Oct 052012
 
 October 5, 2012  Posted by at 10:49 pm Finance
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O euro precisava de ser repensado.

No global recovery until 2018, says Oliver Blanchard at portfolio.hu.:

It’s not yet a lost decade… But it will surely take at least a decade from the beginning of the crisis for the world economy to get back to decent shape.

Well, that makes it easy then, you would think. Solves a lot of problems in one go. All bailouts and loans and other measures can now be halted and reversed when and where possible. Since there is no way our central banks and governments can keep on doing what they have done for another 6 years (yeah, I know lots of you doubt that, but there's just no way).

There's not enough money on the planet. Not even enough credit. Nor enough buildings to torch in Athens and Madrid. The IMF et al might as well give up and move on to Plan B, C, Z. Which they don't have. Or, better still, resign. Which they won't do unless they're forced to.

Instead, Blanchard, the chief economist of the IMF, which is a member of the eurozone troika and a major player behind bailouts, and "reforms" all over the world, is apparently completely ignored. Not one mention in the US presidential debate, and Mario Draghi didn't exactly showcase him either. Maybe that's why he did the interview in Hungary?!

Mitt Romney promised America 12 million new jobs "with growing wages". I guess he thinks that while the rest of the planet stays mired in the morass, the US can reach for the skies. And you know, I must admit I did catch myself thinking that if the US could play the role of Bain Capital, vs the rest of the world in the role of the companies that Bain took over and sucked dry, sure, that might have worked. And he does have that experience.

But unlike companies, you can't bleed dry, bankrupt and wholly obliterate entire nations that are part of the UN, NATO, the EU, the eurozone. For more reasons than I care to get into detail about.

What the troika is doing with Greece and Spain had already gone too far; 6 more years of that, and in ever more nations to boot, is but a nutty, make that fully insane, notion. Check out the protests in Athens, Madrid and Barcelona to date, extend that to 2018, and then add a dose of Bain Capital. In other words: if Blanchard is correct, the US won't recover either. If the rest of the world tanks, so will America.

And besides, when it comes to those 12 million jobs Romney was talking about, if you take the real unemployment rate of anywhere from 12-15%, and add the millions of Americans who don't count in any official stats anymore, those 12 million are not an impressive number. But can still be presented as such because math seems to have become an un-American activity. Put another way: 12 million jobs in 4 years is 250.000 a month, while, just to name an example, initial jobless claims have been hovering at or above 350.000 a month for years now. At least 6 million jobs are needed in the next 4 years just to play even. Today's report announced 114,000 new jobs and markets go skywards. Beam me up, Scotty.

But hey, in the present day global economy the US is not the most interesting party (sorry!). That role is still firmly embedded someplace in Europe, even though it's hard to say exactly where. Granted, the Syrian-Turkish border has a shot at first place, but that's black swan territory. For now.

There's so much zombie capital fleeing to America that stateside reality can remain hidden for a while longer. Oh, and when Bill Gross warns of the disaster US debt and deficit will mean for the dollar, he's just doing what he does best: talk his book. Follow his rhetoric at your own risk.

The EU/eurozone are still, and consistently, doing everything wrong that they can. From the point of view of the citizens of the membership countries, that is. All policies, bailouts, reforms, you name it, serve the interests of bankers and politicians. And that is what Blanchard, again: inadvertently, makes clear. And nobody follows up on his words.

Look, the only thing that really challenges the EU relationship with those member countries that are not in the eurozone, is the unquestioned and unquestioning push to include them in that same eurozone. If the euro crisis has proven one thing, it's that this inclusion is, to put it mildly, not the nirvana it's been made out to be. Far from it, take just one look at Greece, Portugal, Spain. And still no-one talks about the good and beneficial relationships that exist, and that can arguably be extended, between eurozone members and EU non-eurozone members. It's either all 17 eurozone nations staying together or Armageddon befalls us. Nothing or all. And all for nothing.

Why this seemingly nonsensical and bizarre attitude? Too simple. Credit events. Forced derivative pay out triggers. Bankers' nightmares.

There is absolutely no reason other, than credit events, why Greece et al could not make the move in the opposite direction, i.e. leave the eurozone and still remain EU members. Trade inside the EU does not depend on having the same currency. The eurozone is a badly botched project, and it's beyond repair. But the EU is not. However, all the EU leadership, and that of its members' governments, focus on at the present time is keeping the currency union together. That blindness will, indeed and inevitably, develop into an existential threat to the EU.

The EU is its own worst enemy. But, again, it's not the people who live in the EU, it's the leadership. The people have a different enemy. Their leadership.

Still, if the people don't pay a whole lot more attention than they have so far, they will be played out against each other, a story as old as the world. The Greeks are told their hardship originates with Germany, the Germans are told that the Greek spending and credit insanity has caused their upcoming losses. Both stories are nonsense, but both people believe them. And that's where the danger is for both.

From the (Hungarian) Blanchard interview:

Q: How far do you think Europe should go in terms of fiscal and economic policy integration so as to make the common currency zone successful?

A: I think that it has either to go forward or to go back, but it cannot stay where it is. I think nobody really wants to go back, so it has to go forward.

There has to be more solidarity between member countries. When a country is doing poorly the others have to be willing to help in various ways, not only out of solidarity, but because trouble in one country may well spillover to theirs. This is why the fiscal union and the banking union proposals being worked on as we speak are so important.

Q: Do you think solidarity is that strong in Europe? The U.S., for instance, is one nation, but the countries in Europe focus on their own specific interests. So do you think Europe is unified enough in this sense to create a strong fiscal integration?

A: There has to be solidarity. And I think it is there.

"In terms of fiscal and economic policy integration [..] it has either to go forward or to go back, but it cannot stay where it is. I think nobody really wants to go back, so it has to go forward". And: "There has to be solidarity. And I think it is there."

No, there is no solidarity of the kind Blanchard thinks of (i.e. people don’t want to move forward under the present conditions), and so, no, the integration will NOT go forward. People may not want to "go back", but they also don't want to shoved into the abyss or the furnace. That way forward Blanchard et al. are talking about simply means more downward pressure on the PIIGS (and beyond eventually).

Do you think the Spanish and Greek populations will sign up for that sort of thing? Over half of the young people don't have a job and now they're going to sign over control of their economies and their lives to the very people they blame for taking their jobs away? Let me answer that for you: you don't.

And who believes the Germans and Dutch and French and Finnish will volunteer to cede control to a bunch of buro-technocrats in Brussels? The rich and poor of the eurozone face the exact same enemy, they just don’t see it yet. But that will not last forever.

"There has to be solidarity. And I think it is there." Yes, there's buro-techno solidarity, and these guys think that's all that counts. They've been getting away with it so far, so why not, right?

Neither does it really matter to them. The race is the prize. Every next day, every next bailout means more money for their side. And to date, they manage to make the very people hit by budget cuts and austerity measures actually believe (!!) that tightening their belts is for their own good. That is not going to change until the demonstrations in Athens and Madrid coincide with protests in Amsterdam and Paris. But it will change.

It's sort of like how Monsanto operates, and Dupont, Sygenta, who have nothing but patience. All they need to do is grow a field with their own corn and wait till it "contaminates" neighboring fields. Monsanto have a patent on their corn, their neighbors don't on theirs, and so Monsanto can't lose in court. Plus, Monsanto hasve the lawyers geared up (they know their own MO very well), and the rest doesn't. It’ll take a few years, but then they’ll control it all. Unless patent laws change in the US, Germany, India, China. But even then it will already be too late: changing patent laws retroactively is a whole different story.

