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Going Cashless

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Published on The Doomstead Diner on December 22, 2016

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One of the hottest topics in Collapse Economics these days is the prospect of the "Cashless" society.  Denmark is flirting with being the first country to go completely cashless, along with the other Scandinavian countries of Sweden and Norway.

In debates about the future of cash money, Denmark is often cited as the possible World’s first cashless society. Is that true? An investigation on the current state of cash in Denmark. 

Cash is dirty.
Cash is expensive to print.
Cash is for criminals.

Opponents of paper money, such as established economists Bofinger and Haldane, have declared the war on cash. In 2016, this is more apparent than ever before. The European Commission for instance currently assesses a potential ban of the 500 Euro banknote, as “these notes are in high demand among criminal groups.”

More so the finger is often pointed to Scandinavia, to show how some countries are already on the move to become ‘cashless societies’ – to eliminate cash whatsoever. And Denmark could be the World’s first. Hold up – is that true?

http://www.matoska.com/catgraph/3005-001b.jpg Money is symbology for a credit system that allocates the resources available in a society. It can be just about anything, as long as what you choose as the physical symbol is hard to counterfeit.  In Africa for a long time, Cowrie Shells were used as money.  They were relatively rare and about impossible to counterfeit.  Similarly, Gold and Silver have been used as the symbol, the metals themselves are elements and can't be counterfeited.  However, they can be alloyed with other metals, thus debasing the coinage made with them.  This was what the Romans did as their civilization collapsed.  They weren't able to keep bringing in enough gold and silver to keep coining up to have enough money in circulation.

The metals are in relatively short supply for a growing population, and they tend to be hoarded as well taking them out of circulation.  So in the modern era, paper money which was hard to counterfeit was developed as the currency and means of exchange.  The way paper money is traditionally made hard to counterfeit is through fine engraving and special paper and ink.  However, modern scanners made the engraving easy to duplicate, and if you have enough scientific expertiese and a big enough budget, the paper and ink can be duplicated as well.

http://www.accountingformanagement.org/wp-content/uploads/2016/01/balance-sheet.png Money originates in the banking system as credits and debits on a balance sheet.  Then the bills get printed up, and each one has a Serial Number on it.  At the origin point when it first gets handed out over the counter with fresh bills, the bank has a record of the serial numbers and the person that money was handed to.  After that though, there is no keeping track of where those bills go or to who.  In theory you could track it if in every transaction the serial numbers were recorded, but in practice that is never done, it's too cumbersome.

Because it can't be tracked, cash is very useful in the Black Economy, for things like drug deals and making bribes to politicians.  Its also useful to hide your transactions from the Tax Man.  If you begin to believe your banking system is untrustworthy or unsafe (they always are, but sometimes more than others), people start taking their money out of the banks and stuffing it in mattresses instead.  This can make a bank insolvent, because it needs deposits as part of its capital.  When you deposit your money in the bank, it becomes an unsecured loan to the bank, which they will then use as the basis for making other loans.  Making loans and originating money is how banks MAKE MONEY.

So, as far as Da Goobermint and the Banksters are concerned, paper money is not very good.  Da Goobermint wants to be able to track all transactions so they can be taxed and the Banksters want your money in the bank as much of the time as possible so they can use it for more lending. How can we solve these problems, they wonder?

https://historyinlivingcolor.files.wordpress.com/2013/11/westernunion803kanawhastreetcharkanawhablv_edited-1.jpg?w=670 Well, until the advent of the modern computer and the internet, it was basically an insoluble problem.  However, once the communications systems were in place and enough places where transactions take place were wired into it, the possibility of being all electronic balance sheet transfers became possible.  It goes back as far as the Telegraph and Western Union and the ability to "Wire Money".  It further expanded with the Telephone, which made Credit Cards possible.  If you remember back to the early days of American Express, if you used your card at a restaraunt they would call AMEX to get a verification, and once verified the transaction was cashless, going from your credit line over to the restaraunt's bank account.

At first, these credit cards were available only to the very rich, and few people used them.  The verifications were done manually and when the restaraunt called for verification, there was a live person on the other end of the line who did the verification of your account, on a big old clunky IBM Mainframe at the Amex Headquarters.  However, as the computer systems and communications systems improved and you could put Point of Sale (POS) terminals in stores, it became possible to issue Credit Cards to many more people.  Thus Master Card and Visa were born, and banks began issuing out Debit cards as well.

http://blog.couponrani.com/wp-content/uploads/2013/12/creditcard.jpg This brings us up to today, where at least in the FSoA pretty much everybody has Plastic of some kind, and over 90% of all transactions are done this way, so cash has become unecessary, at least as far as the Banks & Goobermint are concerned anyhow.  They would like to see cash eliminated entirely, because this is good for them.  Not so good for the average J6P though who is worried his money isn't safe in the bank and one day it will just be…GONE!  Also not good if he currently runs some type of cash bizness and wants to hide some of the income from the tax man.

What's the PROBLEM with taking cash out of the system entirely then?  Well, as long as you have complete faith that your computer systems will be up and running 100% of the time, communications up 100% of the time in 100% of locations and the system won't be hacked, there is no problem.  Unfortunately, none of those conditions are true even in the 1st World countries, and definitely not true in 3rd World countries.

http://www.telegraph.co.uk/content/dam/news/2016/11/13/113589873RupeesNEWS-small.jpg In places like India, vast areas of the country aren't even wired for electricity, much less have full internet coverage available 24/7.  Many in the population don't even have bank accounts or ID.  The only way they function in the society is with cash.  They get paid in cash, they buy their groceries with cash, they pay their rent with cash.  When India recently took its two largest denomination bills out of circulation, it created instant HAVOC, and is still causing havoc.  They may very well never recover from this poorly planned and executed monetary experiment.  It's already created a massive deflation in their housing market, as people simply don't have working money to pay the rent with.  Getting replacement bills out into circulation also has been a clusterfuck and goods are becoming hard to come by whether you have working money or not, because the supply chains are breaking down.

Now, in a place like Denmark where just about every square inch of the country is wired up, you wouldn't have this same kind of problem if you went cashless, although even in Denmark there are people who live off the official economy and depend on Cash to work.  Besides that though, you run into all sorts of problems on occassions where you have a power outage or communications outage or the computers with all the account information go down, even for short periods of time.  All of a sudden, everyone in the checkout line at the grocery store can't pay for their food.  Everyone commuting home from work can't pay the fare on the light rail.  Everyone whose gas gauge is on empty can't fill up on gas at the pump.  etc, etc, etc.  Anyplace that does go 100% cashless is going to run into these problems, and I think TPTB have to know this.

Even though I use Plastic almost all the time myself, I always do carry enough cash to buy groceries or buy gas if the debit card doesn't work.  At my local grocery store this has occurred twice due to the system being down itself, and then a couple of other times because my account at the bank was "frozen" due to suspicious charges being dropped on the card number.

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/02/09/500%20euro_0.jpg What is more likely than 100% cashless is that just the large bills will be taken out of circulation, but how large is large?  In Europe, they have a €500 note, that one is just about certain to go the way of the Dinosaur.  Here in the FSoA, the largest note is a $100 Ben Franklin.  This would be harder to get rid of, because even just for buying groceries a family can spend $300 in the checkout line, I see that all the time with overflowing baskets of food.  You would need 15 Andrew Jackson's or Harriet Tubman $20s to cover this, which makes your wallet uncomfortably thick.

What you may have noticed however is that recently, in about the last year a new $100 note on new paper with more "security" devices has been substituted for the old $100 note.  My suspicion is these notes can be run through a reader and their serial numbers tracked.  All stores will be required to have the readers, which will probably be part of the POS terminal, and anytime you use such a bill, it will be recorded in the transaction.  You'll need your Goobermint ID to spend the bill.  So, similar to plastic transactions, the bill can be traced back to you.

http://www.usagold.com/images/coinstack.gif In the Black economy what may occur to circumvent this problem is a system of Barter may arise, and for this purpose such as large Drug Deals, Gold WOULD be very useful.  After the large exchange is done this way, then the street level exchanges are all done with the small bills still in circulation.  However, then when the drug dealer spends his money, he has to account for where he got it.  If he can't account for it, it's a criminal offense.

Because Gold and to a lesser extent Silver could be used in the black economy and to try and store wealth outside the Banking system, it will either be made illegal and confiscated, or any official transactions done with it heavily taxed.  So if you went to the Coin Dealer to exchange it for some of the paper currency, there might be a 50% tax on that transaction.  In the case of the Great Depression, Gold ownership was made illegal and the Gold confiscated and then revalued.  No reason to believe that would not occur again here as things further spin down in the Bankstering system.

http://www.knology.net/~bilrum/goldverbot-4128.jpg What you have to remember here is that "your money" doesn't belong to you, it's part of a very large and complex system of credit that has been evolving in this iteration since the Medici Banking era.  That system gradually spread its tentacles around the entire globe, and now most of the 1st World countries at least are fully wired up with the communication system necessary for all electronic transactions, fully recorded with everything bought and sold and by who to who.  It's the ultimate means of control over everything that goes on in the society, and as long as these systems are up and running, TPTB that run the system are going to use every means possible to maintain this control.  Even if a 100% Cashless society is not achieved, in the 1st World countries it will reach close to that goal before the system crashes in it's entirety.

