Posts Tagged ‘war’

The inevitability of the diminishing marginal utility of debt

December 3, 2011

… and the reason we are hurtling towards a conflagration of global proportions.

I am a nobody and I can be dismissed as misinformed and sensationalist. So, I’ll let Kyle Bass do the talking.

Via Zero Hedge:

Reiterating how critical the psychology of today’s situation, Bass goes on to debunk the optimism of globalization (at least for the Western world), destroy the myth of a 50% greek writedown solution, Japanese xenophobia and savings losses, structural versus cyclical implications for US equity deterioration, US deficits and housing‘s bottom, global debt saturation and how this tearing at the social fabric of the world will lead to – war.

You can watch the video of the interview on ZH at the link above.


The evil of inflation (Birthday ruminations II)

March 6, 2011

Debt based fiat money (DBFM) is predicated on inflation or, if you prefer, it is predicated on the devaluation of the currency. In other words, it is predicated on the liberal creation of currency and debt and, crucially, on the currency being spent rather than being saved. This is an important point to keep in mind as we go forward.

Of course, a currency can only be devalued so far. There is an absolute mathematical limit to debasing a currency. If that were not the case, then sovereigns could freely create any amount of debt and give every man, woman and child a state salary and we’d all be rich beyond our wildest dreams. But this is clearly impossible.

As the authorities opt for DBFM and impose the system upon society, the state has an obvious vested interest in keeping the system going as long as possible. Thus as the currency is gradually debased, the authorities must attempt to at least partially compensate for the mathematical certainty that DBFM loses efficiency over time. If the viability of DBFM rests on economic actors spending money as fast as possible, it follows that the state has a vested interest in enacting any legislation or instituting regulatory bodies or mandating the creation of entities whose sole purpose is to create new layers of expenditure. All in the name of keeping the currency circulating. This is because the viability of DBFM is predicated on economic actors spending the currency as fast as possible rather than saving it. This is, inter allia, also the reason why DBFM cannot contemplate gold as a viable financial instrument. Buying gold is the equivalent of saving which lowers the velocity of circulation of the currency spelling doom for DBFM, doom for the banks that sponsor the system hence doom for the state.

– Above, graphic representation of the efficiency of debt, ergo, the efficiency of the currency.

Graph: M1 Money Multiplier

– Above, graphic representation of the diminishing marginal utility of the currency in a DBFM system.

In the previous essay I pointed out how by promising to manage a pool of savings on behalf of the individual, the state not only has access to a source of cheap funding (it is in fact free funding) but by assuring the individual that their future financial requirements are taken care of, the state also ensures that the individual’s need to save for a rainy day is diminished thus inducing more spending in an attempt at keeping the velocity of circulation of the currency positive. Of course, the inherent dynamic of electoral politics greatly facilitates this process because politicians will promise great benefits to the electorate just to get elected. Anyway, even the longest serving politicians will not preside over an entire economic cycle so that it is no skin off their nose whatever they promise and whatever they may enact as policy because they won’t be around long enough to see what the long terms effect of their promises may result in.  But this is a subject for another time.

So the state has a vested interest in forcing economic actors to spend all money at all times and to make use of debt to make up the difference between what they want and what they can afford with their salaries. In this regard, the state mandates a constant and progressive reduction of interest rates. This seemingly innocuous policy in fact plays havoc with a myriad systems far and wide and, eventually, is the root cause of flaring prices in basic commodities of which more later.

Graph: 30-Year Treasury Constant Maturity Rate

– Above, graphic representation of long term interest rates. The trend clearly slopes from the top left to the bottom right. This is most certainly not a natural trend in a presumably capitalistic society free from government intervention. Draw your own conclusions.

So, now you are the de-facto industrial power but you are still reeling from the debt hang-over induced by your first attempt at using DBFM. It is 1939ish or thereabout and your administration seems powerless to lift society out of poverty and the masses are getting restless. What do you do? Why, you spoil for a fight of course.