Just like changing bailout and "reform" deals retroactively can't be done. All the money involved will forever be transferred from the public to the private sector, and the debt will have gone the opposite way. If and when the protests turn too bloody and ugly, after first having sent in the snipers, the boys count their winnings, divvy up the loot, and disappear in some private resort.

These are guys that play a power game. And the ones that float to the top play the ultimate power game. The visible ones for power itself, the ones you don't see (power and visibility don't rhyme) for power and money. The way the game is set up makes it inevitable that psychopaths, those people who have no way of identifying with or caring for the people around them (except for immediate family and friends, perhaps), end up in control. Those who do care for people in general, even if they’re power hungry, can't go all the way playing the game requires of them.

And the markets are up. But still all the king's men couldn't put Humpty Dumpty back together again.

Oliver Blanchard make a few things clear. The crisis, recession, depression, whatever you choose to call it, will last another 6 years or more. During that time, the people of Europe will get poorer as they go along. So will the people of America. Global means what it says: global. He also makes clear that the IMF expects the people to comply with the Europeanization that the IMF and the rest of the banking class have in mind. Ever more central control, vs the ever stronger call for decentralization in Catalunya, Pays Basque etc., and soon in many more places. Globalization has no place in a shrinking, deflating, deleveraging world.

The IMF will lose their battle for control. But the people will be losers too. Southern Europe fears the Germanification of their countries, their thousands-of-years ancient societies, and rightly so. The Germans themselves would be wise to fear the Club-Medification of theirs. Or should we label it Club-Medication?

 


Home Forums The IMF -Inadvertently- Condemns The Eurozone

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October 5, 2012 at 10:49 pm #8430

Raúl Ilargi Meijer

O euro precisava de ser repensado. No global recovery until 2018, says Oliver Blanchard at portfolio.hu.: It’s not yet a lost decade… But it w
[See the full post at: The IMF -Inadvertently- Condemns The Eurozone]

October 6, 2012 at 7:26 am #5872

Anonymous

Good evening.  As usual your perspective, research, and synthesis is greatly appreciated.  :) 

The continuity of money power and global conflict are entangled.   The world has reached it’s most militarized state and is polarized into the old world money powers of the NATO nations (existing hegemony) and the ascending  money powers of the SCO and the non-aligned movement ( the anti-hegemony) . Any attempt by the anti-hegemon to increase it’s share of global money power corresponds to a military response by the existing hegemon to maintain control. Overlap this phenomena with a resource grab for the worlds dwindling conventional oil supply and events on the geopolitical scene that some may call black swans are entirely predictable; the conflict of a NATO state (Turkey)  and Iran’s primary regional ally is  NOT an unknown unknown!

-Iraq was targeted for it’s conventional oil 
-Libya was targeted for it’s conventional oil  and for creating a gold backed currency (dinar) to challenge the existing hegemonic control over africa
-Russia has been encircled by a missile offense shield because it is the military heavyweight of the anti-hegemony 
-China is being heavily confronted in the pacific because 85 percent of it’s liquid fuels are imported by tanker and because of it’s ascending military strength. China is a competitor for limited resources
-Sudan proxy war is all about oil interests. The existing hegemon versus the ascending hegemon. 
-Iran is being targeted for it’s conventional oil and for bartering oil for fold 
- Both Russia and China are challenging the existing money power by appropriating gold and engaging in bilateral trade agreements that exclude the old world money powers. 

Money power will be continuous to whichever entity(s) survive WW3 and according to whatever global institutions/agreements are created at the end of the war.  Both the hegemony and the anti-hegemony have been using the phrase “The New World Order” as if to secure victory in a literary sense only.  The true NWO that emerges from global economic collapse, peak oil, and global conflict is unpredictable. What is predictable is that the new world order will be much much simpler, than the complex world we now participate in. 

In many ways WW3 has already begun with the official start deemed by historians in retrospect as the aggressive invasion of Iraq.   WW3 began in 2003 and many nations have been aggressively attacked since.  Should we really be surprised that nations are attacking nations in the middle of a world war?

October 6, 2012 at 8:37 am #5873

jal

What !!!!
Six, 6, more years!!!!

I say to the Greeks,

Keep making austerity promises and austerity budgets, to keep getting free money from the troika.

The Troika is already doing funny bookkeeping.

but, but,

Don’t cut the spending.

Keep doing your own funny bookkeeping.

You got nothing more to lose.
Do like the Troika.
Keep the game going as long as possible.

October 6, 2012 at 12:44 pm #5874

davefairtex

I’m thinking the system actually has the financial issues under control at the moment. It’s all about money printing. Here’s how it works:

Insolvent Spanish banks are buying Spanish government bonds using money created from thin air – sovereign bonds have zero risk weighting. Spanish regulators ignore bank insolvency issues. As a result of all the buying, Spanish bond yields have gone down.

In fact, across all the PIIGS nations bond yields have dropped. Ireland’s 10Y bonds are 4.8% (down from 10%), Portugal’s 10Y bonds are at 8% (down from 14%) and Italy is at 5%.

And the ECB hasn’t had to buy one single bond to make this work. The trick was getting the local banks to step up to the plate and do their part. As a result of this success, this past week money has moved from the safe haven countries to the PIIGS, reinforcing the action.

Its too soon to tell how sustainable this whole plan is. All the participants of the system know what is going on. It would seem that the Germans have agreed to let this occur because the debts haven’t been transferred outside the country, but money printing is still definitely happening since all the bond-buying is happening through the standard bank money creation mechanism.

The key pressure point that I’d pick are the Spanish bank “rescues”. Everyone knows about all the bad mortgages from the bubble, and yet the banks are required co-conspirators for money printing. Choreographing this dance will be quite a trick.

First, spanish government bond yields have to be hammered down prior to a rescue, or else the price of the rescues go up due to losses on – spanish government bonds. So the banks about-to-be-rescued need to stuff themselves full of bonds which will raise the prices of those bonds. I think that part is happening now, and going relatively well, especially if the hedge funds and others desperate for yield pile on once they see a trend change.

But once the banks start being rescued – with public money, maybe even funded by the banks-about-to-be-rescued – how will that play domestically, given all the austerity being employed by the government? Austerity is required – it is a quid pro quo for the Germans to look the other way. (Culturally, Germans tend to follow rules, while cultures in other countries are “more flexible”; that culture of rule-following is the source for the credibility of the euro itself)

So we have a delicate negotiation; Rajoy is trying to minimize the amount of austerity he’ll have to inflict in order for the banks to be (cosmetically) rescued and for the bond-buying program to remain in place. And my guess is, the banks won’t be “rescued” all at once, otherwise there will be nobody left to support the buying of Spanish government bonds.

Like I said at the start, I think they have the financial bits dialed in, but the wildcard will be people and their tolerance for austerity once they see the price tag of the bank bailout.

My guess: the bank bailouts will happen slowly, it will have a final price tag greatly exceeding current estimates, and it will be paid for by money printing executed by the local banks buying sovereign debt.

Can the financial bits continue? As long as Germany puts up with it, I think it can. But it requires local banks to be willing co-conspirators, the regulators to look the other way, and most importantly every euro printed dilutes the savings of German taxpayers, so we get austerity, and that delicate dance of “how much punishment must be borne to allow the money printing to continue.”

October 6, 2012 at 2:38 pm #5875

Viscount St. Albans

@ Dave…..good points.

And the upcoming German federal election is 1-year away (Sept. 2013). If there’s incentive to do window-dressing prior to the US election, then there’s even more impetus to break-out the lipstick prior to the German election. As you mentioned, I expect lots of ‘looking the other way’ until Angela is re-elected.

Angela wouldn’t be making her trip to Greece if she were planning to boot them anytime soon. I expect a temporary loosening of austerity to let off some of the pressure (it’ll be marketed as short-term stimulus in exchange for long-term cuts, and asset sales).