The reasons it will crash in its entirety are many.  First of all, whether the money being moved around here is cash or digibit, the entire system is horrifically insolvent, and even if ovenight 100% of all depositors money was confiscated to recapitalize the banks, it still would be insolvent.  There's more debt out there than there are credits to balance it, because of the interest charges on all the loans.  On top of that you have trillions to quadrillions in derivative bets which can't be paid off.  Then you have the problem that either cash or digibit, money is not flowing through the system to the end consumer to buy the products of industrialization. Some still have access to the credit, but fewer all the time as people drop out of the work force.  Finally, what the money actually REPRESENTS, the resources available to the society are depleting, especially measured against the increasing global population size.  So you can't make it work long term no matter what you use for money.

What the conversion to (mostly) cashless can do is stretch out the Extend & Pretend a while longer, so it's likely to be undertaken in 1st World countries, at least if the monetary system doesn't reach critical mass and crash before a further changeover can be implemented.  The possibility such a system could be implemented in India or other 3rd World countries is exceedingly small, thus the reason they attempted to exchange one paper bill for another, and in the process took themselves one step closer to complete collapse.

The mostly unanswerable question is just how long the the Extend & Pretend game can be extended out here?  All you can say for sure is that it will crash at some point in the future, but pegging a date to it is quite difficult, if not impossible.  You have another variable in the equation, which is the political instability that arises as more people lose more purchasing power, whatever the money is that is being used.  You also have the geopolitical instability as different countries jockey for position trying to control what is left of global resources, mainly China, Russia and the FSoA there.  There are inumerable possible Trigger Events that could set off a cascade failure at any time, so any kind of mathematical prediction is useless because of a discontinuity in the function.  WAG though, it's hard to see how it holds together more than another 5 years, but it's just a guess.

So, even if the Banksters and Da Goobermint get their wish and convert to all digimoney, don't sweat it too much because it won't last all that long.  When it does crash, you'll have much bigger problems than trying to hide income from the Tax Man or keep your wealth safe from thieving Banksters.

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Simplifying the Final Countdown

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Published on the Doomstead Diner on July 19, 2015

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It's been a watershed week here in the world of collapse, watching both the European economy and the Chinese economy circle the toilet bowl.  Oil also is back on its downward trend line, and Pigmen everywhere remain perplexed, blaming the problems variously on Socialist Goobermints, Unions or Keynesian Economists, but none of those are in the least bit correct.

The problem is really a very simple one, which is that there are too many people chasing too few resources, particularly the energy resource necessary to live the Industrial lifestyle those of us who have enjoyed that in the west have been pursuing for the last 200 years or so.  Here is how we looked diagramatically 200 years ago at the beginning of the Industrial Revolution:

Industrialization-Beginning

oilwellAs this trip began, there were just tons of Fossil Fuels in the ground, Coal, Oil and Natural Gas, and they weren't too hard to find or extract either.  In fact in the early years, the Oil just squirted out of the ground under its own pressure, as soon as you popped a hole in the container.  It has become progressively harder to extract though, and nowadays to get the last of the extractable stuff up, the Frackers have to pump millions of gallons of water and chemicals to coax the stuff up out of the rocks it is embedded in.  Similar with NG, it takes real sweet high tech equipment that can drill horizontal wells to get to the remaining supplies of this stuff.  Its not cheap to get this out of the ground anymore.

You also had a relatively low population that was mostly agrarian at the beginning of this trip.  Both the North & South American continents were relatively empty of people, with most of the indigenous population wiped out by the Smallpox, Tuberculosis, Scarlet Fever and other diseases brought over to the continent in the early years of colonialization.

There was little pollution in those years, you could pretty much drink out of any stream or even lake without treating the water in any way.  Long as you disposed of your own waste downstream from wherever you were, you were OK long as there was nobody else immediately upstream from you.

Most of the CO2 in the atmosphere up at that point was what occurred naturally from forest fires, vulcanism and so forth.  There was some addition from Homo Saps burning stuff to smelt metal for Ag Equipment and War Tools, but since the population overall was not that large, it was not overwhelming the capacity of the earth to absorb this waste, or the sun to provide enough energy to replace what was wasted. Overall, it was a fairly Balanced system to this point, although Ag was defintely desertifiying many portions of the planet where it had been practiced for 1000s of years.  Over time, even without Industrialization, Ag as practiced in most places would have done the same job as industrialization, though probably not quite as fast.

Fast Forward now here to the situation 200 years later in this game:

Indistrialization-Now

All the main resources are shrinking in size, quite rapidly in many areas.

In Fossil Fuel Energy Resource, the real easy sources of Coal, Oil and NG are gone, and just extracting what is left takes more energy and more technology all the time.  Accessing Debt Money to do that extraction becomes more difficult as well, and credit to the end consumer to buy that energy also becomes more scarce.  All together, this reults in fewer people able to afford to waste this energy, and so little by little, country by country, some folks are triaged off of the credit necessary to participate in this economy.  It is most obvious in Greece right now, but it is occurring just about everywhere, even in the Core economies of Industrialized Nations of the FSoA, Germany, the UK and China.  In these places you have an increasingly large underclass of people receiving Food Stamps and supplements to stay alive, but they aren't commuting to work and aren't buying tankloads of gasoline for their SUVs every week.  Currently, out of the 320M people living in the FSoA, 45M of them are on Food Stamps.

http://www.trivisonno.com/wp-content/uploads/Food-Stamps-Yearly.jpg

While the energy resource continues to deplete, as the second diagram shows the total Global Population continues to increase, which will continue until there is a major fracture in the total system, which seems more imminent all the time.  More people all the time need the water, energy and food that the planet can provide on a daily basis.  No amount of Debt Issuance can resolve a food deficit problem, in a given year the food to support the population is either there or it is not.  A certain amount can be held in reserve, food storage techniques are pretty good these days, but overall the margin here is pretty small.  Currently, if there were to be a major falloff in any major food producing region, within one year there would be a major deficit in available calories for the population as a whole.  We are already looking at a major falloff in food production from Sunny Califonia, where the ongoing and accelerating Drought situation is likely to make produce a good deal more expensive right here in the FSoA pretty soon.  This problem of drought is mirrored in many areas of Ag production of the globe right now, from India to China to South America.  It is unlikely to improve anytime too soon.

Drought-Monitor-July-8-2014While you have the problem of steadily increasing human population and steadily decreasing sources of energy, water and arable land, you ALSO have steadily increasing CO2 content in the atmosphere (exacerbating Climate Change issues) and steadily increasing areas of Desertification turning formerly productive food growing regions into deserts.  There is no absolute quantification for this I am aware of, however anecdotally it is possible to track it from Syria to Sao Paolo, from China to India and beyond.  Pretty clearly, the Earth is maxed out in converting solar energy to food, and the Human Population can only survive at current levels with close to the current levels of food available to them.

In the end, this is a very simple and straightforward Thermodynamic Problem of how much energy it takes to run the Human Population Engine.  In order to survive, each Homo Sap consumes X number of calories each day in food.  Because of distribution problems and diet issues with types of food consumed, you have some fat people in some places and some emaciated people in others, but in aggregate you need X calories to keep all the Homo Saps currently walking the Earth ambulatory.

http://www.chemguide.co.uk/physical/equilibria/haberflow.gifThe Industrial Revolution enabled Homo Sap to produce more Food Calories than he ever had before in history, by several orders of magnitude.  In the aftermath of WWII, we learned how to create Ag Fertilizer directly from Oil, through the Haber process  The Ammonia produced is used to make Ammonium Nitrate, useful in bombs but also useful as an Ag Fertilizer.  The very same plants that made the Bombs dropped in the Fire-Bombing of Dresden were converted into making the fertilizer that spawned the "Green Revolution".

Cheap food was produced by the truckload, and the population of Homo Saps EXPLODED over the last 70 years, from around 2.5B in 1940 to around 7B now.  All those people compete for the same resources of water and food, and nearly all of them are dependent on the same monetary sytem that distributes that water and food.  It's a GLOBAL SYSTEM at this point.  Few places are completely independent, even food exporting nations like the FSoA are not independent, since in order to export so much food, it imports a lot of Oil.

It's not just the fertilizer here that enables this, it is also all the farm machinery from tractors to combines, and the whole transportation system from trucks to rail to container ships that moves all this food all over the globe, and often puts outta biz any local production of food as well.  It comes in cheaper even with all the transportation than local food production, and each year thousands of small farmers commit suicide because they cannot make a living selling the food they grow.