So, you get your war, you put millions of people to work on infrastructure projects, on armaments and on secret weapons. At the same time you start creating gargantuan amounts of money and credit all with the excuse that a war is raging and “freedom must be protected”. As the single largest custodian of sovereign gold globally and having engaged in the greatest build out in the history of man till that point, you emerge from the war the single and only industrial power that has capacity left standing. This is the perfect set up. Now, after the war has devastated countries, lands and people you can release the flood of currency and debt you have piled up from 1913 under the guise of helping countries emerge from the devastation of war. But that is not all.

Here’s the stroke of genius.

You’ve opened the monetary flood gates upon the world but you know that the diminishing marginal utility of the currency will inevitably come back to bite you in the ass. You need to postpone that moment as far off in the future as possible. What do you do?

Well, for one you create the United Nations.

The United Nations a tool of inflation

I’m not going to spend much time on this subject. But here are some issues to ponder.

How many UN employees do you know that actually have any respect for the organization? How many of these same disgusted employees have willingly tendered their resignation? Ever wondered why the UN never refuses to disburse any sums for projects even in cases where fraud has been clearly and objectively established? Have you ever taken a look at the quality and quantity of perks UN employees enjoy during and after employment? Ever taken a look at the UN pension fund and UN pension entitlements? Ever wondered why when the UN moves into a situation the local black market immediately perks up? Finally, ever looked at the ratio of employees that have been fired from the UN in relation to total UN employee numbers?

The long and the short of it is that the UN is a tool of inflation. The role of the UN is to churn currency globally, churn it fast, churn it far and churn it wide. Ask no questions; just churn dosh. And, granted, the UN does too employ a number of idealists who actually believe they can change the world. I don’t mean to detract from their efforts. But the truth is that the UN is a behemoth that consumes staggering amounts of resources for which they have very little to show other than apparently being chronically underfunded (thought the pension fund and salary perks never run short).

Climate change former global warming (more convenient and all encompassing)

Here are Western governments ostensibly preoccupied by what is for all intents and purposes a theory that is more akin to the geo-centrism prevalent during the dark ages hell bent on saving the planet by, wait for it, instituting a trans-global entity to monitor carbon credits to be conveniently traded on an exchange sponsored by none other than Mr. H. B. Obama and Mr. A. Gore…. yes, he of An Inconvenient Truth… But that’s actually only a by the by.

The absurdity in the position of Western governments is that despite their stated intent to save the planet, they are also hell bent on maintaining inflation on a positive trajectory or, at the very least, making sure deflation does not happen (B. Bernanke speech to the National Economists Club, November 2002). The problem is that these are mutually exclusive positions.

Inflation conforms to the law of diminishing marginal utility so that you always need more inflation in order to obtain the same degree of GDP expansion. Accelerating inflation induces accelerating spending thus it pulls forward in time the demand and production cycles. This means that economic actors will consume today what they would otherwise consume over a longer period of time. Thus, accelerating spending puts stress on, for example, agricultural land and agricultural commodities. Accelerated spending puts pressure on renewable resources because by accelerating the consumption cycle the growth cycle may not be able to keep up. Finally, inflation puts undue pressure on energy resources for exactly the same reasons. So that oil wells that should reasonably be exploited at lower rates in order to ensure a more thorough extraction over a longer period of time must instead be exploited at higher rates thus leading to the abandonment of wells sooner than otherwise necessary which leads to an increase in prices. Rinse repeat.