October 6, 2012 at 3:57 pm #5876

Viscount St. Albans

Recent elections show a strengthening of EuroZone consolidation within the core.

The Dutch elections from only 3 weeks ago show the Euro-skeptic parties are in full-blown retreat. Pro-EuroZone parties decisively defeated the anti-Euro Freedom Party of Geert Wilders.
http://www.bbc.co.uk/news/world-europe-19566165

Only 4 months ago (June 2012), Britain’s Independence Party leader Nigel Farage was encouraging everyone to watch the Dutch election as a bellwether for shifting European opinion regarding the Eurozone. He claimed it would show the tide had shifted toward breakup.

Well…..the tide shifted, but not in the direction of Euro-skepticism. Farage looks rather foolish now.

October 6, 2012 at 4:03 pm #5877

davefairtex

A couple more thoughts.

While German culture tends to encourage rule-following, politicians tend to be a breed apart. I didn’t mean to suggest (inadvertently) that Merkel herself tends to follow rules. I think she’s pretty similar to all the rest of them, actually. But she is constrained by her own culture’s expectations of her more so than, say, the men in charge of Italy and/or Greece.

Also, this money printing doesn’t come for free. Over time a larger and larger share of government spending will go to interest payments, crowding out spending that normally would have gone to defense, infrastructure, medical care, education, social safety nets, and pensions. Austerity is all about imposing those costs immediately and specifically rather than hiding them in a “deficit”.

How sustainable is that? I think that depends on the social cohesion of the country. It might well work in Ireland. I’m not so sure about Spain. I don’t think it will work for much longer in Greece. The 20% support for the Greek Nazi Party is my evidence for that. The NSDAP had 33% of the vote in 1932. Perhaps that’s the metric we can use. The only shred of good news is, if Greece does go Nazi, at least she’s not the dominant economy in Central Europe.

The financial wizardry will likely work. The social aspect? I am less confident.

In some real sense those of us who follow markets have been looking only at “market risk” of various parts of the eurozone equation, while largely ignoring political risk. Since 1945 political risk has been gradually removed from the calculus over time. It has been a steady march of democracy and freedom. You can get on a train in southern spain and travel throughout a dozen nations without once showing your passport. Now that’s freedom. Sure other countries can go batshit crazy, but not in the modern eurozone – a european version of American Exceptionalism.

I think that’s the Black Swan here. They’ll seal up the deal financially, but social cohesion will fail eventually in the periphery, and we’ll end up with an increasing number of nutty (read: totalitarian) governments in what used to be a peaceful democratic europe. Will the eurozone governments go along with that just to keep the dream alive?

It might be educational to read through the NSDAP official positions on economic policy dated 1932. An executive summary:

http://www.calvin.edu/academic/cas/gpa/sofortprogramm.htm

* nationalization of the banking industry
* self-sufficient/local production of agricultural products
* debt jubilee for various hard-hit sectors of the economy
* currency controls (the death penalty for failure to comply)
* government job creation programs – a RIGHT to have a job
* strict control ensuring no trade imbalances
* international debt renegotiation

Here’s two quotes I think might resonate today:

Finance capital attacks the middle class from above, since 100 million mark loans exist for the huge concerns to finance dubious enterprises, but middle class craftsmen, businessmen, and retailers can receive only small loans at unbearable rates of interest.

and also

As a result of the state support since July 1931, through which the Reich covered 1 1/2 billion marks of foolish speculation on the part of the big banks with tax money, more than half of the German credit bank system is already in the hands of the Reich.

We therefore demand that the banking system and the money and capital systems be nationalized, just as the railroad and postal systems were fifty years ago…”

And perhaps we thought 33% of the German people were simply idiots for voting in Hitler? I think a good chunk of the blame lies in the people that came before – those who kowtowed too hard and for too long to the banking establishment.

If I were still doing political science, there’s a lot of good material for a paper I could write on this subject: a case study comparing the conditions fostering the rise of totalitarianism in the 1930s with the economic trends in the modern-day european periphery.

October 6, 2012 at 4:26 pm #5878

davefairtex

Viscount -

Agree with you on what happened in the Netherlands. They toyed with the idea for a while, but found it not to their liking and rejected it.

Lets use this as chance to examine what group the Netherlands belongs to. Is it core, or periphery? As I look at my big picture spreadsheet, I see the economic conditions in the Netherlands is actually not bad:

Netherlands:
* Unemployment: 6.5%
* Inflation: 2.3%
* Debt/GDP: 65%
* Deficit/GDP: 4.7%
* 10 year bond: 1.78%

Contrast with Spain:
* Unemployment: 24.5%
* Inflation: 3.5%
* Debt/GDP: 69%
* Deficit/GDP: 8.5%
* 10 year bond: 5.7%

To me, that says Netherlands is core, not periphery, even though the deficit is a bit iffy.

Certainly it does suggest to me that core countries’ populations are not yet ready to insist on a eurozone exit. What are the factors driving a core nation to exit? I’d say: pocketbook issues, as everywhere.

Either that could come from inflation due to too much money printing, or from cutbacks in social programs due to the need to fund transfers (bailouts) of the periphery.

But what drives the people in the Core is not indicative of what drives the people in the Periphery. The people in the Core are making decisions based on avoiding inflation and the disagreeable concept of having to sacrifice for others, while the people in the Periphery are making decisions based on increasing poverty and desperation. It seems like a very different calculus to me.

I think we should be watching both groups simultaneously, but with an eye on different metrics.

October 6, 2012 at 4:58 pm #5879

Viscount St. Albans

I find Nigel Frange and the EuroSkeptic’s perscription naive. He suggests:
Greece should leave the Euro
devalue
and fight her way back to competitiveness
——-
And what would be the response among Euro-zone neighbors to a dramatic devaluation?
I’d imagine: trade barriers.

tit-for-tat tariffs, capital controls, policies promoting autarky, the creation of exclusive trade zones.

All of that dissolves the bonds between elites in one nation and another….and disagreement among elites is the foundation of war.

The gradual dissolution of the nation state through globalization is one of humanity’s greatest achievements. The creation of the ICBM tipped with nuclear warheads rendered the nation state obsolete. At that point, the writing was on the wall for nationalists: you’re on the losing team. Wave the flag for parade day and what-not, but train has left the station on global integration.

The expanding eurozone and the progression toward global digital currency and world government is the only route to lasting peace. It’s true to say that moving forward with global integration is the only objective worth pursuing. You grow or you shrink. Stasis is not an option. Retrenchment to nation states is a precursor to a shooting war.

October 6, 2012 at 6:09 pm #5880

davefairtex

Viscount -

Hmm. Let me take your points case by case.

I find Nigel Frange and the EuroSkeptic’s perscription naive. He suggests:
Greece should leave the Euro devalue and fight her way back to competitiveness. And what would be the response among Euro-zone neighbors to a dramatic devaluation? I’d imagine: trade barriers.

Nigel Farage’s position has the virtue of being backed up by historical experience. Nations unable to print during the 1930s (due to being on the gold standard) suffered up until they defaulted and devalued. Nigel is using his understanding of history when he makes that case.

I would suggest that the globalized economy would ensure that money would flood to a place where stuff is now cheap: Greek real estate, Greek agricultural products, Greek labor. A 60% off sale looks mighty attractive. And even if the neighbors do get upset, the eurozone isn’t the only source for funds in the world. It would take a worldwide tariff agreement to seal off Greece. I don’t see that happening. Heck, the Chinese elites would probably flood in and buy cheap Greek vacation homes if nobody else would.