India's shocking farmer suicide epidemic

Falling into a debt-trap and besieged by bad weather, thousands of farmers are taking their own lives each year.

Bhagwan Datatery said his father was under tremendous financial pressure before killing himself [Baba Umar/Al Jazeera]

The MSM, and even the Blogosphere on websites like Zero Hedge often paint the problems we face as simple Monetary Problems and Political Problems, Socialism vs Capitalism, Keynesiasm vs Misesanism, Gold vs. Fiat, Democracy vs Dictatorship, etc.  It is none of those things.  It's a straight resource and energy problem which nobody in control will acknowledge, because there is no palatable economic solution to it.  It's not that the only solution entails giving up the Carz and the Happy Motoring lifestyle we have come to expect as a God Given right (the Amerikan lifestyle is NON-NEGOTIABLE according to Dick Cheney), it's that the only solution is a lot of DEAD PEOPLE.

http://i0.kym-cdn.com/entries/icons/original/000/012/818/Movie_i_see_dead_people-769472.jpg

"I see Dead People"

There is no way whatsoever to engineer the death of billions of people in an equitable manner, there IS no equitable manner for such a catastrophe.  Occassionally you hear talk on the internet in the collapse blogosphere of reducing population through birth control, but first off the Chinese tried that with the One Child policy over the last 30 years and it really did not work, and second even such a policy can only be implemented by the most powerful of governments.  To be really effective, it requires such onerous proceedures as FORCED STERILIZATION and MANDATORY BIRTH CONTROL, and both of those are wicked difficult to implement on the grand scale in any case.

On the upside to this, the Birth Rate in many developed nations is falling, as more people who realize they simply can't afford to have children stop having them, but that is more than made up for as people in the 3rd  World countries reproduce as fast as they still are able to do so, long as they have enough food to do that anyhow.  That supply of food looks like it will run short or be unaffordable for them (or both), so high birth rates and high survival rates for infants in these locations seems unlikely moving forward into the future.

The total population will diminish at some rate, from a decreasing birth rate, and increasing child mortality rate and an increasing death rate in the adult population as well.  That will all come from the usual vectors, the 4 Horsemen of the Apocalypse, Famine,Pestilence, War and DEATH.

http://aeroventure.com/END-TIMES/the-four-horsemen-of-the-apocalypse.jpg

The only real questions left now are how fast this will occur, where the best & worst locations will be to be trying to keep living, what are the best strategies for surving this catastrophe, and whether anybody at all can make it through the Zero Point.  Is this Extinction, or a Knockdown Event?

https://33.media.tumblr.com/e25d581eb34b31b9e0a2c909d0d5cf1b/tumblr_nia06yYg6e1rnh7cyo1_500.gifFor the individual who realizes this is coming down the pipe, I don't think it matters which way it actually ends up, because either way, if you want to LIVE, you are going to operate in the same way.  You pick the best strategies for survival you can think up and also implement in some fashion, given the resources you personally have.  You absolutely cannot depend on you Goobermint to save you in the end, since your Goobermint is quite likely to collapse even before you do, at least if you are fairly young anyhow.  Either way its a sorry end, because if everybody dies, its the end of Sentience on Earth.  If you or your progeny survive it, it is still a sorry end, because you are left with Survivor Guilt.  It is a sure thing that if you are to survive this, somebody else must die in your place.  There are just too many people on board the Spaceship Earth now, as a species we are in serious Overshoot, probably 3X to 4X minimum as of now, maybe more than that.

The Greek situation remains an important one to keep track of, because they are the first of the European Nations being kicked off the Titanic of industrial Civilization without a Lifeboat.  How quickly will the situation deteriorate there, how long before they deteriorate to Civil War, how long before Contagion brings their problems to the rest of Europe?

These are questions we do not have answers for today, but they will be coming down the pipe in the not too distant future.  Of one thing you can be certain here, we are NOT exceptional.  This is a very straightforward problem of Thermodynamics, and it will engulf the entire population of Homo Saps currently walking the Earth.  It has little to do with the political systems or economic systems we run to manage the resources.  None of them can work anymore.  There are too many people, too much pollution and waste and not enough resource left for this planet to bear.

That is all she wrote.

http://www.dfwchild.com/Dallas/images/features/Noted_Cursive_ArticleImage1.jpg

RE

Bond Market Collapse and the Banning of Cash

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Aired on the Doomstead Diner on May 22, 2015

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Snippet:

…Bitcoins, a relatively new form of electronic money are also often hawked as the latest and greatest solution to keeping your money safe. Except EVERYBODY KNOWS about Mt. Gox by now. From Wiki:

Mt. Gox was a Bitcoin exchange based in Tokyo, Japan. It was launched in July 2010, and by 2013 was handling 70% of all Bitcoin transactions.[1] In February 2014, the Mt. Gox company suspended trading, closed its website and exchange service, and filed for a form of bankruptcy protection from creditors called minji saisei, or civil rehabilitation, to allow courts to seek a buyer.[2][3] In April 2014, the company began liquidation proceedings.[4] It announced that around 850,000 bitcoins belonging to customers and the company were missing and likely stolen, an amount valued at more than $450 million at the time.[5][6] Although 200,000 bitcoins have since been "found", the reason(s) for the disappearance—theft, fraud, mismanagement, or a combination of these—are unclear as of March 2014.[7]

You think Fraud, Mismanagement and Hacking will STOP if money goes cashless? OF COURSE NOT, IT WILL GET WORSE! There is no computer system ever that is foolproof and incapable of being hacked, and of course the rewards for hacking such a system or “mismanaging” it gets bigger all the time, so the Best & the Brightest spend all their time figuring out how to do that…

For the rest, LISTEN TO THE RANT!!!

Full Rant Transcript available HERE

ALSO, IF YOU HAVE NOT DONE SO ALREADY, TAKE THE SURVEY ON NEAR TERM HUMAN EXTINCTION BELOW!

Do Central Bankers Recognize there is NO GROWTH?

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Kollapsnik.com

 

Published on the Doomstead Diner on April 26, 2015

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Everywhere in the Political World you hear the phrase "Return to Growth", the Holy Grail for resolving the economic woes of the world.

http://gujarati.oneindia.com/img/250x90/2014/06/17-himalayas-glaciers.jpgWith Growth, the Greeks got no problems, they can pay off the Mole Hill of debt they owe to everybody.  With Growth, the FSoA can pay off the MT. EVEREST of debt owed to everybody.  Growth is GOOD.  It solves all problems.

Sadly of course, Infinite Growth on a Finite World is impossible, and as vast as the resources of the Earth may have seemed a century or two ago, an Exponentially growing population of Homo Saps has managed to burn through most of the good easy to get at stuff, and while burning through it load up the environment with the waste such consumption produces.  We are essentially DIGESTING the Planet, and leaving it loaded with the excrement from said consumption.

Problem in the Near Term here though is that the Monetary System we used to access and distribute all these resources itself is also predicated on perpetual growth, and when the growth stops, so also stops the Monetary system.  Except, not quite right away.  Everybody and every thing DEPENDS on the monetary system to keep functioning, and we have Geniuses up there at the top running the show who endeavor to make SURE it keeps functioning, no matter what reality is telling us here.

How ARE they keeping this running?  Two acronyms for you here which tell it all, ZIRP & NIRP.  Those are the modern bankstering acronyms for ZERO INTEREST RATE POLICY and NEGATIVE INTEREST RATE POLICY.

From Zero Hedge:

Earlier today, we were quite shocked when we heard two statements by central bankers uttered during a press briefing in Washington. The first comes from the ECB's Mario Draghi:

DRAGHI: LOW RATES FOR LONG PERIOD INCREASE FINANCIAL STABILITY RISKS

The second: from his supposed nemesis, if only for public consumption and not during the BIS' bimonthly meetings in Basel, Bundesbank head Jens Weidmann, who said a carbon copy replica of what Draghi had said minutes prior:

WEIDMANN SAYS LOW INTEREST RATES INCREASE FIN STABILITY RISKS

We were "shocked" because for once, we agree with central bankers. And to get a sense of just how right the two central bank heads are we go to Bank of America which overnight released a report in which it said that as of this moment, "53% of all global government bonds are yielding 1% or less (Chart 3)."

Let that sink in for a second.

And while you are contemplating that, here is another fact from Bank of America:

The global narrative remains maximum liquidity (Chart 2) & minimal interest rates. And it’s impossible to be max bearish with such an extravagant monetary backdrop.

Central bank assets now exceed $22 trillion, a figure equivalent to the combined GDP of US & Japan

So yes, low rates for a long period of time most certainly "increase financial stability risks" – the central planners are certainly correct about that. But next time they make that remark, perhaps someone from the media can ask Messrs Draghi or Weidmann the following question:

does the fact that central banks now collectively own nearly a third of global GDP in government bonds and equivalent assets – an amount that is greater than the GDP of first and third largest global economies, have anything to do with "low rates" and the fact that "financial stability risks" as of this moment have never been higher?

