Posts Tagged ‘treasury’

Rep Grayson laughs in Bernanke’s face… and rightly so

July 22, 2009

This excerpt from a CSPAN broadcast requires little or not comment as it is self explanatory.

Other than Bernanke’s attitude that is akin to that of a boy caught doing something down right irresponsible, as kids are inclined to do, what is more important is that Bernanke provides proof of the interdependency of currencies. In a global US$ based fiat monetary system, what happens to the US stock market, the economy and the Dollar happens to all of us around the world.

If you do not find this excerpt frightening, you have not understood the magnitude of the predicament we are in.


IG: Treasury ‘failed’ to adopt bailout safeguards

July 21, 2009

A few months ago, I wrote: “What is going on – my opinion and not so improbable scenario“.  This was an essay that was written as much out of frustration as the desire to show whomever might want to see, that our leaders are truly acting not only irresponsibly but criminally.

Today, we have no other than the top government watch dog weighing in with his findings.

The truth is that our “leaders” have, wittingly or not, entered into a bargain with the devil. The moment a government accepts and adopts a monetary system that is by fiat, it by extension has made the conscious decision to debase the national currency. Debasing the national currency inherently and by necessity brings about an increase in debt (personal or at government level – ultimately there is no difference). An increase in debt brings demand forward in time. If demand is accelerated, industrial capacity expansion accelerates too. All great dynamics in principle if managed and modulated.

But, aggressive, pervasive and unrelenting inflation pumping over several decades, will bring about a debt mountain that ultimately becomes unsustainable. The point at which economic activity is no longer sufficient to service debt, that is the moment inflation has reached the limits of its expansionary effect. At that moment, government is bankrupt. If government is bankrupt, it can no longer provide the services that society has come to expect. As unemployment rises and as social expenditure is reduced and ultimately cut, social unrest is sure to follow.

The problem with social unrest is that it forces a denouement of the irresponsible if not criminal activity of government. However, just like I and some other people know this to be the case, so do some bankers and politicians.

I can tell you now that as self proclaimed holders of the moral high ground, there is no way any Western government or politician will admit to what ultimately is the logical consequence of an unchecked fiat monetary system. Effectively, governments have been running a Ponzi scheme for self serving reasons. Because, that’s what an unchecked fiat monetary system is: it is THE ultimate Ponzi scheme. And as you know, Ponzi schemes only work for as long as you can bring in new contributors at the bottom to feed the pyramid. In forty years from the abrogation of Bretton Woods (the US in the late 60s was exactly where we are today globally – i.e. bankrupt), via the introduction of the Euro to Globalization we have just about brought every country in the world in on the US$ based fiat monetary system.

This is not opinion. This is fact and if you are interested in understanding what is going on, you can read more about it here, here and here and in many other essays on my blog or the blog of Steve Keen for example.

Today, globally, we have outstanding obligations worth five hundred Trillion Dollars and a world economy worth about fifty Trillion Dollars. To put it in perspective, think of having debts for one Million Dollars and a yearly income of one hundred thousand Dollars.

That’s where we are today.

Will the West swollow its pride and set about doing what anyone in their right minds would do in this situation?

I think not. It is far easier for the all mighty West to start a war somewhere and then expand it into a world war.

I say by 2013 or, latest, by 2015

Medvedev Shows Off Sample Coin of New ‘World Currency’ at G-8

July 19, 2009

As I state here towards the end of the essay, introducing a world currency is now one of the only three options left to restart the inflationary cycle. Are we really being prepared for a world currency? If so, introducing this new currency will have to take place within the following 12 to 24 months to have any hope at fostering inflation before a world war.

Before you think that a world currency would be desirable, think of what it takes to introduce a world currency and what is needed to manage it. Think of the economic and social ramifications. Think of a New World Order where there is going to be one supranational entity with virtually unlimited power.