Is it possible Greek society will be able to handle the “internal devaluation” plus default that is going on now – the other route to the same place? My guess is no, based on the trending strength of their Nazi party.

In Ireland, I’d say it probably will hold together. Different country, different dynamics.

The gradual dissolution of the nation state through globalization is one of humanity’s greatest achievements.

I’d say its more due to surplus energy than an achievement of humanity. Declining surplus energy means de facto declining globalization, simply because of physics. Shipping products made elsewhere will be gradually less interesting as shipping costs take an increasing share of the benefits of off-shoring.

Likewise, the high degree of inter-connectedness of world trade was thought by many elites prior to 1914 that it would make war between the major powers unthinkable. That assumption ended badly, as we know.

The creation of the ICBM tipped with nuclear warheads rendered the nation state obsolete.

I don’t share that assertion. We’ve had missiles since 1960, and the US nation state is alive and well.

Historically, national associations form and stick because of shared culture and language. Major cultural differences will end up dividing peoples along those same fault lines in times of trouble. Corruption levels in Germany vs Greece along with language and other cultural differences will likely rip the two apart eventually. Heck, the US had an incredibly vicious Civil War and the two sides had far more in common than the Germans and the Greeks.

The expanding eurozone and the progression toward global digital currency and world government is the only route to lasting peace

If you are in the business of assessing conditions and trying to determine the likelihood of possible outcomes, its dangerous (in terms of your accuracy) to be rooting too strongly for any particular outcome.

In other words, wishing won’t make it so.

October 6, 2012 at 9:22 pm #5881

jal

Great comments and analysis.
Just want to add to davefairtex’s comments

So the banks about-to-be-rescued need to stuff themselves full of bonds which will raise the prices of those bonds. I think that part is happening now, and going relatively well, especially if the hedge funds and others desperate for yield pile on once they see a trend change.
Also, this money printing doesn’t come for free. Over time a larger and larger share of government spending will go to interest payments, crowding out spending that normally would have gone to defense, infrastructure, medical care, education, social safety nets, and pensions. Austerity is all about imposing those costs immediately and specifically rather than hiding them in a “deficit”.

The financial wizardry will likely work. The social aspect? I am less confident.

When the banks are are playing this musical chair game it can continue for a long time. During this time, the governments can restructure their spending habits to some level of sustainability. The interest doesn’t need to be paid. It just needs to be rolled over into a new bond.
The problem occurs when one of the players, bank or hedge fund, decides to walk away and demands its money back with interest. Then, since nobody has any money, the game comes to an end and the system collapses.

October 6, 2012 at 11:54 pm #5882

Professorlocknload

My, my, what a complex web. Pouring over the most astute comments here, I find myself searching for a way to condense it all into a form I can sink my teeth into. A bottom line, as it were.

What I see here is a world of statist bureaucrats and their better heeled constituents scrambling to save their greedy asses from the ultimate/inevitable effects of the universal Ponzi scheme they so enjoyed building and profiting from.

How each individual player or entity, attempts to coverup, postpone, or otherwise distance, or save, itself from the “end” is unpredictable, in the micro, so I wouldn’t bother trying to second guess desperate actors. Besides, they are just making it all up as they go along. Run a flag up the pole, gauge reaction, modify flag, run it up again…until Pavlov?

Of course, those who can, will, take the easy, and only politically expedient way out. They will monetize their obligations. Those who can’t print, but are midway down the food chain, will take their lumps in the form of halfway depreciated currency (second hand depreciation?) 50/50 paydown/default? Which brings me to a comment by jal.

“The problem occurs when one of the players, bank or hedge fund, decides to walk away and demands its money back with interest. Then, since nobody has any money, the game comes to an end and the system collapses.” jal

This will most likely be among the early problems as reality sets in, and sweeping under rugs, and BS in general reaches it’s limit of credibility. This is where the 50% + or – hit takes place. Phase two, if you will. But, given protection racket’s granted preferences, 50% is a mutual compromise. If I may add to jal’s work here;

There will be money. Just not of equal value over time.

The REAL problem occurs AFTER the top has monetized it’s way out of it’s responsibilities and it’s protected class has taken it’s hit, but is still intact. The real trouble comes down when the masses, many of whom are in upper age brackets, as well as the young who are attempting to make a life, receive the flood of liquidity third hand. And deeply discounted.

This is the point at which the “uppers” pretend to pay on their promises, filtered down through their intermediaries, to the bottom, who will then be required to pretend to be paid. This is where Bastille’s are stormed. And since most all in this existence is opinion and perception, this is my take on how this all ends. Worrying over what’s on the other side of this is fruitless, at this point. Drafting timelines is just plain dumb.

Although it’s very early in the game, might be profitable in the longer run to google “DIY guillotine building.” 2018, say’s the IMF Guru, eh? Meanwhile.

October 7, 2012 at 12:05 am #5883

jthom88

http://jthomsworld.blogspot.ca/2012/10/venice-latest-in-europe-to-seek.html

Fantastic read, as always!

On a somewhat unrelated note, thousands gathered today in Venice to show their support for Venetian independence from Italy. Check out the video to hear the story – which still seems to be developing.

October 7, 2012 at 1:30 am #5884

g-minor

Professorlocknload post=5580 wrote: Although it’s very early in the game, might be profitable in the longer run to google “DIY guillotine building.” 2018, say’s the IMF Guru, eh? Meanwhile.

Guillotines are fairly easy to throw together. It’s the tumbrils that are the problem. No one knows how to make a cart anymore, much less a wheel.

g

October 7, 2012 at 4:57 am #5885

John Day

Agtefc,
That is a good skelatel analysis.
What forms do you see WW-3 taking as time progresses?
The risk of nukes looms high.
It seems that nations may even make war in one way, while cooperating in another way, and just pretend it is not happening.
(I think I see this already.)

October 7, 2012 at 10:29 am #5886

TheTrivium4TW

Hi All,

>>But unlike companies, you can’t bleed dry, bankrupt and wholly obliterate entire nations that are part of the UN, NATO, the EU, the eurozone. For more reasons than I care to get into detail about.y over… unless people expose the Money Power who enforce Debt Money Tyranny to systematically asset strip society and then use the “free market” veneer of Debt Money Tyranny to seize control of the media, the political financing and the governments themselves.

That’s already been done. “I”s dotted, “T”s crossed.

Can’t you see it?

http://www.keepandshare.com/doc/4715145/debtmoneytyranny-5-pdf-57k?tr=77

My next update will be how the money society spends at mega corporations is subtracted out of society’s assets and end up as an asset for the Money Power… further enriching the Money Power class and driving society into a bled dry, bankrupt state.

The game is already over in all facets except the **recognition** phase which is, albeit, the nastiest phase of all by far.

In my view, the Money Power, the same Money Power class that Andrew Jackson called a Den of Vipers and rooted out and that Lincoln said was more threatening to America than the Confederacy, owns most of the currency wealth (trillions) and the debt wealth (trillions more).

Anyone who thinks the Money Power is going to inflate away their trillions upon trillions in paper and debt wealth doesn’t understand why JP Morgan is shelling out 3.5% loans either… they simply don’t understand basic, basic, basic Econ 101 from the standpoint of a Money Power oligarch.

So why are they telling their government operatives to allow them to steal trillions in cash (100 cents on the dollar for completely worthless 2nd mortgage MBSes) and offloading trillions in bad debt onto the tax payer?

Would I take $10 million in cash for a 10 percent temporary devaluation?

I would.

Would I take $500 in cash for a 75% devaluation?

No way.

Why the difference? The economics are very, very, very different.

They are looting cash now simply because it makes sense to loot cash now. When the looting threatens the value of their looted hoards, that is when they pull the plug and then use their looted hoards to buy up the nation states for pennies on the looted dollar.