Oh, and good luck with that "renormalization."

Now, EVERYBODY KNOWS Money is supposed to "Make Money" in some kind of virtual perpetual motion machine.  If you save a small pile of the stuff for your retirement, your supposed to get a "decent return" which in the olden days was something like 5-10% depending on how much "risk" you were willing to take on your "investments".  Real risk averse people like my Mom who was a child during the Great Depression wouldn't invest in the Stock Market, too risky.  She put her little pile into CDs, considered one of the safest places to park your cash, which gave a slightly higher return than a typical Savings Account.  She probably collected an average return of around 3% over the years she was retired for this pile.

These days though, nobody including the Central Banks that issue out the money expects to get any return on it, they expect to LOSE money. If you are well connected enough, the Bank will PAY YOU to borrow money from them.  That's what a Negative Interest Rate means.  On the other side of the coin, if you happen to be someone with enough surplus income to actually save some of it, if you drop it in the bank for them to keep it "safe", they'll charge you for the priviledge of keeping your money "safe" with them.

So, basically the whole monetary system we have come to believe in is completely ass-backwards now, and what this really is is a recognition that Growth has stopped, and in fact reversed to contraction.  I hate that Newzspeak term "degrowth".  We're not "degrowing", at best we're shrinking and maybe DIEING.

Obviously, the super smart folks running the monetary system KNOW that there is no growth here in any real terms, but to keep the monetary system operational they need to present the ILLUSION of Growth.  Every last Politician and Technocrat…Wait!  Let me digress here for a moment on this "Technocrat" thing!

"Technocrat" is another nice Newzspeak Euphimism for a Fascist Apparatchik.  Prior to about 1930 this word didn't even fucking EXIST, and it didn't get much play after it was invented until the 1960s

technocrat_ngramFrankly, if Google's nGram stat system was updating this term from 2008 to today, I bet you dollars to doughnuts that "Technocrat" has reached still more dizzying heights in the world of NewzSpeak.  Notice how the word is a confabulation of the Positively Held notions and words of Technology & Democrat?  Technology is GOOD.  A Technocrat  must be SMART too.  Democratic principles are GOOD.  A Technocrat must care about Democracy, because it's right there in the name, right?  Here's a typical Technocrat:

http://images.bwbx.io/cms/2012-09-05/0905_mario_draghi_630x420.jpg

Super Mario Dragon

Do you think this former Goldman Bankster gives a flying fuck about "democracy"?  Of course he doesn't.  All he gives a shit about is keeping the system running here so he can stay at the top of the heap.  Far as his Technical Knowledge goes, he's as fucking clueless as everybody else running this show.   They don't have a solution to the problems we face, because short of a massive dislocation, probable World War and copious Death & Destruction, there really isn't a solution that works for everybody.  SOMEBODY (or really many somebodies) will get completely FUCKED here!  Super Mario's job is to make sure that isn't himself or any of his friends at Goldman.

He's not a stupid guy of course, so he certainly knows by now that there is no real Growth anywhere on the horizon for anybody, but in order to keep the system running, the ILLUSION of Growth must be maintained at all costs, and the costs are steep indeed.  So Super Mario and the rest of the CB Apparatchiks out there jawbone Growth, but even with all the Free Money dished out to the well connected, they tacitly acknowledge there is no Growth with a Zero Interest Rate.  How can you "grow" your personal little pile of Savings if you get no interest on it?  If the Bank or Bonds you use to park your money have a NEGATIVE interest rate, your pile doesn't grow over time, it shrinks.  Currently both Swissie and Kraut Goobermint Bonds are Negative Interest Rate "investments".  So why does anybody drop their money into this dogshit?  Because these Bonds are perceived as a "safe haven" when the inevitable Crash that Everybody Knows is coming arrives and the Magically Levitated Stock Market finally faces The Last Margin Call TM.

The evidence that there is no Growth is all over the place of course, all you have to do is look at the declining number of people in the Labor force…

http://www.ritholtz.com/blog/wp-content/uploads/2012/12/part1202121_big.gif

…or the total Miles Driven and Gas Konsumed by the no longer working…

http://www.ritholtz.com/blog/wp-content/uploads/2012/02/3ilesgas0213121_big.gif

…or the CRASHING count of Oil Rigs across Frackerville

Oil_Rig_Collapse

Watch Four Years of Oil Drilling Collapse in Seconds (Bloomberg)

Click the link to view the full Interactive Map

http://www.whatamimissinghere.com/wp-content/uploads/2010/08/Bubble-Debt-Crisis-500x354.jpgHow was all that drilling financed to begin with?  With a lot of DEBT, that's how, which is about the only thing left that IS Growing, and Growing Exponentially.

Since the "Investors" out there couldn't get any kind of return on anything else, they started pitching out funny money at the drillers, "chasing yield"  as the saying goes.  Problem of course with this is that the folks who borrowed this funny money are in the process of Going Outta Biz.  Those loans aren't going to be paid back anymore than the pile of Student Debt will be paid off either.

Currently, of the somewhere around $1.3T in Student Debt, fully 1/3rd is currently delinquent or in arrears.

From Zero Hedge:

It’s no secret that America has a $1.3 trillion student debt problem and as we’ve outlined on a few occasions recently, the actual delinquency rate for student borrowers is far higher than the (also high) 18% that’s generally reported because as The St. Louis Fed recently pointed out, it’s important to look not at delinquencies over total student loans but at delinquencies over loans in repayment and when you do the math on the latter you discover that once America’s best and brightest come out of deferment and forbearance, one in three quickly fall 30 days or more behind on their payments. In other words, the real delinquency rate (i.e. the rate for those who are actually required to make payments) is closer to 30%.

And while the Obama administration debates more “efficient” ways to allow for the discharge of this mountainous pile of bad loans in bankruptcy proceedings, some folks saw their student debt ABS put on review for downgrade at Moody’s which cites default risk on nearly $3 billion worth of paper. As a reminder, these are the deals and tranches affected:

http://www.hyde.edu/wp-content/uploads/2012/04/churchill.jpgNow, since this nonsense of ever escalating levels of debt and ever decreasing quantities of available resource has been ongoing and working (sort of, for .01% of the Population), clearly TPTB have deluded themselves into believing they can keep this Ponzi running in perpetuity.  Just KEEP ISSUING OUT MORE DEBT!

Problem of course is that the debt is only being issued out to .01% of the population, so consumption is shrinking and until they start issuing out the Funny Money to J6P to buy the junk on sale at Walmart at Low, Low Prices Every Day, it will keep shrinking.  The Central Banksters can Jawbone growth from now until the cows come home, but it won't get J6P increasing consumption, which represents about 70% of the GDP.

Eventually, as already is the case with the oil price, you get a crash in the prices and the losses get recognized.  Oil isn't like the Housing market, where you can keep all the unsold and foreclosed on McMansions in hidden inventory for years on end while you wait for a "rebound" in demand.  There's a limited amount of above ground storage space for Oil, and once it is all filled up you have to dump inventory at whatever price you can get for it until you can get all the production shut in to limit the supply to match the ever decreasing demand.

The Saudis are taking advantage of this situation to try and drive everybody else outta biz faster, by INCREASING rather than decreasing their production.  They're aware the prices are never going to go back up, so they're doing a Final Liquidation Sale. "Everything Must Go! 90% off all Merchandise!"

The ETP Model developed by the Hill's Group has been remarkably accurate in predicting the downward pressure on the price of Oil, and the conclusions drawn are inescapable.  Below, from the 4th Update to the ETP Model:

The price of petroleum is controlled by two factors:1) The cost of production.
2) The $ amount that the end consumer (the NEGs) can afford to pay for it.What the end consumer pays must be sufficient to cover the cost of production. All production cost must be borne by the end consumer, who includes the end buyer, and the societal cost required to produce petroleum, and its products.The Petroleum Price Curve, shown below, reflects the two factors that have, and will continue to control petroleum prices. The ETP derived Cost Curve is constructed from the ETP model, and has mapped the price of petroleum since 1960 with a correlation coefficient of 0.965. It is the most accurate pricing model that has ever been developed, (see report)*.The Maximum Consumer Price curve was also developed from the ETP model. It represents the maximum price that the end consumer can pay for petroleum. It is based on the observation that the price of a unit of petroleum can not exceed the value of the economic activity that the energy it supplies to the end consumer can generate.
A more complete explanation of how the Maximum Consumer Price curve was formulated is show in chart# 160 below:

depletion2022003.jpg

The two Maximum affordable price curves labeled 71% (black), and 62% (light blue) are skewed logistic curves. There is no explicit mathematical equation to describe them. They are derived numerically, and the dots represent values for specific years. The 71% curve is the maximum theoretical energy that can be extracted from a unit of 37.5° API crude. Its value is derived from the combustion equations of hydrocarbons. The 62% curve is the average energy extracted from the same hydrocarbon by the end user. It passes through the  ETP derived price curve at the inflection point of the ETP curve in year 2012. 2012 was the energy half way point for petroleum production. It was the year when it required one half of the energy content of petroleum to produce the petroleum, and its products.
The individual points are generated from the equation:  $/barrel = (Energy delivered – ETP value/ BTU/$) * 42.Energy delivered = 140,000 BTU/gal *0.62 (140,000 BTU/gal – the energy content of 37.5° API crude)
ETP value is derived from the ETP function
BTU/$ is taken from the BTU/$ graph – Graph# 12

The Maximum Consumer Price curve is curtailed at 2020 at $11.76/ barrel. At this point petroleum will no longer be acting as a significant energy source for the economy. Its only function will be as an energy carrier for other sources. Production will continue as long as producers can realize the lifting costs at existing fields. E&D expenditures, and field maintenance costs will have been curtailed. All production from that point forward will be from legacy fields only. The economic impact that will result from the energy lost to the general economy is beyond the scope of this report.