So, now it’s the year 2000. You realize that the efficiency of this monetary system is once again hitting the buffers and you desperately need to find a way to keep the gig going either because you think you can actually find infinite ways to bail out the system or because you believe that buying time will actually achieve something. Or maybe you just know that now that DBFM has been forced down the throat of every single sovereign globally, there is no easy way to keep the system going short of some dramatic scorched earth solution … like a global currency for example…So what do you do? For one you just hammer interest rates to the lowest point in the history of mankind.  You then proceed to legally ring fence the sponsors of the monetary system (the banks) in an attempt to prevent their mathematical demise. You then pump the sponsors of the system full of cash that you either appropriate from the public or you down right create out of thin air. Then you go on a rampage creating untold trillions of Dollars that you use to buy your own sovereign debt either directly from the treasury or from your own primary dealers to the point where you become the single largest holder of your own country’s sovereign debt in blatant contradiction of the presumed floating exchange rate mechanism. All the while the real economy is starved of cash, unemployment rises, tax revenue collapses thus bringing about the failure of those social safety nets that were supposed to provide for the individual in his/her old age or when sick whilst, simultaneously, the banks you are so intent on saving are recycling their monetary gifts you so generously offered them into basic commodities just to protect their gift from the loss of purchasing power you are intentionally causing.

You do this aggressively, progressively and pervasively and soon enough you have on your hands a Greece, a Hungary, an Ireland and then a Tunisia, an Egypt and a Libya… and other to follow….

So, now you have a population that is well on its way to become destitute, unemployment is rising, debt levels are high and savings are low and the presumed social safety nets are failing. So now the people are angry, hungry and progressively homeless. The people are looking for somebody’s head. So what do you do? Are you going to give them the head of a Western politician or, gulp, that of a Western banker? What to do, what to do. Why, you spoil for a fight of course.

So this is the time to rev-up the blame machine the West is so good at operating. This is the point in time when the various fingers of blame that to date have been pointed in the general direction of countries and people you don’t like must be pointed more directly and more persistently at some country and people you don’t like.

That, in short, is the reason inflation is evil.

What you can do

January 16, 2011

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.

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.


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.


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…

Sanitation Department Slow Snow Clean Up Was Budget Protest

December 31, 2010

From a previous post:

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).

Today we have:

The workers said the work slowdown was the result of growing hostility between the mayor and the workers responsible for clearing the snow.

Public anger is triggered due to issues seemingly unrelated to the economy. In Germany it was because government decided to build a rail-road station in a wooded park. In Italy and in England it was due to university tuition fees.

Nothing happened in New York or in the USA yet; well, nothing extreme yet. But this is a situation that is pregnant with possibilities. Imagine if due to the go-slow mandated by the unions to protest budget cuts, an ambulance could not reach a victim. Or imagine if a bus filled with school children could not have been rescued due to snowed-in roads.

Absurd… ity

December 28, 2010

No comments required…. I think…

War in Afghanistan: A breeze of change blows in Helmand

As British troops spend their 10th Christmas in Afghanistan, Thomas Harding reports on growing signs of success in the fight against the insurgency.

And from the same paper, on the same day though, I grant you, maybe on a different page, we have:

UN charts escalation of violence in Afghanistan

An official confirmed that violence had gripped some areas that had once been regarded as stable, at the same time as it emerged that confidential UN maps charted a decline in security from March to October this year.

Where exactly do you think this trend is taking us?

December 26, 2010

Both houses of the US Congress unanimously passed a bill authorizing $725 billion for next year’s Defense Department budget.”

Largest military budget since WWII

Carl Conetta, co-director of the Project on Defense Alternatives, earlier this year estimated the 2010 U.S. defense budget to constitute 47 percent of total worldwide military expenditures and to amount to 19 percent of all American federal spending. […]

the 2011 Pentagon budget will mark a milestone in that “the inflation-adjusted rise in spending since 1998 will probably exceed 100% in real terms by the end of the fiscal year.

“Taking the 2011 budget into account, the Defense Department has been given about $7.2 trillion since 1998, when the post-Cold War decline in defense spending ended. Approximately $2.5 trillion of this total is due to spending above the annual level set in 1998. This added amount constitutes the post-1998 spending surge.”