If they don’t do this then they get their “Dr. Evil card” revoked because they are bumbling idiot criminals.

IMHO, the economic numbers looked bad and the Money Power told their puppet Bernanke (Bernanke works for the Fed, which is controlled by the BOD, which consist of mega bank insiders and sycophants, which are controlled by the BOD of the mega banks, which is LEGALLY COMPELLED to operate on behalf of the OWNERS of the mega-banks… the majority OWNERS of which are the Money Power, by definition – this isn’t theory, this is corporate law, people!) to transfer as much cash to their front corporations while offloading their worst MBS packages for 100 cents on the dollar until such time as they pull the plug. IMHO, the open ended nature was significant.

The debt is in place to DESTROY your community AND the governments so that a more direct Money Power government front can take more direct control of our lives.

Of course tyrants want to rule… that’s the message of human history and the naive people on this planet better wake up in a hurry or its gonna get incredibly ugly faster than most people can comprehend.

…And the Money Power “solution” just might be the “final solution,” if you know what I mean.

This isn’t random stuff, this is an Art of War asymmetrical battle plan to hand the world over to a Money Power front world government.

October 7, 2012 at 4:38 pm #5887

p01

This frog has been boiling for a long time. It tried jumping off the pot in the 60s and 70s, but it was most likely an involuntary spasm, not a real attempt to escape. It is now dead.

October 7, 2012 at 7:35 pm #5888

John Day

@The Trivium4TW
You suggest that deflationary looting comes next(ish).
Yes, but WHO is holding the gold, which is the money of choice in real serious deflation?
I can’t tell who has the gold, except China, Russia and Saudi have some. German gold is supposedly in New York by Max Keiser’s lead a few years ago, which means it’s “Schroedinger’s gold” and resides with his pet cat.

October 7, 2012 at 8:30 pm #5889

jal

Serious questions and reflections upon various topics makes this blog one of the best.
This means that there are other blogs that have thinkers and opinionated commentators.

Here are some quotes from a good piece to add to the “soup”.

http://www.nakedcapitalism.com/2012/10/what-if-the-global-financial-crisis-is-permanent.html

“What if the Global Financial Crisis is Permanent?”

“… IMF chief economist Olivier Blanchard seems right when he forecast on Wednesday that the world would not recover from the financial crisis until at least 2018.

But what if Blanchard were wrong? What if his premise was incorrect?

What if our obsession with economic growth and measures of growth turned out to be an illusion.

These are questions others have asked as well, ranging from the longue durée historians of the Sorbonne, who are attempting to pinpoint capitalism’s demise by 2100 (economic systems, like those of feudal Europe or the Roman Empire, apparently last 600 years),

October 7, 2012 at 8:45 pm #5890

galacticsurfer

http://atlanticsentinel.com/2012/08/opposition-to-euro-membership-growing-in-italy/

October 7, 2012 at 8:55 pm #5891

TheTrivium4TW

John Day post=5586 wrote: @The Trivium4TW
You suggest that deflationary looting comes next(ish).
Yes, but WHO is holding the gold, which is the money of choice in real serious deflation?
I can’t tell who has the gold, except China, Russia and Saudi have some. German gold is supposedly in New York by Max Keiser’s lead a few years ago, which means it’s “Schroedinger’s gold” and resides with his pet cat.

Hi John, why do you think that gold is the currency of choice in a deflation? Please be specific – because that’s not my view and, if I’m wrong, I’d really like to update my point of view. My only goal is to better match my perception to truth. I get the folly of forcing my perception onto reality – I see the damage it does every single day. That’s not to say I’m perfect in this regard – I’m not. But the will is there.

The gold market is small – even at today’s prices. I’m talking trillions in cash and trillions in debt instruments, all empowered by the government gun wielded by the Money Power through their financed and promoted operatives in government.

The trillions in cash and the trillions in debt instruments are lined up to transfer a mind blowing amount of real, tangible wealth (houses, farms, industry, roads, water companies, electric companies, national parks, etc…) to these criminals.

Gold can’t do that – even if one person owned it all.

Let em share my thought process with you. Would you pay $30 / oz for some silver or would you pay less than $1 for some dental floss in order to maximize return on in a depression?

Well, if the deflationary scenario works out and people are credit and cash strapped, many won’t be able to afford or even access dental floss. I bet people will give up one of those pretty silver dollar for a dental floss after they haven’t flossed for 6 months. I would.

In TAE’s view, and I think they are pretty close to right in many respects (not all, Ilargi teases about a cabal controlling some this action, but they are ultimately the ROOT CAUSE and must be addressed head on if the people aren’t to perish for lack of knowledge), the future is about survival, not about what “investment” will outperform.

Gold does serve one very important role, though. It is portable wealth outside a system that is poised to zero out many people under the ILLUSION that they have wealth when it doesn’t exist.

If you only two choices are gold or bank account, take the gold.

But those aren’t your two choice.

Cash on hand should perform well. In addition, I’m going with TAE’s Treasury Direct advice and using the government as my “mattress” for most of my cash holdings.

I have some reservations, though, but nothing is safe when rank criminals go anarchy on society with the kind of technology they control today.

You have gold, they can confiscate it or send you to prison. You have a gain on gold, they can tax it 90% and blame you for the collapse they engineered. You have money at the Treasury, they can steal it and force it into 30 year bonds. You have cash, the FBI can raid your home, steal your cash on a baseless claim of drug trafficking – no evidence required.

Oh, and the real drug traffickers are the banksters in collusions with their captured “government.” Afghanistan is #1 in heroin and marijuana production on the planet… 7,700 tons of heroin flows from Afghanistan to Europe every year… and the US military provides the fertilizer… All true – search those terms… ask if you can’t find the links.

Something wicked this way isn’t coming… it is already here. It has a sheep suit on, but if you care to look at the teeth, they are blood dripping fangs.

The Traitor is the Plague

October 7, 2012 at 10:11 pm #5893

jal

By now, I assume that everyone has heard the debate …
Change is coming …
Change are being proposed …

Capitalism vs socialism as alternative futures.

Opposition to any change is universal since we are all in one or the other side of those two options (benefiting).

Those with the most to lose from a change will put up the strongest opposition.

Those with the most to gain from a change will put up the strongest support.

Finding a third option would require that everyone takes a loss and will cause the most opposition.

All possible change will cause pain.

Will you voluntarily submit to those pains?

October 7, 2012 at 10:18 pm #5894

TheTrivium4TW

jal post=5587 wrote:

“What if the Global Financial Crisis is Permanent?”

Of course it is permanent. Debt Money Tyranny is a system engineered to systematically asset strip society and empower the criminal Debt Money Tyrants over time.

This is version 6 of the Debt Money Tyranny money flow chart which includes the flow of mega corporation profits.

http://www.keepandshare.com/doc/4761671/debtmoneytyranny-6-pdf-59k

This is the foundation of the financial tyranny that TAE describes so well (without every pinpointing the tyrants – somehow that’s not Kosher).

The only “solution” to this criminal system, where money *is* debt, is for the wealthy to hand over all their debt receipts to those in debt so it becomes possible to pay off their debts (it is impossible right now – physically impossible).

What do we see? The wealthiest people on the planet sucking the debtors dry and offloading their debt onto the debtors so they have even more unpayable debt!

For those with eyes to see… this is Sun Tzu Art of War warfare.

It is engineered to bankrupt the host society. The system is working EXACTLY AS DESIGNED!

The controllers get more wealth and power and everyone else is impoverished and becoming more powerless.

Weapons of mass destruction are engineered to destroy.

Weapons of mass debt are engineered to to destroy using debt.