 

The energy content of a unit of petroleum is fixed by its molecular structure. The energy to produce a unit of petroleum, and its products increases with time as a result of the entropy production of the PPS (Petroleum Production System). The energy remaining for use by the general economy declines, and the economic activity that the petroleum can power also declines. Chart# 161 below shows the historical, and projected economic activity in 2014 dollars that a barrel of petroleum (37.5° API crude) has, and will be able to power.
 
Historically, petroleum has been a primary beneficiary to the economy. The economic activity that it powered was greater than the cost of the petroleum. Its historical effect can be seen in Graph# 25 (World GDP vs Cumulative Production). That benefit is now declining, and by the early 2020's an increased use of petroleum will no longer add to GDP. It will become more cost effective for society to begin limiting its use of petroleum as the use of petroleum transitions from a GDP enhancer to a GDP reducer.

The Hills Group isn't alone in having modeled this crash, Steve Ludlum on Economic Undertow modeled it also when he noticed two converging and irreconcilable trends, the increasing cost of what it takes Drillers to extract the Oil and Natural Gas vs. the decreasing price the customers can afford to pay.  Back in August of 2012 Steve published the first of his Triangle of Doom TM charts predicting the crash in Oil prices.

TriangleofDoomWe all know what occurred in November of 2014:

Triangle-of-Doom-1101141

…and here's the LATEST in Triangle of Doom Charts…

Triangle-of-Doom-041515

 

The rest, as they say, is History.  Steve predicted TO THE MONTH the collapse in the Oil Price, so when you read in the MSM "Who Cooda Node?" this would occur, you can tell them we knew.

Where does it go from here?  First off, as is obvious above here, Drillers are going Bankrupt and Outta Biz, the smaller operators first.  Rig counts in the Bakken and Marcellus drop daily (see the interactive map from Bloomberg above), and the most expensive to extract Oil is getting shut in first.  The biggest companies and largest exporters like the Saudis with the deepest pockets will last the longest, but they also inevitably will succumb to the downward spiraling demand from increasingly impoverished consumers.  As noted in the Hills Group Report, by 2020 Oil will be a negligible part of the economy as the cost to extract versus the price that can be paid to burn it becomes uneconomic for everyone.  It may even occur before that, since many enterprises driven by Oil such as Refineries can only operate at large scale.  Once refineries start shutting in, it doesn't matter if there is still some Oil left in the ground or a few people still with functioning money who could buy it.  It simply will not be available at ANY price.

How will our society function without Oil and it's products?  Simply stated, IT WON'T.  Not in its current form anyhow.  What sort of new society we will transition into and how we will cope with the many problems resultant from this kind of radical change is an open question.  The only thing you can say for certain is the transition will not be an easy one, and that life a decade into the future will not resemble much the life we are still living now, at least if you haven't yet fallen off the Economic Cliff.

The Dominoes are falling as we speak.  It is only a matter of time before it Comes to a Theater Near You.


 

 photo mr_know-it-all_zpsdea49f76.jpgMore Rogue Economist  Articles & Rants:

Money Valve I, Money Valve II, Money Valve III, Money Valve IV,David Korowicz Podcast:Financial Contagion & Tipping Points,Financial WWIII, Of Heat Sinks & Debt Sinks: A Thermodynamic View of Money,Theory of Everything I, Theory of Everything II, Energy-Money Equilibrium I, Energy-Money Equilibrium II, Energy-Money Equilibrium III,Da Fed: Central Banking According to RE,Kurrency Kollapse,Large Public Works Projects I,Large Public Works Projects II,Large Public Works Projects III,Waste Based Society I, Waste Based Society II, Waste Based Society III,Smokin' Economista Crack,Demand Destruction, Swissie Capitulation,Energy & Banking Criminal Racketeering,Economic Ebola,Competitive Currency Devaluation & Deflation,Inflation, Deflation & FOOD!,Financial WWIII: Secessions, Sanctions & Anti-Dollars, Anti-Dollars III: Fining Putin,Anti-Dollars II,Anti-Dollars,Eurobanksters Pray for Jesus,Wealth Confiscation & Destruction,Monetary Kabuki,Peak Credit,Fictional Wealth & Putin's Billions,Student Loan Forgiveness,Deflation Doom,The Death of Debt,Emerging Markets & Peripheral Currency Collapse,Tower of Babel Moment,Submerging Markets,Musical Dollars,Energy, Money & Gold,History & Future of Coinage & Money,The Future of Money,Whither Gold?,Conduits,The Crucifixion of Money,Banks: Unsafe at Any Speed,More Musings on Money,Liquidity Traps & Asset Class Sinkholes,Small Bizness in the Sea of Irredeemable Debt,Now Why Don't They SHOP?,Debt Monetization Economics,Financing the Industrial Revolution,Manufacturing Money,Capital Controls,F7 Print Button in Lockup,Moving Beyond Capitalism,On Dignity & Comparative Wealth,Avalanche Theory of Debt Cascade Failure,The Concepts of Money & Capital,Dollar-Oil Nexus,Hyperinflation vs. Deflation: Rebutting FFOA,Hyperinflation vs. Deflation Continued,Energy, Money & Oil: Inter-relationships,Banksters go ALL IN,History of Economic Collapse & the End of the Age of Oil,Capital Flight & Unions: 40 years of History in the FSoA,Hyperinflation or Deflation?,In the Debtrix, there is no Red Pill,

Map

Singularity of the Dollar

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Published on the Doomstead Diner on March 22, 2013

Dollar-Flash-Crash-Singularity

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     On Wednesdayday, March 18, 2015 at precisely 4:04 PM ET in the FOREX trading Markets, there was a Flash Crash of the Dollar.  Just prior to that though, the Almighty Dollar was subjected to an event known in Mathematics and Physics as a “Singularity”

sin·gu·lar·i·ty

ˌsiNGɡyəˈlerədē/

 

Physics Mathematics

A point at which a function takes an infinite value, especially in space-time when matter is infinitely dense, as at the center of a black hole.
     You see clear evidence of The Singularity in the compression of values that occurred directly before just about every FOREX trading pair went BERZERK, and the Dollar value relative to all of them Flash Crashed.
     You see a similar effect in a Black Hole, when matter is compressed to infinite density and infinitessimal space, collapsing on itself from too much Gravity pulling it inward and lack of Energy pushing it outward.
http://i1-news.softpedia-static.com/images/news2/Black-Holes-Shouldn-039-t-Exist-2.jpg
http://www.speed-light.info/speed_of_light/singularity2.JPG     The formation of  Black Hole comes at was is known as an “Event Horizon”.  That is the point in Space-Time at which the equation “flips over” and irreversible collapse occurs, leading to the Singularity.
     In the diagram at left, you see that everything is drawn inwards to create the singularity, but it doesn’t show what comes out the “Other Side” of said Singularity.  You see that better in the photo above, which has Radiation streaming outward from the Center of the Black Hole.
     The graph at the top of the page shows the very same features, the Event Horizon was crossed at approximately 13:53 ET based on the X-Axis, and then the Flash Crash occurred about 10 minutes later at 14:04 ET.  Why did this occur?
     Well, as just about everyone knows by now, most trading is no longer done by Humans, it is done by Computers which follow certain Algorithms, known as High Frequency Trading algorithms, or HFT for short.  By no small coincidence, the folks who program up these algorithms do not usually come from Economics, they are recruited from Ph.D. Theoretical Physicists graduating from schools like MIT, Columbia, Oxford, etc.  Economics tends to be pretty “soft” on the quantitative end, whereas Physics is more rigorous in this regard, basically Physics people are better at Math than Economics people.  LOL.