Based on constant 2010 dollars, Conetta further details that the Ronald Reagan administration spent $4.1 trillion on the Defense Department, the Georgia W. Bush administration spent $4.65 trillion and “Barack Obama plans to spend more than $5 trillion.”

Still harboring doubts are you?

The 2010 budget is a full 50% higher than in 2009… 50% higher….


And just as a reminder:


Durable Goods Shipments


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

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.

NATO must prepare to launch military operations outside its border after Afghanistan!??…

November 19, 2010


Full article with interspersed comments below:

Anders Fogh Rasmussen said alliance members must be willing and able to exercise military power “beyond our borders” to combat threats such as terrorism and missile attacks.

Mr Rasmussen spoke to The Daily Telegraph as Nato members prepared to gather today in Lisbon to plan the future role of the alliance.

Guido here: “to plan the future role of the alliance” – meaning, we’ve gotta find ourselves some wars boys.

After almost a decade of military operations in Afghanistan, some European Nato members have suggested that the alliance should focus on defending its home territory.

By contrast, Britain and the US believe that to remain relevant, Nato must be prepared to tackle potential security threats beyond its members’ borders.

Guido here: If you have a flourishing and expanding armament industry, at some point little backwater inventory wars no longer suffice to absorb your production. So whatchagonna do. Furthermore, since we are at the point where monetary policy is pushing its own mathematical limits, a war is just what the doctor ordered.

Durable Goods Shipments

Mr Rasmussen supported that view, urging alliance members to accept that new security threats may have to be met.

“Our core function will remain territorial defence of our populations,” he said. “But we must realise that in the modern world we have to go beyond our borders to actually protect and defend our borders.”

Guido here: There it is! We must go beyond our borders to protect ourselves. This assertion of course omits to point out that in the particular case of the USA, the UK and France we already are beyond our borders in Africa, the Middle East and throughout Asia and South America.

Afghanistan could serve a template for future threats and Nato’s response to them.

Guido here: Let’s hope not. If Afghanistan is a template of effectiveness, we’re plain fucked! The math says that on a Dolllar per result basis, these presumed troglodites on donky’s back are kicking the shit out of our modern military machine that costs hundreds of Billions to maintain without mentioning the long term medical costs and without mentioning the demoralizing effect on the troops these cave dwellers are having. Some template!

“After the Cold War, we have seen a number of new threats emerge,” he said. “Terrorism is one of them.”

The Lisbon summit will adopt a “strategic concept” or mission statement in a post-Afghanistan world.

“The purpose of the new strategic concept is to prepare the alliance to address the new security challenges – missile attacks, cyber attacks, terrorist attacks,” Mr Rasmussen said.

Guido here: the purpose of the new strategic concept is to find ways to deflect responsibility from our own failed economic and social policies that have brought us to economic gridlock with little chance to come out of it unscathed. A foreign sacrificial lamb will be found and excuses will be built-up to look good.

He also promised that a reform of Nato’s command structures will make alliance forces “more flexible”.

As well as the mission statement, the summit will also consider a European missile defence shield. The shield, based on US interceptor missiles, will rely on British radar stations to detect attacks.

The missile shield is being developed primarily because of fears of Iranian missile programmes, but Mr Rasmussen said other countries could also pose a threat.

“More than 30 countries have missile technology or are aspiring to get missile technology,” he said.

“Some of them can also hit the Euro-Atlantic area.”

Alliance leaders will later confirm a timetable for starting the “transition” of security responsibility from Nato forces to the Afghan government, starting next year and concluding at the end of 2014.

Mr Rasmussen said he was confident that Afghan forces will be ready for that responsibility in time, but accepted that the timetable could slip.

He said: “If conditions are not met fully by the end of 2014, then we will have to continue the combat mission.”

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.

Curtailing public spending brings you this:

As you curtail public spending and as public anger rises, and as the shenanigans of the power elite keep coming to light(

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.