Debt is no less a weapon than an atom bomb.

“A man who murders another shortens by a few brief years the life of a human being; but he who votes to increase the burden of debts upon the people of the United States assumes a graver responsibility.”
~William Jennings Bryan, 1893

October 7, 2012 at 10:24 pm #5895

TheTrivium4TW

jal post=5591 wrote: By now, I assume that everyone has heard the debate …
Change is coming …
Change are being proposed …

Capitalism vs socialism as alternative futures.

Opposition to any change is universal since we are all in one or the other side of those two options (benefiting).

Those with the most to lose from a change will put up the strongest opposition.

Those with the most to gain from a change will put up the strongest support.

Finding a third option would require that everyone takes a loss and will cause the most opposition.

All possible change will cause pain.

Will you voluntarily submit to those pains?

jal, I haven’t seen the debates. Why would I? It is like two JP Morgan vice presidents campaigning for the Presidency.

Talk is cheap – we can’t pull a Charlie Brown and “kick at the ball” forever, can we?

Romney and Obama work for the exact same Money Power cabal.

The Money Power agenda will continues, just as many predicted Obama was lying through his teeth about “change.”

WHO finances Romney? WHO finances Obama? Oh, the same “club.” WHO finances the media that promotes both Romney and Obama? Oh, the same club.

October 8, 2012 at 12:06 am #5896

Anonymous

Good Day John,  :)

My previous comment was quite skeletal indeed. The purpose was to show that the “big picture of TAE” is much too small. Underestimation of the complexity of a system can tunnel ones prognostications. I am not exempt from this either.

The existing old world hegemonic powers long ago learned that the most efficient means of warfare are not kinetic (troops, guns, bombs) but more subversive and harder hitting means such as economic warfare, drug warfare and food warfare.  Additionally, subversive means are used to incite division, rebellion, and proxy wars amongst target people(s). Attack the subsistence, freedom of action, and social fabric of the target people(s).  When the target people(s) inhabit a foreign resource rich area, military occupation and installation of proxy governments are used to appropriate said resources. False flag attacks and propaganda are used to garnish popular sentiment for humanitarian violence and democracy by the barrel of the gun. 

It is critical to understand that the target people(s) of the existing old world hegemony include the foundation of their own pyramid and the entire pyramid of the the anti-hegemony.  The existing old world hegemony is at war against ALL competitors. In the framework of massive population overshoot of the Earth’s carrying capacity, broad base population reduction a primary goal that overlaps the goal of continuity of money power. Ecologically speaking it is a complex means of competitive exclusion.  “It used to be easy to control a million people but now it is infinitely easier to kill a million people than control them” (I paraphrase Zbigniew Brezezinski)

WW3 is a multi prong attack directed both internally and externally, against the subsistence, freedom of action, and social fabric of people(s) both  below and outside the existing old world hegemonic capstone. A larger scale manifestation is the attack on nation-state sovereignty. 
The past, current and near term manifestations of WW3 should be obvious to the discernible, unbiased reader. We could write volumes on these manifestations. 

On the external war front one or many system bifurcation point(s) will be reached either simultaneously or via cascade where all out kinetic warfare will occur between the exiting hegimon and the anti-hegimon.  The anti-hegemon has/is being surrounded and backed into a corner and therefore I anticipate an all out global coordinated  strike against the existing hegemony by the anti-hegemon with economic, web based, thermo-nuclear, emp, and conventional weapons.  It is important to note that this may fall into the existing hegimons strategy; a perceived preemptive attack by the external enemy would garnish complete popular sentiment for  retaliatory extermination of the anti-hegemon, partially satisfying the depopulation goal. The risk of imminent (before 2025)  nuclear war is considerable. 

On the internal war front one or more bifurcation points will  be reached either simultaneously or via cascade risking domestic upheaval, social collapse and even civil war. Examples include the chasm between the existing government of the USA and the militarized oath keepers/constitutionalists and the likely collapse of the house of Saud.  Domestic divisions and upheaval, and economic collapse will be absolved in the presence of an external enemy. Continuity of old world money power through an economic collapse via WW3.

It is also important to note that there appears to be a mass decentralization of military assets (rendering any single strike less effective) mass munitions stockpiling, and Implementation of martial law type polices across nations governed by the the existing hegemony. This could be  preparation for either internal or external warfare or both. 

Cheers

All great things emerge from chaos

October 8, 2012 at 12:19 am #5897

Professorlocknload

Trivium, let me take a shot at why AU performs well in deflations. In short, I believe this is the case because the smart player, always looking forward, one foot in greed and the other in fear, knows the only solution throughout recorded history, taken by cornered nation states, in order to maintain power, has been devaluation. Contrarily, in the fact (inflation), AU is sold into the blowoff, as interest rates commence their rise toward compensation. ie; 70′s stagflation, from $110 street price in 1970, as the threat of deflation was a-buzz, to $800 at the rumblings of a Volcker attack, early 80′s.

Time for one more. Wiemar, from the early stages of (artificial) nirvana being at last achieved, to the blowoff, where it was said if one had purchased the entire financial district of Berlin on credit a few years earlier, he could have bought the note back for one ounce of gold.

As, I think, Celente said, paraphrased “When people lose everything, they lose it.” So, when the ruling elite are threatened with loss of everything, they also lose it.

So, public gone wild, government gone wild, Wall Street gone wild…Who ya gonna call?

October 8, 2012 at 1:16 am #5898

davefairtex

Gold in deflations -

During the 1930s deflation, gold did well because it was linked by the Gold Standard to the value of the USD. In the depression, cash was king; bonds could default, deposits could vanish, but one ounce of gold was linked by – fiat – to be about $20. Take your ounce to the Treasury, and they’d give you $20 in cash. Cash and gold were interchangeable, by law.

In 1933, the law was changed; now your ounce of gold got you $35. Gold kept its purchasing power, while the dollar was cut by 40%. Gold holders were winners. A gold mine was literally a license to print money. That’s why people think “gold does well during deflations” – last time around it did, courtesy of the Gold Standard and the US Treasury.

Other items that did not have such laws mandating their direct convertibility to cash were very volatile. Silver started the depression at about $0.60/oz, and then dropped to $0.25/ounce in 1932, bouncing back to $0.60/ounce immediately after reflation of 1933, only to drop again to $0.35/oz in 1939. By 1945 it was up to $0.70/oz. Did silver “do well” during deflation. I don’t think so. A strong stomach was required. Cash would have been a better bet, unless you were tough enough to hold for 16 years or clever enough to buy at the valleys at $0.25/oz.

Could this be a model for how gold performs during another deflation; this time with no mandate from the Treasury to buy gold at a price certain, might not gold perform much as silver did?

My opinion based on watching both markets operate for several years is that gold will maintain its value better than silver did – but not as well as cash during an initial deflationary downdraft. If you are nimble and have some spare cash you can buy gold after it tanks, but it will likely be a bit of a wild ride.

I think gold will do quite well in the inevitable reflation that follows the downdraft.

A side note; physical gold in hand will likely do much better than bank deposits or bonds if the system really locks up. Then again so will FRNs, at least until the reflation.