They are known as “quants” because they do quantitative finance. Seduced by a vision of mathematical elegance underlying some of the messiest of human activities, they apply skills they once hoped to use to untangle string theory or the nervous system to making money.

http://www.maximumpc.com/files/u96627/geek.jpgThis flood seems to be continuing, unabated by the ongoing economic collapse in this country and abroad. Last fall students filled a giant classroom at M.I.T. to overflowing for an evening workshop called “So You Want to Be a Quant.” Some quants analyze the stock market. Others churn out the computer models that analyze otherwise unmeasurable risks and profits of arcane deals, or run their own hedge funds and sift through vast universes of data for the slight disparities that can give them an edge.

Still others have opened an academic front, using complexity theory or artificial intelligence to better understand the behavior of humans in markets. In December the physics Web site arXiv.org, where physicists post their papers, added a section for papers on finance. Submissions on subjects like “the superstatistics of labor productivity” and “stochastic volatility models” have been streaming in.

Quants occupy a revealing niche in modern capitalism. They make a lot of money but not as much as the traders who tease them and treat them like geeks. Until recently they rarely made partner at places like Goldman Sachs. In some quarters they get blamed for the current breakdown — “All I can say is, beware of geeks bearing formulas,” Warren Buffett said on “The Charlie Rose Show” last fall. Even the quants tend to agree that what they do is not quite science.

[Note: I don’t think these grads are “seduced by a vision of mathematical elegance” as much as they are seduced by pulling home a big paycheck, but that is another question for another day.  LOL.]
     So, with the advent of computers, Physics grads have been recruited to design up the HFT trading programs, which tend to reflect the kinds of equations that they learned in physics, so if you get a similar “Event Horizon” on the mathematical level with all the variables that are being computed, you’ll get a similar type of rendering on a graph, which is of course what you got with the graph up top here.
     So, your next question is just what was it that occurred at 13:53 that pushed the algos over the edge of the Event Horizon?  Some parameter must have had a significant change, but we don’t know what that change was, although to be sure somebody does.  What are some likely possibilities?
1-One of the Algos “misfired” with a glitch, which sent all the rest of them over the edge also.  That’s a plausible Random Explanation.
     However, with so much ongoing here in the world of Global Finance Manipulation, it seems more likely to me that somebody who can push VERY big money around did a significant dump of Dollars, against the current general trend of the market to run TOWARD the dollar right now, since it’s still the best looking Dogshit in the Pound.  Who could possibly make such a large Dump of Dollars?  Only two reasonable possibilities there.
1 Da Fed:  Da Fed can buy or sell as many Dollars as it wants to, doing Currency Swaps at will.  Perhaps TPTB in charge there wanted to stop or at least slow down the appreciating value of the dollar relative to other currencies or raise the price of Oil by devaluing the dollar.
2- The Chinese:  The Chinese have a vast hoard of Dollars, and their own currency of the Renminby has a “soft peg” to the dollar, so as the dollar has been increasing in value relative to other currencies, so has Renminby.  The problem with that of course is that it hurts the Chinese Export market and their “competitiveness” as everyone rushes to “Beggar Thy Neighbor” by devaluation, attempting to be able to undersell competitors in this manner.
     Such devaluation comes at a Price though, because it makes any you import relatively more expensive, most notably here Energy Imports which none of the mercantilist economies can do without if they want to keep producing and exporting industrially manufactured goods, and which is necessary for producing Food in Industrial Quantities to support their large populations.
     There are some other possible candidates, the Ruskies for instance are in a pitched battle with the Western Illuminati Banking system that uses the Dollar as World Reserve Currency, but it doesn’t seem likely that with all the sanctions currently in place they would have sufficient leverage in Dollars to pull a stunt like this.  Nor does it seem likely the Japanese would do it either, except perhaps as a proxy for Da Fed.
     The next important question is what are the consequences of this?  In the aftermath the following day, the Dollar “rebalanced” and climbed right back up to where it was before, and BAU resumed.
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/03/20150319_oops2.jpg
     So, if there was intention to permanently crash the system, it obviously failed.  If the purpose was to get a few FOREX traders to stain their underwear, it was wildly successful.  LOL.
     The purpose may have simply been to demonstrate how unstable the House of Cards is and to make everyone more skittish than they already are.  If you were able to Front Run this you might have been able to make a lot of money, but besides the folks who set it off, it would have been impossible to front run.  I’m not sure even the folks who set it off could front run it, because they don’t have access to all the other algos which are trading, so they wouldn’t know what the behavior of all the currency pairs would be.  Probably though it could reasonably be assumed the dollar would plummet in value relative to everything else.
     Moving into the future, it reminds us first that all the markets are thoroughly manipulated and being run by a very few very big players, mainly the Central Banks and TBTF Investment Banks.  There are some large Hedge Funds running HFT that possibly could set off another Singularity event as well, and it doesn’t have to be just in the FOREX market, although that is where the biggest and quickest potential damage is possible.  In the worst case scenario, there is a rapid and massive shift of all currencies which actually HOLDS, like the recent rebalancing of the Swissie against the Euro.  This has a cascading effect on the balance sheet of banks with large number of loans denominated in Swissies which can quicly render them insolvent, as was the case with the Austrian Regional Bank Hypo Alpe Adria & Heta Asset Resolution AG and the province of Carinthia;

A Black Swan Lands In Southern Austria: The Ripple Effects Of “Mini-Greece Going Off In The Heartland Of Europe”

By far the most notable news of the past week, which has still gone largely unnoticed by the greater investing community whose focus instead was on whether algos would ramp the Nasdaq to 5000, and keep the S&P above 2100, even before Mario Draghi finally began buying bonds that nobody wants to sell, was the “Spectacular Development” In Austria, whereby the “bad bank” of failed Hypo Alpe Adria – the Heta Asset Resolution AG – itself went from good to bad, with its creditors forced into an involuntary “bail-in” following the “discovery” of a $8.5 billion capital hole in its balance sheet primarily related to ongoing deterioration in central and eastern European economies.

This shocking announcement promptly sent the price of Heta bonds crashing as creditors, no longer enjoying the explicit guarantee of the state, scrambled to get out of “northern Europe’s” first Lehman moment.

But while the acute pain came and went for Heta bondholders who have seen a nearly 50% loss in just a few short months, the bigger and far more diffuse pain is only just starting, or as Bloomberg put it, “Austria’s decision to wind down Heta Asset Resolution AG sent ripples through the financial system, causing credit rating downgrades in Austria and bank losses in Germany.”

The first casualty: the beautifully picturesque southern Austrian province of Carinthia.

jenga_collapse      This by itself is bad enough, with cross contagion effects already being felt by other banks in Germany. However, imagine if numerous currency pairs rapidly changed in valuation, then you have similar problems going on everywhere in many countries, and many simultaneous bank failures as a result.  If the system has this much trouble handling the failure of one small Austrian Bank, imagine what happens if it is many of them, plus a few large systemic banks like Deutchbank too!  In this case the whole Jenga Tower comes down, and quite rapidly also.

To date, all the failures have been contained through a variety of accounting frauds and the endless expansion of CB balance sheets with gobs of Irredeemable Debt now on their books.  Each of those is an increasingly malformed block being placed ever higher on the Jenga Tower.  It is Magical Thinking to believe that this tower will not eventually collapse under its own weight and increasing instability, demonstrated by the nearly daily “Flash Crashes” in markets all over the Globe, all linked together at the speed of light by the telecommunications network and run not by human hands, but by HFT algorithms, which while they may be designed by Geniuses, are still subject to the laws of mathematics and physics.

The main law involved here is one everyone is familiar with, which is:

What Goes UP, must come DOWN

When this Tower does collapse, it will come down a whole lot faster than it went up.  That day approaches ever closer now, and it would be a good time to get started running in the other direction away from it, as fast as you can.  Run Away, Run Away FAST, Run Away NOW TM.

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Kurrency Kollapse: To Print or Not To Print?

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Aired on the Doomstead Diner on March 14, 2015

MoneyHole

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“THE GREATEST BONFIRE OF PAPER WEALTH IN ALL OF RECORDED HISTORY TM

money-burning

Snippet:

http://www.angelfire.com/art/masks/images/mask01.jpg…So to try to resolve this mess, one choice for Da Federal Reserve would be to issue out multiples of the $Trillions$ it has already issued out and take every last indebted country onto its own balance sheet as the collateral, effectively essentially putting say France under the Ownership of the Federal Reserve! Then the Frogs get the same treatment that Greece gets now taking it up the ass from the Troika. The population gets squeezed dried, but this STILL does not stop the implosion from progressing onward.

The other choice, which in the words of Ambrose Evans-Pritchard is to “take their medicine” is that Da Federal Reserve STOPS pitching Worthless Money after more Worthless Money out, and TBTF Banks and entire nation States go Bankrupt in a huge Daisy Chain, or as I once wrote on the Peak Oil Forum, “The Greatest Bonfire of Paper Wealth in All of Recorded History”.

There is no Third Option as yet identified here, it’s a Shakespearian Comedy/Tragedy, “To Print or not to Print, that is the question? Whether ’tis nobler to die by the slings and arrows of Hyperinflationary misfortune,, or to dry up liquidity and die slowly in a Deflationary Spiral, and by collapsing this stupid shit end this utter nonsense? To sleep, perchance to die…”

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SWISSIE CAPITULATION!