World Bank warns of deflation spiral

July 16, 2009

For someone that takes pride in seeing things that others can’t, this piece of news is unsettling. It is unsettling on many fronts. First, because the one rule of thumb I follow is that whatever an official entity declares, the opposite is likely true. So it is unsettling that an official should be allowed to make remarks that pertain to the true state of the economy because it now shakes the foundations of my theory. Furthermore, it is unsettling because of the specific declaration made by this official that points to war; namely, I am referring to this pearl:

” Significant excess capacity has been built up and unless this issue is addressed, we will face a deflationary spiral and the crisis will become protracted

If you have read any of my rants on this blog, you are aware that excess industrial capacity is the logical consequence of the adoption of a fiat monetary system. By extension, you are also aware that excess industrial capacity can only be maintained for as long as the debt burden can be expanded. Therefore, you are aware that once the debt burden can no longer be expanded, then pricing power is lost; thus earning streams are compromised, thus unemployment rises, thus further impinging revenue streams thus, eventually, compromising government revenues (taxes). Once government is bankrupt and significant swathes of the population are out of a job and potentially hungry, any self respecting government will resort to the only honorable thing to do in these circumstances… they’ll start a war.

Anyway, the only way excess industrial capacity can be taken off line is by destroying it… and there is only one way to destroy industrial capacity.

Got bullion?

Notice however the inanity of the statement towards the bottom half of the article. Monetary authorities are being chastized because they have no indulged in sufficient quantitative easing.

Excess industrial capacity comes about exactly because governments induce much greater quantities of credit and money into the system in the first place. So, if excess industrial capacity is now identified as the problem, then what is the point of inducing even more money and credit into the system?

Which, incidentally, was exactly GM’s problem for the past decade. GM became such a bloated zombie company to the point that they were losing an average of US$2000 on every single vehicle they sold…. Which begged the question. Why would GM want to sell more vehicles at all????

What the PPIP program is all about…

July 16, 2009

For a refresher on what the PPIP is, read this.

Below, is Dr Housing Bubble’s dispassionate assessment by the numbers of what is coming down the pike… and what is very likely to be stuffed into the PPIP to make this a memorable rape fest; so memorable in fact, that generations will talk about it for centuries to come.

By now I am at a total loss as to why people in Spain, Ireland, Germany, France, England or the USA should not already be up in arms. We are being set up for economic and social failure of biblical proportions and it is being perpetrated in broad daylight… and through it all, the outcome of the latest American Idol competition is still top most of people’s worries…

Got bullion?

Debt Deflation the Reason Why Government Economic Stimulus is Doomed to Fail

July 15, 2009

… and here is the mathematical proof for the more nerdy amongst you…

This is a secular change we are living. During the next decade, people will have to get accustomed to an entirely different environment socially as well as economically. Deflation will truly make most people believe they now live in a a topsy-turvy world”… including such luminaries as Warrent Buffet whose portfolio is entirely geared towards continued inflation. Regarding Mr. Buffet, unless he should change his portfolio mix, I think he is in for quite a surprise over the next few years.

Geithner: Improvements coming faster than expected

July 15, 2009

Truth or wishful thinking? I don’t know, I am only posting this crock of shit so that I may refer back to it a year from now


“In the United States, the rate of decline in economic activity has slowed, business and consumer confidence has started to improve, housing markets have begun to stabilize, the cost of credit has fallen significantly and credit markets are opening up,” Geithner said in remarks prepared for delivery in Jeddah, Saudi Arabia.”

If I may be so bold, that is entirely Mr. Geithner’s opinion. The key word here being “opinion” as it most definitely is not fact as attested by a housing market that is still declining (as is commercial real estate I might add); the cost of credit default swaps is widening and, at any rate, the cost of mortgages has moved up significantly in the past three months which, I might add, is contrary to what Geithner and Bernanke wish; and as a direct consequence of the latter, credit markets have most certainly NOT opened up.

But he is Geithner and I am me. He certainly carries a lot more weight than I do.

Time will tell

Inflation has a mathematical limit

July 12, 2009

Money is upstream of any human event bar none.

Short of returning to barter with the ramifications that would entail, there is no alternative to the use of money.

However, since the advent of modern times (since the 1600s that is) we’ve gradually moved towards a more pervasive use of a variety of money called Fiat. Fiat money is merely a tool for exchange, it is a vehicle. Fiat money is not wealth in and of itself. Fiat money is only something you can exchange for wealth.

