellion are crossing the minds of more and more people across the West.

We have entered the final phase of this monetary system that since 1913 gradually spread from the USA, t0 Europe and then to the rest of the world. Classical monetary policy has lost traction which means:

– locked and/or declining credit markets

– financial value far in excess of underlying economic intrinsic value (derivatives are instruments worth several times the value of the item they are based upon – the BIS estimates that derivative notional value outstanding is US$650Trillion however, global GDP is barely US$50Trillion. Worse still one third of total notional value is concentrated in five global banks: Citi, JPMorgan, Bank of America, Goldman Sachs)

– excess production capacity

– increasing unemployment

– decreasing tax revenue at local, state and federal level

– thus decrease capacity for the state to provide social services

This mixture results in a revaluation lower of any assets brought about by declining consumption.

In turn this means that the pyramid of derivatives that has been built on whatever tangible underlying assets exist must be drastically reduced.

This means that someone has to pay-out some significant amounts of money.

Which in turn means higher unemployment and still lower tax revenue for the state but a concomitant extraordinary rise in sovereign debt.

This means the state will have less and less money to provide social expenditure but must find sufficient funds to keep the banks afloat in a bid to maintain the whole rickety structure standing as long as possible.

You let this go on long enough and you will end up with a revolution on your hands.

Hence the need for a war. But this next war won’t be your garden variety inventory war like we’ve had since Korea. This one will be an old fashioned war where civilians will either be packed-off to the front or, if old or not able bodied, will be absorbed by civilian industry that will be converted to war industry. Food and energy rationing will be part and parcel of the new normal for a few years.

The alternative to a global war of course is to let revolution happen at home. And that’s something Western politicians cannot contemplate.

War it is.

http://www.washingtonsblog.com/2010/11/how-to-save-america-in-one-week.html

The article offers a third way. But the only legal and bloodless third way available to the general public, is to wrest the controls of the monetary system from the clutches of the central bank and return it in the hands of the representative of the people. In the USA it would be congress. In Europe it would be the various treasury departments of the state. There is a way to force the monetary system to return under the control of its rightful overseers; it is legal and it is bloodless. But for this option to be viable, it requires the general public to understand how our monetary system works, what the implications of this particular monetary system are, what the alternatives are and, above all, it requires the public to realize that this particular system we are currently on was imposed unilaterally and arbitrarily upon society by incumbent politicians with nary a debate anywhere, ever.

Henry Ford famously said: “If people understood the banking system, they would revolt.”

The monetary system belongs to the people. If interest must be paid on money, it should be paid to the state rather than a third party that operates for profit like banks do.

Revolution in the West now moving into the ralm of the probable?

August 26, 2010

… and it is not me saying so…

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7964328/Fresh-flight-to-Swiss-franc-as-Europes-bond-strains-return.html

Excerpts with comments (emphasis added):

No country in the developed world apart form Japan has ever seen 10-year yields drop below 1pc. Rates remained significantly higher during the two great depressions of the 1870s and the 1930s.

The above just highlights the unprecedented nature of this crisis as well as the unprecedented nature of government futile, if not populist and criminal, intervention that punishes the many to reward the few.

Morgan Stanley said investors are taking a risk buying sovereign bonds at this level, arguing that debt-to-GDP ratios in the developed world greatly understate the true liabilities and aging costs that threat public finances. “It’s not whether governments will default, but how, and vis-a-vis whom,” said Arnaud Mares in a client report.

And for the piece de resistance:

Mr Mares said most Western states are in “deep negative equity” and cannot hope to pay their debts. Bondholders have so far been “fully sheltered from loss” through the crisis but this is politically untenable. The rest of society will not suffer austerity for ever to pay the coupons.

The next phase of the crisis will see revenge by all those who have already taken a big hit, or expect to do so: whether under water on their mortgages, unemployed, dependent on health support, or state employees. Democracy will have its way.