October 8, 2012 at 1:46 am #5899

John Day

@TheTrivium4TW
Thanks for the reply. I’m physician, not an economist, but my reference to gold as the currency to rule a deflation hearkens back to the “long depression” of the latter 1800s, the one that William Jennings Bryant railed against in his “Cross of Gold” speech.
Debts were payable in gold after the death of Lincoln ended the “Greenback” regime. There was a lot of economic activity across the US as Manifest Destiny manifested itself.
Bankers fairly openly colluded to bring in gold out of circulation and hold it at coordinated times and in coordinated areas.
By doing this they made debts absolutely unpayable, and they took possession of a lot of developed/improved property This was how they used physical gold as the tool of acquisition in deflations which they controlled.
We are near the end of the regime of global “trust” which allows electronic fiat money to exist. In 2008 this trust disappeared, and ships were stuck in port, because the letters of lading from banks were not trusted by other banks.
In truly severe (looming) deflationary times, there is no trust, and in times of no trust, physical gold is always accepted.
Those are my thoughts and impressions about why gold is the currency of choice in deflation, and I’m not really armed with the expertise to go beyond what I just wrote. I am thinking of a long, severe, likely “terminal” deflation as resources decline.

October 8, 2012 at 2:15 am #5900

TheTrivium4TW

Professorlocknload post=5595 wrote: Trivium, let me take a shot at why AU performs well in deflations. In short, I believe this is the case because the smart player, always looking forward, one foot in greed and the other in fear, knows the only solution throughout recorded history, taken by cornered nation states, in order to maintain power, has been devaluation.

Two points.

1. Nations aren’t making the call, the Money Power operatives who have infiltrated the nations are making the call – and NOT in the best interest of the nation. In fact, drastically against the best interest of the nation. A sovereign nation, BY DEFINITION, would never borrow its money, let alone at interest, from private entities.

2. I think TAE believes this all likely ends in hyperinflation as well, but they believe, as do I, that this will only occur after they’ve taken control of as much of society’s stuff as possible. An impoverished society will not be selling gold for the current price near the top of a credit bubble, IMHO. It just doesn’t make sense. The S&P at 100-300 and gold at $2000? I don’t think so. Again, JP Morgan is about as inside as any corporation on the planet – and they are doling out 30 year, 3.5% loans to all comers. Whatever that is, it isn’t fear of hyperinflation – and the majority owners of JP Morgan will make the call, not the puppet on the left or the puppet on the right. Or Bernanke – he’s a front man, pure and simple. His job is to make sure you never identify the real decision makers.

Professorlocknload post=5595 wrote: Contrarily, in the fact (inflation), AU is sold into the blowoff, as interest rates commence their rise toward compensation. ie; 70′s stagflation, from $110 street price in 1970, as the threat of deflation was a-buzz, to $800 at the rumblings of a Volcker attack, early 80′s.

The 70s are tough because gold was not market priced for so long. It bubbled up and then popped. It did very poorly in the inflationary times that commenced. Having said that, I think an argument can be made that the insiders use the central banks to enrich themselves personally, hence, the central banks sold to the insiders at rock bottom prices ON PURPOSE. Now the central banks are buying back AT MUCH HIGHER PRICES.

Wash, rinse, repeat until the people catch on… maybe never.

Professorlocknload post=5595 wrote: Time for one more. Wiemar, from the early stages of (artificial) nirvana being at last achieved, to the blowoff, where it was said if one had purchased the entire financial district of Berlin on credit a few years earlier, he could have bought the note back for one ounce of gold.

Apples and oranges. As is Argentina. The Money Power is running the show – and blatantly so. Everything is being orchestrated in their interests, not the government’s interest or the people’s interests.

Weimar was a government that printed non central banker debt money. We don’t have that kind of money here – our money is debt money and controlled by the Money Power.

Germany’s hyperinflation was actually a deflation from the Central Banker perspective. They could buy more of Germany with their wealth (dollars, gold, whatever).

Argentina was also a deflation from the perspective of the Money Power. They could use their dollars (and assets like gold, oil, whatever) to buy up a whole lot more of Argentina after their hyper-inflationary, societal impoverishment collapse than before.

Professorlocknload post=5595 wrote: As, I think, Celente said, paraphrased “When people lose everything, they lose it.” So, when the ruling elite are threatened with loss of everything, they also lose it.[quote=Professorlocknload post=5595]

“Lose it” by wiping out their wealth and bailing those they criminally indebted and are arming up their government to keep in line?

In general, I like Celente a lot. But I think he’s been a misled by Rockefeller funded Mises based economic theory – the so called controlled opposition.

The Money Power LOVES gold backed money because they control the gold and, by extension, the economy! You don’t want that. I know I don’t.

[quote=Professorlocknload post=5595]So, public gone wild, government gone wild, Wall Street gone wild…Who ya gonna call?

Banker widgets are debt. The game was to sell banker widgets at all costs.

The current game is to loot the debt receipts and offload the debt onto society.

Eventually, the game will change again to bust society and roll up their assets under their mega front corporations.

Then, when you have little or nothing and they own reality, they will likely hyper-inflate to balance their books, IMHO.

But it won’t matter – we won’t have anything left to hyperinflate.

That’s the point.

October 8, 2012 at 2:18 am #5901

davefairtex

John -

During the period of the 1800s, gold was convertible (variously) at a rate of 1.6g and 1.5g per dollar. That rate held until 1933. That’s why gold did well during all those depressions – price fixing by the Treasury, plain and simple. If you brought the Treasury 100 tons of gold, they’d hand you a wagonload of dollar bills. Why not, printing bills is cheap, and mining gold is darned difficult. Of course it meant that gold discoveries caused inflation, but that’s the price you pay for a commodity-based monetary standard.

Had the US Treasury decided to declare donut convertibility at $1 per donut, they would have performed quite well during depressions too.

October 8, 2012 at 2:22 am #5902

John Day

@Agtefc
Thanks for the reply, and I find nothing to disagree with in the substance of what you say.
I have been reading TAE since spring 2008, and I don’t think that what you say is unconsidered, merely not presented as such. By narrowing the scope of the blogspot, not the dotcom address, it is possible to have some degree of order and some continuity. The amount of restriction was addressed as such several times, earlier on.
You are not personally restricted, nor am I.
I don’t want to seem aloof, and I do work full time, and scan the ether sphere a lot, so I’m not here every day. I do really agree with your view, and find that all your references seem to be known to me.
Somebody mentioned Sun Tzu’s Art of War book, and it says that “War is carried out by all means”. I think it is the most studied military text in the world.
In this terminal resource decline phase of history, I’m somewhat heartened by thoughts that the power elites are at least “rational” based on selfish interests. That makes nuclear war between hegemony and rising hegemony completely undesirable. There is no reason to think that industrial economy could rise from those ashes again.
Fighting proxy wars and electronic wars, and money wars, and even environmental wars seems safer. (The Arctic ice cap is melting much faster than unclassified models predicted, is good for oil drilling and Chinese trade routes, so Russia, China, Norway, Greenland, Canada all benefit.)
It seems that there may be odd-man-out populations that the elites target (God bless Haiti.), but they also need to use something like “free market” selection within their subject populations to let the most desirable workers survive and nudge the bottom half “out of the gene pool”.
There are vast underground bases, I hear, with lots of medicines and MREs and so on. That’s not a life for me, even if I wanted it, nor for my four young-adult kids.
Where to survive, and how to survive, while remaining “free” is the complex problem we face.
I am on a path, and it means being in a place with food security of a very direct and non-monetary sort, and reliable rain, and not too many people, who are mostly pretty agreeable types. This is where to make a lifeboat, and I hope that the kids will choose to come stay, when they complete their initial career training (college and such).
I really don’t want to participate in WW-3, and I want to withdraw my support as I build the lifeboat. I’m not the only one who feels this calling. It is common, especially in places where it is possible…

October 8, 2012 at 2:25 am #5903

Viscount St. Albans

@ Dave,
I enjoyed studying your silver & gold price graph from the Depression years.
Many thanks for bringing your data-centric approach (graphs, historical documents, etc.) to commentary.