If you had one million Zimbabwe dollars in a bank account in 2000 and left it there untouched, today that money couldn’t even buy a tomato … if you found a tomato to buy in Zimbabwe that is.

If you had one million Italian Liras in a bank account in 1999 and left it there untouched, in 2000 you would have received five hundred Euros in exchange for your deposit. Although better off than in Zimbabwe, you would have immediately realized that five hundred Euros allowed you to buy only half of what the Lira did.

If you held one million Pesos in an Argentine bank in 2000 and did nothing with that money, by 2002 your savings would have allowed you to buy only one quarter of what you could buy originally.

In the past four hundred years, fiat currencies have come and gone with amazing regularity. From the French Assignat to the American Continental to the German Mark fiat money will disappear. It can self destruct as was the case for the Continental or the Zimbabwe dollar or it can voluntarily be withdrawn before obliteration by the monetary authorities as was the case for the French Franc and the Italian Lira.

So, fiat money is only a vehicle. You better not believe it is wealth.

Money is the life blood of any and all human endeavors bar none. It is the medium that allows human activity to take place at many levels and betwixt several parties simultaneously. Not that there is anything wrong with barter of course. It is just that the dynamic of exchange brought about by barter cannot even approximate the depth and complexity that money permits.

At this point, you may think that the crux of the science of economics and finance would be to devise ways to preserve the purchasing power of a currency… and you would be spectacularly wrong.

The reason we’ve moved from value based currencies to fiat money is because the institution of power within a society must be free to manipulate the currency in order to pursue what is perceived to be their “legitimate” raison d’etat . It cannot be otherwise. If that were not so, then we could make do with some type of currency that derives its value directly from the underlying economy. In a metal monetary system for example, the monetary base can only be expanded by employing people, machinery and time in order to locate, extract, convey, refine and distribute more metal. Thus in a metal based monetary system, the monetary base can only be expanded by expanding the underlying economy. But a fiat monetary system has no similar material or temporal constraints because the money is created by political decree without any reference to the economy. Sure, politicians and bankers fall over each other to show that monetary policy is sensible and grounded but empirical evidence shows otherwise. A typical case of being better off by watching what they do rather than what they say.

Thus, although a fiat monetary system is more flexible and, in theory, more adaptable, when coupled with a “Democracy” the combination is certain to, eventually, obliterate the currency. Once again; there is no alternative to the logical conclusion of the combination of these two dynamics.

If you can get your head around the above, then it follows that not only is inflation necessarily exponential but it also has a mathematical limit. And here is why.

By adopting a fiat monetary system, a government implicitly chooses to artificially induce inflation into the system. Once you induce inflation the first time, you induce a rise in price level thereby inducing a rise in GDP. The amount of inflation induced the first time, will be modest compared to the gains in productivity and tangible wealth. However, as you push ever greater degrees of inflation into the system, inflation gradually becomes a greater component of GDP expansion. In so doing, you are compromising “real” GDP growth. Of course, the chances that in a “Democracy” the electorate or the politicians should advocate a reduction in spending (thus a reduction in credit creation and money supply) in anything is indeed as remote a probability as statistically possible. Therefore, the combination of fiat money and democracy will eventually obliterate a currency and, depending on other circumstances, will also bankrupt the state issuer of the reserve currency.

The problem arises by the fact that as the years go by, the inflation component of GDP growth increases till it overwhelms the number. Somewhere along the inflationary timeline, countries become “service” based economies.

Once you are a service based economy, you know that any let-up in inflation will spell doom for GDP growth.

This is the point at which government has a vested interest in closing an eye or two on practices that initially may be considered borderline legal.

Then at some point along the inflationary time line, closing both eyes on suspicious practices no longer suffices to ensure GDP growth. This is the point at which government has a vested interest in aiding and abetting blatantly illegal practices.

As of  July 2009, in the wake of the Western governments unilateral decision to buy into private enterprises in Europe and America to avoid the failure of insurance companies, banks, automobile manufacturers or finance companies; our governments unilateral decision to ride roughshod over some bond holders whilst favoring others in blatant contravention to the letter of the law; our governments tolerance of the by now discredited rating agencies that have been caught in flagrant and blatant conflict of interest; our governments explicit desire not to disclose how public funds are employed; our government tolerance of clearly larcenous practices as banks and insurance companies pay astronomical bonuses to their employees in the face of a crisis that is variously described as the worse since the Great Depression or worse since records in a particular sector began; our governments tolerance and reliance on a restricted number of finance professionals that hail from one of the largest finance houses on the planet to manage key positions in economics and finance….