Next stop: a world war. Just because it does pay to riot –

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100007444/it-pays-to-riot-in-europe/

The great unwashed cannot be asked to understand how and why a state can be and is out of money. The great unwashed that live in the West are oblivious to the fact that the one single dynamic that shapes their lives has been imposed unilaterally by government; that is the monetary system. The great unwashed cannot fathom how the social promises that government made over the past century are but a necessary byproduct of the monetary system. The great unwashed certainly cannot understand that a fiat monetary system is limited mathematically. Heck! Professionals in the banking and finance industry don’t understand that either so why should anyone else.

This is as close to the End Times as we’ll ever get folks.

The scientific version of what I am saying… (James Rickards)

July 1, 2010

Here is a PDF I have come across on Jesse’s Cafe American‘s  site: James Rickards

I’ll try to attach the PDF below but am unsure as to how to go about it. If I fail, you can always get it from Jesse’s site.

Rickards

Below are select excerpts in guise of summary of a fairly lengthy but interesting document that gives food for thought. Whilst Rickards is concerned with the possibility of a hostile attack on the West via the financial system, what I wish to highlight in this report are the echoes of some of my views and reasons that Western politicians may be plunging us into a world war even before such a foreign attack may materialize.

Begin excerpts (emphasis added):

They [our leaders] have a concept of the system of money and bank- ing (and the institutions that conduct those operations that create money and extend credit) that connects directly to macroeco- nomic theories expressed variously as Keynesian or Monetarist. This understanding translates into misnamed stimulus packages, which are, in fact, redistributionist inflation packages to be car- ried out by Treasury borrowing and Federal Reserve monetization of the resulting debt (Cogan et al., 2009 [2]). The circularity of this superficial understanding of system and the ineffectuality of macroeconomics in a systemic crisis is thus complete.

The field of nonlinear dynamical systems has recently been enriched by the concept of self-organized criticality as described in Bak (1996) [4]. The idea is that actions propagate throughout systems in a critical chain reaction. In the critical state, the prob- ability that an action will propagate is roughly balanced by the probability that the original action will dissipate. In the subcritical state, the probability of extensive effects from the initial action is low. In the supercritical state, a single minor action can lead to a catastrophic collapse. Such states have long been observed in physical systems, e.g., nuclear chain reactions in uranium piles, where a small amount of uranium is relatively harmless (sub- critical) and larger amounts can either be carefully controlled to produce desired energy (critical), or can be shaped to produce atomic explosions (supercritical). (Supercritical systems are just larger, more complex versions of critical systems; both are poised on the edge of an unpredictable but potentially catastrophic out- come.) Informed by this new paradigm of the self-organized, scale invariant, nonlinear dynamical system in the critical state (i.e., the Nonlinear Paradigm), we return to the field of finance to consider the implications from the perspective of systemic risk and threats to national security.

Similarly, experts have queried why in 1998 the hedge fund LTCM lost $4 billion in four weeks and nearly caused a systemic collapse, while in 2006 another hedge fund, Amaranth, lost $6 billion in one week and barely caused a ripple in financial markets. The answer in both cases is that there is no linear relationship between cause and effect and the search for differentiating proximate causes is futile. What does matter is that in all three cases, the system was in a critical state, but only in two (1987 and 1998) did initial conditions cause market losses to propagate into a full-scale panic whereas in the other case (2006) such propagation did not occur; it died out. This is exactly the kind of unpredictable but potentially catastrophic behavior that the Nonlinear Paradigm predicts.

Globalization in this context is the integration of capital mar- kets across national boundaries. Until recently there were specific laws and practices that had the effect of fragmenting capital mar- kets into local or national venues with little interaction. Factors included withholding taxes; capital controls; protectionism; nonconvertible currencies; and licensing, regulatory, and other restrictions that tilted the playing field in favor of local champi- ons and elites. All of these impediments have been removed over the past 20 years to the point that the largest stock exchanges in Europe and the U.S. (NYSE and Euronext) now operate as a single entity.