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Aired on the Doomstead Diner on January 18, 2015

titanic-sinking

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Snippet:

http://cdn.news12.com/polopoly_fs/1.5585827.1372415753!/httpImage/image.PNG_gen/derivatives/display_600/image.PNG…The folks worst hit here in the short term are the Forex traders who were short on Swissies, figuring they would stay pegged to the Euro as promised by the SNB. At least two of the currency trading firms blew up immediately after this, FXCM and Excel with losses in the $100s Millions, and somebody out there took that hit, although we don’t know precisely who that is yet. Client accounts are supposedly segregated out here, but anything caught up in the trading when this went down is now GONE. Precisely how much anyone with an account with these two firms will be able to get back out and when is an open question. No doubt quite a few folks will get Corzined on this one.

Meanwhile, over in Greece in a not entirely unrelated event, now all 4 of TBTF Greek Banks had to go to the Greek Central Bank for “Emergency Liquidity Assistance”, basically because there is an ongoing RUN of the Greek Banks and everyone with any CFS is trying to get their money OUT of them before they go Tits Up and convert everybody’s savings to New Drachmas, destined to be about IMMEDIATELY worth less than a roll of Charmin.

These banks, which Zero Hedge has reported as “systemic” have basically run OUT of collateral that even the ECB which accepts almost any stinking dogshit will accept for them to hand over a few more Euros. At first it was just 2 banks referred to as systemically important, without revealing which onesd they were. The obvious reason here that the identity of these banks is not being revealed is that would of course ACCELERATE and already ongoing diarreah attack they are undergoing and they would squirt out still more liquified Brown-25. This ploy however did not work, so now the run is on all of them. LOL…

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Of Heat Sinks & Debt Sinks: A Thermodynamic View of Money

Off the keyboard of RE

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Published on the Doomstead Diner on December 30, 2014

Heat_engine

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A while back, I tried to clarify the way Money works as a Proxy for Energy in the Money Valve series, in which I took a detailed look at how the various facets of our Industrial system conspire to turn Resources into Waste over time.  The whole bizness got pretty complicated even though I tried to keep it simple, stupid in the KISS principle.  What I was trying to demonstrate is how money and energy are related, and how the flow is mediated by the monetary system.

We began with a fairly simple chart, to see how Money is allocated based on Energy.

MoneyValve3The whole idea began to get a lot more complicated once I tried to identify the various sectors of the economy, how they interact, where the inputs are, and where the waste flows to.  Even at a simple level, the network gets pretty complex.

MoneyValve7While it is worthwhile to try to elucidate how all the factors interplay here in an Industrial type economy, in reality the basic issue is one of fundamental thermodynamics, which the classic Heat Engine graphic at the top of the article illustrates.  In the classic Heat Engine, energy in the form of Heat flows downhill from Hot to Cold, and how big the gradient is between Hot and Cold determines the amount of work the Heat Engine can perform.  For the Heat Engine to do WORK, there always has to be a HEAT SINK, a place for the waste heat to go on the way downhill.

As I have argued on numerous occasions, Money serves as a PROXY for the energy available in a given society, and because of that there is a PRECISE analogue to the Credit-Debt system of money we use to the available energy in a given society.  All you have to do to see this is re-label the Thermodynamic Heat Engine to see how this works.

Heat_engine-Money

http://upload.wikimedia.org/wikipedia/commons/3/39/GodfreyKneller-IsaacNewton-1689.jpgThe analogy is so clear and so precise that I am quite certain Master of the Mint Sir Isaac Newton understood this relationship when they founded the Bank of England in 1692.

At the beginning in the theoretical example, a Heat Engine is very efficient, when there is a large difference between the temperature of the Heat Source and the Temperature of the Heat Sink.  The greater the gradient here, the more Work the system is capable of performing, and the waste heat is only a small percentage of the total energy consumed by the machine.  Over time however, as the Energy source which provides the Heat is consumed and the Waste created in the process becomes ever larger, the Gradient becomes ever less, and the machine becomes ever less capable of doing Work.

In the REAL example here of Industrial Civilization, back in the late 18th Century when the Fossil Fuel resources began to be exploited, there was a very large gradient between what was available for exploitation in terms of resources, and the total amount of WASTE accumulated to that point in time.  The New World Continents of North & South America were virtually empty of people, as the diseases of Smallpox, Tuberculosis and Scarlet Fever decimated the Native populations, and compared to Europe and the Middle East, not near so much agriculturally intensive society either, though there was some going on prior to the Colonial Era.

Beginning with this era, it became possible to issue out EXTRAORDINARY amount of DEBT, if you were in a position of power with which to do that.  There was seemingly ENDLESS resource available in the New World even BEFORE the discovery of Fossil Fuels and how to use them in Heat Engines.  Once fossil fuels began to be exploited, it seemed like you could issue out ENDLESS debt on this one, because the Energy Source was so big.  And so it came to pass, virtually endless Debt has been issued out on this resource base, which now is running a bit thin overall.

It hasn’t “run out”, nor will it likely ever really entirely dissapear, but what has DISAPPEARED here is the Energy GRADIENT between available resources and Waste produced, so the Engine of this sort of economy is no longer very efficient, and becomes less so every day.  At this point, the Waste is not just filling Land Fills with Garbage, it is filling the Atmosphere also with CO2 and the oceans with plastic garbage, not to mention the Nuke Puke from Fukushima.  All of this waste accumulating in the environment make the Engine less able to do Work, because the gradient is less capable of absorbing the Waste Heat.

In terms of how this is reflected in the Monetary System serving as Proxy for this, all the DEBT issued out since the beginning of the Industrial Revolution has to collect in a DEBT SINK.  What is that sink?  It is the expanding balance sheet of the Central Banks, most notably De Federal Reserve Bank of the FSoA, but also including numerous other CBs like the Peoples Bank of China (PBoC).  The source of the Credit was the Global supply of fossil fuels, which still exist but the gradient between what is extractable and the waste produced in the burning of it no longer is there to do efficient work with.

On the Credit-Debt level, you see this problem in sharp relief.  The folks with the power to issue Debt still have that power, and they continue to issue more and more of it every day.  In the main, it is a few powerful Oligarchs who have the power to issue out debt, and they get the ball rolling on anything.  They do not pay off the debts however, they are all transfered through various processes of bailouts and bankruptcies onto the balance sheet of the Public, at the Central Bank.  This is how the “Privatization of Profit, Socialization of Debt” occurs.

You reach a point in this equilibrium however when the Debt level in the Debt Sink is equal to or greater than the Credit that can be issued out on the resource base of energy.

Credit-Debt_FlowWhy does the money stop flowing?  Well, it doesn’t in it’s entirety at first, but the backflow of bankruptcies matches or equals the rate at which new credit/money is issued out.  This is the stage we are at now.  You can keep issuing out credit, but you don’t get any return from it because the backflow matches any amount of new credit you pitch out.  There are not more resources the money can access without accumulating debt at an equal or greater rate.  The money at this point has to be issued out at a ZIRP, because there is nothing to be sieved of the flow from Interest & Taxation.

The Boom-Bust cycle occurs in the early years of accessing an energy source because the “animal spirits” of the folks issuing credit take over and they issue more credit than the machine at that point is prepared to handle.  You can only grow the money supply and credit as fast as the resource base that underpins the money is accessed.  In fact the folks running the Central Banks learned this, and thus came up with the target inflation rate of around 2%, to match how fast new sources of fossil fuel energy were being found and exploited.  The early 20th Century collapse of the Great Depression was an example of a Boom cycle where animal spirits amongst the creditors went wild, but the consumption ability was low at the time, there were not enough vectors through which to waste the energy.  It all went Bust in 1929 at the end of the Roaring 20s, and the aftermath of that Bust is well recorded history overall.

The situation we have now IS DIFFERENT THIS TIME, it’s not that the credit has been issued out too fast to access the resource base, it’s that the resource base relative to the debt level is too depleted to offer a return on investment. Certainly you could in theory issue out another say $100B in Credit to energy companies to drill the Arctic Ocean, but you’ll never get BACK the $100B PLUS INTEREST from the population at large to pay off on this investment.  The Debt Sink of the Consumer is already full up here, on all levels from personal debt to Goobermint debt signed for in his name by his “elected” representatives.  Da Goobermint is NOT handing out free money to consumers to buy the oil as it hands out free money to extractors to drill, and they likely never will.  What they are doing in just about all economies across the globe is strangling the amount of credit the population at large has available to buy the energy, while they close up shop and stop the CapEx required to exploit any sources of energy that are still left here.