…you get the drift…

Towards the end of the inflationary time line, economic activity no longer suffices to service debt; the point at which industrial capacity utilization is at an all time low; the point at which after an inexorable decline over 30 years the money multiplier has dropped below 1; the point at which after an inexorable decline over thirty years interest rates are at all time lows…. at that point, inducing more inflation may not help goose GDP growth any longer. If, at the same time, in an attempt to make up for lost revenue governments begin to not only print bonds but also print money to buy said bonds from themselves rather than from each other… at that point, deflation is virtually guaranteed… not only is deflation guaranteed but unlike a bout of deflation that may happen somewhere in the middle of the inflationary time line, deflation at the end of the inflationary time line will also destroy the currency.

If deflation has set in then the following is virtually guaranteed…

Credit implosion

Rising unemployment

Declining consumer expenditure

Declining asset values

Declining earnings

Tightening credit standards

Of course the above wouldn’t be so bad if it weren’t for one thing…

As more people lose their homes and their jobs and as governments must reduce spending on public programs, civil unrest is sure to follow. And if the condition persists, you can bet your bottom Dollar that governments will fall.

So, before that happens, those beacons of morality that are Western governments will very likely not step up to the plate to declare how things are really like. That is very improbable indeed. What Western governments will do on the other hand, is what they have always done in the past… engineer a war. If I am right, this next war coming up will be something to behold.

I say we’ll have us a global conflict by 2013 or 2015 latest.

Got bullion?

If pictures are worth a thousand words, let me try this…

July 6, 2009

Thirty years of manipulating interest rates lower looks like this…

FRED Graph
As you lower interest rates, this is what you get… textbook…

FRED Graph
As you manipulate interest rates lower, you goose inflation thus peop0le not only spend their savings but they will also take on debt. Textbook Keynes.

Graph: Household Financial Obligations as a percent of Disposable Personal Income

As people take on more debt, their spending power is multiplied. Thus, as Steve Keen eloquently demonstrates in The Cavaliers of Credit, money supply must follow suit. Steve keen shows that money supply follows credit creation and not the other way around. In a debt based economy, that would be fairly intuitive.

FRED Graph

So, we’ve manipulated interest rates to unimaginable low levels, thereby depleting people’s savings and simultaneously encouraging individuals to increase their spending by taking on debt, thereby fostering an increase in money supply. Accelerating debt levels and money supply is what inflation is all about. The chart above shows that we’ve been expanding the money base at an average of 10% year on year.


So, what did we get for all the priming of inflation over the same period of time? This is what we got for our efforts…

FRED Graph
We’ve lowered interest rates, we’ve forced people to spend all their savings, we’ve forced people to go into debt at an ever quickening pace thus making people spend money they did not have, we’ve pumped the money supply at rates that on average were double the rate of GDP expansion and through it all, we’ve been able to push GDP progression at the dizzying speed of… drum roll…  5% year on year… barely….

To summarize, over a period of 30 years, on a year-on-year basis, we’ve put in a financial effort that is on average at least twice as great as the GDP progression we have fostered (NB – the financial effort is actually much greater than what I am illustrating because although my GDP figures take into account government spending, the debt figures do not take into account government borrowing… but you get the point… )
If that does not make you go: “WTF!!” then here is something that should finally make your Penny drop. Here is the kicker!!! This is what entire swathes of politicians and economists have failed to notice over the past thirty years…

Graph: M1 Money Multiplier

That there chart above, can be thought of as the efficiency of money or how many times each new unit of currency contributes to the expansion of the economy (because each coin or Dollar bill is used more than once in its life time so each unit of currency has a “multiplier” effect on the overall economy). That is, how much does each new unit of currency contribute to the expansion of the economy. What the graph above attests to is the exponential nature of the inflationary dynamic. The graph above attests to that pesky characteristic of inflation better described by the law of diminishing returns. In other words, it shows how you always need more inflation in order to bring about the same or greater rate of expansion of GDP. That is because as a government willingly adopts a fiat monetary system, then inflation is the implicit conditio-sine-qua-non of the existence of the system and the state. But as you encourage inflation artificially into a system, you decrease the value of the currency thereby bringing about higher prices.