Derivative products have exhibited even faster growth than the growth in underlying financial assets. This is due to improved technology in the structuring, pricing, and trading of such instru- ments and the fact that the size of the derivatives market is not limited by the physical supply of any stock or commodity but may theoretically achieve any size because the underlying instru- ment is notional rather than actual. The total notional value of all swaps increased from $106 trillion to $531 trillion between 2002 and 2006 (New York Times, 2008 [9]). The notional value of equity derivatives increased from $2.5 trillion to $11.9 trillion86 Unrestricted Warfare Symposium Proceedings 2009

over the same period while the notional value of credit default swaps increased from $2.2 trillion to $54.6 trillion (New York Times, 2008 [9]).

Leverage is the third element supporting the massive scaling of financial markets, i.e., margin debt of U.S. brokerage firms has more than doubled from $134.58 billion to $293.2 billion from 2002 to 2007 while the amount of total assets per dollar of equity at major U.S. brokerage firms has increased from approximately $20 to $26 in the same period. In addition, leveraged investors invest in other entities, which themselves use leverage to make still further investments, etc. This type of layered leverage is impossible to unwind in a panic.

Recalling that sys- tems described by a power law allow events of all sizes and that such events can occur at any time, particularly when the system is supercritical, the conclusion is inescapable that the greatest financial catastrophe in history is not only inevitable but could well be what we are experiencing today.

If the U.S. power grid east of the Mississippi River were at no point connected to the power grid west of the Mississippi River, then a nationwide power failure would be an extremely low probability event. Either the “east system” or the “west system” could fail catastrophically in a cascading manner but both systems could not fail simultaneously except for entirely independent reasons because there are no nodes in common to facilitate propagation from critical state to catastrophic failure across systems. In a financial context, governments should give consideration to preventing mergers that lead to globalized stock and bond exchanges and universal banks. The first order efficien- cies of such mergers are outweighed by the risks of large-scale failure especially if those risks are not properly understood and taken into account.

Guido here: The above is valid not only for mergers but also for bailouts.

In summary, Wall Street’s reigning risk management paradigm consisting of a combination of stochastic methods in a normally distributed model combined with stress testing to account for out- liers is a manifest failure. It should be replaced with the empiri- cally robust model based on nonlinear complexity and critical state dynamics. Applying such a paradigm leads to the conclu- sion that the current financial crisis is likely to get far worse and threaten national security because the system has been scaled to unprecedented size prior to the onset of the catastrophe.

Based on this vulnerability analysis, the question arises whether an enemy of the U.S. could insinuate itself in financial markets in such a way that it became a trusted counterparty with access to credit and transactional venues and then use that access to create imbalances that would branch and cascade through crit- ical nodes in such a way to cause panic, failure, and collapse? If so, how would this be done?

Guido here: In light of all that has happened in the past 24 months, we really don’t need a foreign enemy to do anything. We’ve done all of the above to ourselves. We have met the enemy and it is us.

The ideal commercial cover for an enemy assault on financial markets would be an institution large enough to deploy massive amounts of capital and obtain large lines of credit but unregu- lated enough not to pose significant barriers to entry or be subject to oversight. This could be done using a variety of intermediaries including hedge funds, trust accounts and derivative products or all of these in combination. If an enemy fails they have a modest cost and some deniability; if they succeed, they could destroy Western capital markets. This is an excellent risk–reward ratio.

Guido here: again – the above reminds me of the Federal Reserve and the ECB

the evidence from bubble behavior shows that once we hit bottom (and we may still be a year or more away depending on the particular asset class or index considered), we should expect a prolonged and pernicious period at the bottom itself without any appreciable gains for years. The implications of this for tax revenues, fiscal stability, U.S. economic power, and the ability of the U.S. to project hard or soft political power are daunting.

Guido here: bingo!

What the U.S. has just experienced is the breaking of numer- ous bubbles in residential housing, credit card debt, consumption versus savings, growth in derivative products, growth in struc- tured products, and the willingness of investors to use leverage and sell volatility in order to chase illusory gains. These breaks are not characteristic of normal cyclical downturns of the type which occurred in 1990–1991 and 2001 or even the more severe down- turn of 1973–1975. We expect that the U.S. economy has entered a prolonged and steep decline that could reduce real GDP by 20 percent or more over the next several years with no immediate prospects for recovery.