October 8, 2012 at 2:26 am #5904

TheTrivium4TW

John Day post=5597 wrote: @TheTrivium4TW
Thanks for the reply. I’m physician, not an economist, but my reference to gold as the currency to rule a deflation hearkens back to the “long depression” of the latter 1800s, the one that William Jennings Bryant railed against in his “Cross of Gold” speech.
Debts were payable in gold after the death of Lincoln ended the “Greenback” regime. There was a lot of economic activity across the US as Manifest Destiny manifested itself.
Bankers fairly openly colluded to bring in gold out of circulation and hold it at coordinated times and in coordinated areas.
By doing this they made debts absolutely unpayable, and they took possession of a lot of developed/improved property This was how they used physical gold as the tool of acquisition in deflations which they controlled.
We are near the end of the regime of global “trust” which allows electronic fiat money to exist. In 2008 this trust disappeared, and ships were stuck in port, because the letters of lading from banks were not trusted by other banks.
In truly severe (looming) deflationary times, there is no trust, and in times of no trust, physical gold is always accepted.
Those are my thoughts and impressions about why gold is the currency of choice in deflation, and I’m not really armed with the expertise to go beyond what I just wrote. I am thinking of a long, severe, likely “terminal” deflation as resources decline.

Hi John,

I’m not arguing that gold won’t have value. It will. The question is whether it will be worth more in dollars when half, or more, of US working age people are out of work and the social programs and retirement plans collapse into nothingness.

People won’t lose confidence in dollars, but they will lose confidence in credit. That means less of about everything – and not by little bit. Get stocked now.

It could be my deficit, but when credit evaporates and all that is left is, maybe half the purchasing power that is spent at least twice as frugally (about 25% of the money flowing), I don’t see how people drop $2k for an ounce of yellow when most are hungry.

Maybe. maybe the oligarch economy keeps it afloat as everyone else starves and is homeless.

TAE has basically said that gold should fall less and should recover quicker… I think your analysis is one of the reasons why they believe this. It makes sense. They just don’t think it will be immune from the disaster that is coming.

If I had any trust in the markets, I think a great, low risk play would be to go long gold and short the broader market. But that assumes you’ll get paid n your short. That’s the rub, I think it is reasonable to conclude you won’t get paid.

Anyway, I don’t think some gold insurance will hurt unless you don’t have control over the necessities of life and don’t have some sort of community approach that is dealing with these issues. I think the latter two items are much more important than gold and should get the focus over gold (and TAE does a good job there). But it does take more work, and that’s a problem.

October 8, 2012 at 3:23 am #5905

jal

RE. WWIII

Who would use radiation active oil or products?
Who would go to work in a radiation active field?
Who would live in a radiation zone?

hummm!

Is it possible that someone can actually think and do …
“If I can’t have it or keep it I’ll make sure that nobody else can have it.”

Conventional warefare, burning, bombing, can do the job adequately.
No need to use “THE BOMB”.

October 8, 2012 at 3:29 am #5906

jal

RE. “when credit evaporates”

THE USA HAS BEEN LIVING OFF CREDIT FOR 30 YEARS.

When the USA starts living within its means you will be living in the worst depression that the world has ever seen.

Debts will become uncollectible and wealth will disappear from many “rentiers”.

October 8, 2012 at 3:32 am #5907

John Day

@The Trivium4TW
Thanks for the reply.
(I spent a half hour getting this picture into my “avatar” file. It’s not “copyrighted” so I’ll keep it on the desktop. I used to be a neighbor of this statue.)
The hard times I’m envisioning include loss of faith in fiat currency, 98% of which is now electronic, as I understand.
I’ve been considering the virtues of buying a couple thousand dollars worth of nickels, as an example. These could serve as a local currency at some time in a small area. It’s just a thought. The “paper dollars” will be devalued a lot in an upcoming phase, but nickels are already worth more than 5c.
They’ll be going away soon…
One interesting consideration regarding physical fiat money is all those new design $100 bills sitting in a warehouse in Ft Worth “waiting to be destroyed”. http://www.msnbc.msn.com/id/40531910/ns/business-cnbc_tv/t/bills-new-facelift-goes-awrycnbc/#.UHH_UDlVjow I’ve thought that there are a whole lot of them (1 billion), and they could serve as emergency physical currency in a cyber-war scenario, or EMP attack.
Anyway, I’m really not assuming continuity of the global monetary regime in the upcoming global musical chairs game of attrition at both elite and proletarian levels. There will be fewer and fewer chairs at the dinner table and the tables of power.
Being the only-game-in-town is obviously (to me) very important to the current Western hegemony. It seems to me that any other financial regime is a direct threat, better destroyed while the hegemony is powerful, than wrestled with once the troubles begin in earnest. That is one thing that made Iraqi acceptance of Euros for oil a threat, and Gaddafi’s plan for a gold-backed African Dinar a threat, and what makes Iran’s Islamic banking a threat.
Islamic banking principles look to be sounder in deflation at first blush, which is all the blush I know how to give such things.

October 8, 2012 at 3:43 am #5908

John Day

@Dave Fairtex
Thanks for the reply. There were banking publications in the 1800s in the US that served as a means of communication and coordination of banking trends, such as premeditated deflations and calling-in of loans, in order to catch borrowers with no possible recourse but to lose collateral to the banks. I forget where I read this, possibly in Ellen Brown’s Web of Debt writings.

October 8, 2012 at 7:59 am #5909

davefairtex

Trivium -

In looking at the longer term SP500/GOLD chart, I’m not entirely certain I’d call it a “low risk trade.” Its true that the trend is your friend right up until it changes, but just eyeing the chart, the low risk period would have been in 2001 after the price moved strongly through the 50 month moving average. Hindsight of course is always 20/20 but you can use moving averages to help you spot major trend changes when they occur. (Its unfortunate I was completely asleep during this period of history!)

In a narrower timeframe, its true that in 2007-2009 gold held up much better than SP500, and maybe that’s the period you’re focusing on more. I’d have to agree with that, and also that there is some risk of not being paid for one side of the trade if things go particularly poorly. However if things proceed as they did last time (i.e. with the SP500 gradually moving down over a period of months, as opposed to a 1987 one-day event) you could periodically take money off the table as events unfold.

October 8, 2012 at 8:18 am #5910

davefairtex

John -

Perhaps I should go read more about that period. Banks can certainly cause depressions if they are allowed to collude and raise rates.

Where there is a bona fide gold standard (as in from 1800-1972) with an explicit linkage of currency to a particular weight of gold, gold performs just like cash. Since cash does well during deflation, so will gold.

It is less clear how well gold will do during deflation with no gold standard in place. We’re in uncharted waters now, we have no historical guide, and so I perceive the risk as higher. Certainly during recent deflationary episodes (late 2008, late 2011) gold did not respond so well.

October 8, 2012 at 8:40 am #5911

John Day

Hi Dave,
There are currently competing monies.
Margin calls in 2008 were happening in dollars as stocks plummeted, and dollars were what was required, and anything else was scrambled to get those dollars.
There was a lot of downward price manipulation of gold in July and August 2008, and the Saudis bought a lot of physical gold and put it on a ship to Arabia. Later that year, when data came out, it was Bank of America, I think, that had been heavily shorting gold to drive the price down. After the crash, they did OK on those short positions.
When gold is THE MONEY, it isn’t subject to those kind of sloshes. I’m looking more at what will be globally accepted after debt based fiat currencies are retired, as I think they must be in a shrinking-resource-constrained world. No more exponential growth economic model…
I don’t see gold as a short-term holding for profit, but more as a strategic asset for individuals, and the basis for international trade deals across the ages.
I think it will be that again, in a powered-down world, but that is a view to the indefinite future, after the dollar hegemony ends.

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