Today the efficiency of money has fallen below 1. That means that “money” as contemplated by accepted Keynesian theory, has lost its multiplier effect.
So, having disregarded the efficiency of money for the best part of thirty years, politicians and economists are hell bent on doing more of the same only MUCH more in an attempt to bring about a modicum of GDP expansion.

What, you may ask, is our leaders’ solution?
Our leaders seem to think that if we create even more money than we already have and give all this new money to the banks as we already have, suddenly people will once again rush out to borrow this money to spend.

Here is the rub.

The price of risk insurance on financial instruments is still rising. The velocity of money is still below one. The savings rate has jumped higher than at any time in recent history telling you that people no longer wish to spend.

I would have thought this was your proverbial “writing on the wall” writ large.
Looks like I am wrong.
For more on the inflationary dynamic, you can read this post and many others on my blog.

… and here we go… 15% unemployment

July 3, 2009
I may have been somewhat of an optimist by declaring 15% official unemployment in the Western world by year’s end.
Here we are in July and the country that matters the most in terms of global economic health has already shattered that lever. What you are interested in is the section named: ” U6″
U6 is the real unemployment rate. Government officials of course make use of U2 for official delcarations… but that’s the light sugarless version of course. U6 is the real thing; U6 is where the rubber meets the road.
Can you spell: “world war”? If not, you better learn.
Got bullion?

Economic News Release

FONT SIZE:Minus Font SizePlus Font Size PRINT: Print

Table A-12. Alternative measures of labor underutilization

  HOUSEHOLD DATA                                                                                                            HOUSEHOLD DATA

  Table A-12.  Alternative measures of labor underutilization


                                                            Not seasonally adjusted                   Seasonally adjusted                 


                                                            June     May      June     June     Feb.     Mar.     Apr.     May      June  
                                                            2008     2009     2009     2008     2009     2009     2009     2009     2009  

  U-1 Persons unemployed 15 weeks or longer, as a percent                                                                                 
       of the civilian labor force.......................    1.8      4.6      4.8      1.9      3.4      3.7      4.0      4.5      5.1  

  U-2 Job losers and persons who completed temporary                                                                                      
       jobs, as a percent of the civilian labor force....    2.7      5.8      5.9      2.9      5.0      5.4      5.7      6.2      6.2  

  U-3 Total unemployed, as a percent of the civilian                                                                                      
       labor force (official unemployment rate)..........    5.7      9.1      9.7      5.6      8.1      8.5      8.9      9.4      9.5  

  U-4 Total unemployed plus discouraged workers, as a                                                                                     
       percent of the civilian labor force plus                                                                                           
       discouraged workers...............................    6.0      9.5     10.1      5.9      8.5      8.9      9.3      9.8     10.0  

  U-5 Total unemployed, plus discouraged workers, plus                                                                                    
       all other marginally attached workers, as a                                                                                        
       percent of the civilian labor force plus all                                                                                       
       marginally attached workers.......................    6.7     10.3     10.9      6.6      9.3      9.8     10.1     10.6     10.8  

  U-6 Total unemployed, plus all marginally attached                                                                                      
       workers, plus total employed part time for                                                                                         
       economic reasons, as a percent of the civilian                                                                                     
       labor force plus all marginally attached workers..   10.3     15.9     16.8     10.1     14.8     15.6     15.8     16.4     16.5  

    NOTE:  Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and
  are available for a job and have looked for work sometime in the recent past.  Discouraged workers, a subset of the marginally attached,
  have given a job-market related reason for not looking currently for a job.  Persons employed part time for economic reasons are those
  who want and are available for full-time work but have had to settle for a part-time schedule.  For more information, see "BLS
  introduces new range of alternative unemployment measures," in the October 1995 issue of the Monthly Labor Review.  Updated population
  controls are introduced annually with the release of January data.