The defense, intelligence, and diplomatic communities should expect a potent mixture of increased missions due to failed states, civil unrest, and enemy adventurism induced by our economic weakness, and a world of diminished resources due to fiscal con- straints and rising demands for bailouts and the social safety net. The combination of increased missions and reduced resources

will stress readiness, analytic and collections capability, and pri- orities across the board. In the LUV trio, the L-shaped recovery is the one most dangerous for national security and the one most likely to occur.

Guido here: granted but not only due to exogenous forces. Instability could very well stoke social unrest and eventually revolution. Considering the amount of social expenditure reduction Western government must effect in coming months, a revolution is no longer in the realm of the impossible.

ConCLUSIon

Notwithstanding an earlier period of globalization during 1880–1914, there can be little doubt that the current period of glo- balization from 1989–2009, beginning with the fall of the Soviet Union and the end of the Cold War, represents the highest degree of interconnectedness of the global system of finance, capital, and banking the world has ever seen. Despite obvious advantages in terms of global capital mobility facilitating productivity and the utilization of labor on an unprecedented scale, there are hidden dangers and second-order costs embedded in the sheer scale and complexity of the system. These costs have begun to be realized in the financial crisis that began in late 2007 and have continued until this writing and will continue beyond.

Among the emergent properties of this complexity are expo- nentially greater risks of catastrophic collapse leading to the com- plete insolvency of the global financial system. This dynamic has already begun to play out and will continue without the imple- mentation of appropriate public policies, which, so far, are not in evidence. More to the point, this ongoing instability lends itself to amplification through the actions of adversaries who can accel- erate destabilizing trends through market manipulation and the conduct of marginal transactions in critical securities and com- modities such as U.S. Treasury debt, oil, and gold.

The U.S. response should include three components:

• Improved public policy to stabilize the system including temporary nationalization of banks to remove bad assets, preemptive study and consideration of a return to the gold standard, higher interest rates to support the value of the U.S. dollar, increased tolerance of failure in financial institutions to reduce moral hazard, and mandatory use of central counterparty clearing in order to mitigate the impact of institutional failure and descale the system to make it more robust to attack.

• An expert market watch function and all source fusion with improved financial counterintelligence and clandestineChapter 1 Featured Papers 117

action to detect and disrupt attempted malicious acts in global capital markets by adversaries.

• An offensive capability in global capital markets including asset freezes, asset seizures, and preemptive market manipulations.

Finally, the vulnerability of companies and technologies to control and diversion by adversaries must not be overlooked. This requires improved interagency coordination of the various legal and forensic tools at the disposal of the U.S. in the areas of securities, antitrust, tax, banking, export restrictions, direct foreign investment restrictions, sanctions, and emergency eco- nomic powers. These tools should be supplemented by improved financial counterintelligence and new automated tools focused on supply-chain linkages, nonobvious relationship awareness (NORA), and market price anomalies.

On the brink of a new age of rage

May 22, 2010

Not my words. This is the Financial Times that says so.

http://www.ft.com/cms/s/0/4526d52c-6506-11df-b648-00144feab49a.html

Excerpt:

Far be it for me to make a dicey situation dicier but you can’t smell the sulphur in the air right now and not think we might be on the threshold of an age of rage.

Good to know I’m not the only crank out there.

JHC!!! This sort of news on a Saturday is peculiar….

May 8, 2010

http://news.yahoo.com/s/ap/20100508/ap_on_hi_te/as_thailand_politics_censorship

The country’s information minister stares down from billboards along Bangkok’s expressways, warning that “Bad websites are detrimental to society” and should be reported to a special hot line.”

Given the Patriot Acts and the Lisbon Treaty (which gave us a whole new layer of unelected – ergo unaccountable – politicians) how far behind can the West be on these tactics?

http://news.yahoo.com/s/ap/20100508/ap_on_re_as/as_thailand_politics

Thailand’s government warned protesters Saturday that more violence could erupt if the entrenched demonstrations that have paralyzed areas of the capital for nearly two months did not end soon.”

Apparently, the government feels it has run out of options and is playing its last card: military intervention. Do you remember that thing about the 3rd infantry, 1st brigade Combat Team that was deployed back to the US from Iraq…???… Things that make you go “hmmm”!!

http://news.yahoo.com/s/ap/20100508/ap_on_re_as/as_pakistan_missile_test

Pakistan successfully test-fired two ballistic missiles Saturday capable of carrying nuclear warheads, the military said, as the Islamic nation’s leader urged the world to recognize it as a legitimate nuclear power.”

the bomb seems to the the latest in must have accessories… a bit like Hummers a few years back… only more aggressive….

Jeeez!!… I only sat at the computer to check the weather for tonight and I get slapped in the face with increasing posturing and aggressive rhetoric coming from all sides…

Oh yeah! And we’re out of dosh in the West… should make for interesting times much to the delight of our Chinese friends….

No joy in confirmation…

February 25, 2010

Greece, Spain, Latvia, California, the UK, Italy… it could be anyone.  It really does not matter. What matters is that this is the clearest indication yet that our monetary system has hit a brick wall; a mathematical brick wall that is enshrined in a monetary logic predicated on accelerating credit and money creation at rates that far exceed the rate of growth of the economy.

The rationale for the use of an unchecked fiat monetary system is well established. Fine. Now we have to deal with the political and social consequences of said system. Namely, when the monetary system hits the wall as it did in the 30s and again in the late 60s and again today, the result is always the same i.e. excess debt, gross industrial overcapacity thus rising unemployment, declining purchasing power,  implosion of asset values with the direct result of a collapse of state tax revenues.

Under these circumstances, rolling over debt becomes increasingly difficult till the moment it becomes impossible. Try this for size. Just in the current year 2010 the USA will have to roll over something in the region of US$450Billion. That’s just the USA.

If you cannot spot the problem, here it is. In a US$ based fiat monetary system predicated on floating exchange rates as we have today globally, sovereign currencies derive their value from the value of other currencies. Hence, sovereign currencies derive their value from other sovereigns buying each other’s sovereign debt.

$450Billion is pretty much a whole chunk of the entire global sovereign ability to buy debt. This means that in order to succeed, the US government must attract virtually the entirety of budgets of most sovereigns thus leaving no funds available for countries to buy any other country’s debt…. ergo… the floating exchange rate mechanism as contemplated by our current monetary system is broken…. kaput; dead; it is no more; it is pushing up daisies;

Where do we go from here?

If our politicians were a sober well meaning bunch, I’d say we have nothing to worry about. A bit of austerity for a few years and we’ll be on our way again.

But politicians being what they are and operating in a legal and political environment that is geared towards ensuring expediency over efficiency or intrinsic value, I say a world war is a lock-in.

The problem starts with the inability of government to finance its requirements via tax revenue.  Thus government increasingly relies on the capital markets. As even the capital markets begin to show the strain, governments must curtail public spending.

http://cbs13.com/local/tracy.911.calls.2.1502690.html

Curtailing public spending brings you this:

http://news.sky.com/skynews/Home/World-News/Greece-Mass-Strike-Over-Tough-Economic-Measures-Sees-Country-Grind-To-A-Halt/Article/201002415558481?lpos=World_News_Second_Home_Page_Feature_Teaser_Region_0&lid=ARTICLE_15558481_Greece%3A_Mass_Strike_Over_Tough_Economic_Measures_Sees_Country_Grind_To_A_Halt_

http://www.businessweek.com/globalbiz/content/feb2010/gb20100224_114271.htm

http://www.independent.co.uk/news/world/europe/europes-winter-of-discontent-1908527.html

As you curtail public spending and as public anger rises, and as the shenanigans of the power elite keep coming to light(http://www.mcclatchydc.com/2010/02/24/88119/as-insurer-hiked-rates-39-executives.html

the public is sure to turn violent.

As the public turns violent, governments take the brunt of the violence and political control may be lost and anarchy and/or revolution ensue.

That’s the point at which governments must have done their homework well in advance and prepared a bogeyman somewhere off their shores so as to be able to, the moment come, turn the attention of the masses away from their own failings and the failings or our entire economic/social/political models.