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/12-overflow/20141229_WTI2%27.jpg

You can see this in action already in the Bakken and other neighborhoods where high CapEx is necessary to drill and develop the energy source, rig counts are already down there.  Royal Dutch Shell and the other majors are already backing off from further investment, and Geopolitically you see the collapse of agreements between countries like Russia which still has some energy resource to exploit and the multi-national companies that provide the expertiese and equipment to do the drilling, like Halliburton and Baker-Hughes, recently merged as they consolidate downward here.  These service companies to the Energy Industry are the ones getting hit first and hardest, but the whole industry will collapse in a cascade fashion here.

Once you grasp that Money is not a THING in itself, but just a PROXY FOR ENERGY, you should also grasp that it does not MATTER what the currency used is made from, Paper, Gold, Cowrie, Shells or Digibits.  Issuing out more digibits to buy energy that is not being extracted does not allow you to buy more energy.  You cannot issue out more Gold (because of course what Gold is left in the ground takes ever more Energy to extract), so all converting to a PM based monetary system does is deflate the economy, the gold becomes less valuable with respect to the resource available as well, not to mention not very available for people to use because it is so centralized overall.  In the final stages of the game, no matter HOW MUCH “money” you have of any type, it simply does not buy the resources you want to buy with it, they just are not there to BUY!

http://scriptshadow.net/wp-content/uploads/2014/02/canary-in-the-coal-mine.jpgw595.jpegBecause we depend on money to lubricate and run the global system of trade we have developed, it remains possible to an extent for the folks running the credit creation biz to funnel credit out to some places and not others, and in so doing triage off the economy whole sectors of the globe now.  Southern and Eastern Europe is being so triaged off as we speak, with our friends in Greece at the forefront of this, in a constant state of Bailout and Political Crisis, but NONE of the Bailouts to date have done a goddamn thing to relieve the misery of the Greek population, all they have done is keep the Bankstering System in Greece and Europe as a whole floating another day.  At this point as far as the majority of the population in Greece is concerned, there simply is no benefit whatsoever to remain inside the system.  They want to Opt Out.

Greece is the Canary in the Coal Mine here, and the same effect is going to move through all the economies of the banking system as the Credit that is issued out to consumers to buy energy is triaged off here.  The last places to experience this will be the centers of credit creation, in the City of London and Wall Street, but the speed at which it works its way inward increases daily here, you absolutely can track this progress on a monthly if not daily basis now.

Eventually, the Credit issued out is worthless, the currency is worthless there just is nothing left to BUY with it.  That is why the Roman currency collapsed, not because they diluted the Gold in the Coins with Base Metals, but because there simply was not stuff to BUY with that currency once they reached the Limits to Growth of that type of economy, mainly agriculturally based to provide energy to the society.

Has such a thing occurred before?  Indubitably, it has, it most certainly occurred at the end of the Babylonian Empire in the earliest years of the Ag Economy.  From Revelation 18:

10 Standing afar off for the fear of her torment, saying, Alas, alas that great city Babylon, that mighty city! for in one hour is thy judgment come.

11 And the merchants of the earth shall weep and mourn over her; for no man buyeth their merchandise any more:

12 The merchandise of gold, and silver, and precious stones, and of pearls, and fine linen, and purple, and silk, and scarlet, and all thyine wood, and all manner vessels of ivory, and all manner vessels of most precious wood, and of brass, and iron, and marble,

13 And cinnamon, and odours, and ointments, and frankincense, and wine, and oil, and fine flour, and wheat, and beasts, and sheep, and horses, and chariots, and slaves, and souls of men.

At a certain point in the Collapse of a Civilization, it ALL goes WORTHLESS.  Not just the Fiat Paper, not just the Gold, but even the SOULS of MEN.  The life of a Slave is Worth LESS than it costs to keep the Slave alive, so the slave is disposed of.  When the Souls of Men become worthless, just how much value do you think remains in an Ounce of Gold?  Answer, not a whole lot there.

Money is a mathematical artifice that represents the total energy available to a society at any given time.  You cannot create more energy by issuing out more credit.  For the Roman Empire, which took Millenia to grow, it took Centuries for their economy based on Agriculture as their source of Energy to Collapse.  For the Industrial Society which developed over just a few Centuries, it will Collapse in a matter of decades at the most, and possibly more rapidly  than that as the monetary system which mediates the flow of energy itself collapse.

fall-of-rome

There is no stopping this process, the only thing that remains somewhat possible is to slow it down some, and to REVERSE ENGINEER to some older technologies that are less energy intensive on the way downslope.  That is not possible however on the grand scale here, the network as a whole is too dependent on the energy to continue functioning, so until the network collapses, there will be no changes made.  When the network does collapse, the change will come rapidly indeed.

Prep for it.

RE

Merry Doomy Christmas

Off the keyboard of RE

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Published on the Doomstead Diner on December 25, 2014

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http://wearethepractitioners.com/images/david%27s-collection/lump-of-coal.jpgDoom may not seem very Christmas-y as a concept, but in the spirit of Gifting, as I often like to say, Doom is the Gift that Keeps on Giving.

The old saw has it that if you were Naughty, Santa would leave you a lump of coal in your stocking instead of an Iphone.  As we move along the Collapse Highway though, we turn more of the coal into Iphones, leaving fewer lumps of coal for stockings, and more Iphones.  At a certain point, only the Nice children will see a lump of coal in their stocking at Christmas.  At least you can use a lump of Coal to burn in the fireplace and stay warm on a chilly winter night, the Iphone will not do you much good when the electrical grid goes down.

Most people don’t ever think that will come to pass, and most of the small minority of people who think it might come to pass think this outcome is still far into the future.  How far away is it, how much time do we have here left to live in the comfort of brightly lit McMansions, driving the Cars to Walmart and stopping at Starbucks for a cup of overpriced Coffee?

For the most part, this all remains dependent on the continuing functionality of the Global Monetary System, which as we close out 2014 and move into 2015 shows ever increasing signs of extreme distress.  The most clear signs are in the FOREX, or foreign exchange trading markets, where numerous countries have seen the value of the money they use in their location drop by anywhere from 20-50% in the last few months.

Most prevalent in the newz on this subject of late has been the Russian Ruble, which has collapsed in value along with the price of Oil.  However the Japanese Yen has also been collapsing in value,  same with the Brazilian Real, the Indian Rupee, and even to a lesser extent the multi-national Euro, and the Chinese Yuan also.  What are all these currencies losing value in relation to on the FOREX market?  The Dollar of course, still the World Reserve Toilet Paper and the currency in which the vast preponderance of international loans and interbank finance is denominated.

Damaged 100 yuan banknotes are seen on a table at a branch of China Bank in Foshan

As should be obvious, in any currency pair trading, if one currency is Inflating, the other is Deflating.  The people holding the currency that is inflating, say the Ruble, want to trade it as fast as they can for the deflating currency, in this case the Dollar.  This leads to a shortage of Dollars in the local market that can be purchased with Rubles, which exacerbates the problem and makes the street value for the Ruble even less than the official exchange rate, which is the panic stage and is what drives an inflationary event into a Hyperinflationary one.  So far that does not appear to have occurred in Russia itself, but does already appear to be occuring in one of the satellite countries of the former Soviet Union, Belarus.

To try to put a lid on a problem like this, the local Goobermints try all sorts of things, Capital Controls, large penalties for currency exchanges and so forth, but once the confidence has been lost in the local currency, there is very little that can be done to fix the problem, until and unless you get some folks from the Western Banking Cartel who step in to take control of the local money and start issuing out some new money with some arbitrary peg against the dollar.  This has occurred repeatedly over the years in Brasil, which used Cruzeiros when I lived there in the 60s, switched to Cruzados by lopping off some zeros from Hyperinflating Cruzeiros, and today uses Reals, which are no more REAL than Cruzeiros or Cruzados, but did manage to last a bit longer as a viable currency there.

http://i.cbc.ca/1.2831230.1415722704!/fileImage/httpImage/image.jpg_gen/derivatives/16x9_620/russian-ruble.jpg

To the resident of the FSoA watching as the Federal Deficit skyrockets now to $18T, it’s kind of hard to imagine why Dollars hold more value than Rubles, but there are many reasons for this in play, some psychological, some financial and some physical.

The psychological one begins with the fact that coming out of WWII, the FSoA was the last country standing in a world of ruin, both in Asia and Europe.  The Dollar became World Reserve Currency, and the entire rebuild done in the aftermath of that was done with Dollars loaned out by the FSoA, through the Marshall Plan.  While Deutchmarks bought just about nothing in Germany directly after WWII, if you had a few Dollars, you could buy ANYTHING, and cheap too.  Who had access to borrow said Dollars?  The same people who had access to credit before, the Rothschilds, the Warburgs, the Kuhns, et al.  They build a new and bigger edifice based on debt once again here, and now they have the all the Oil under the ground in MENA to issue that debt on.  So since then, not one but really several generations have all grown up with the BELIEF in the Dollar as a valid currency, and since it has generally worked to buy the stuff you need to live with only a few periods of relatively minor disruption, the belief is quite powerful that it will last in perpetuity.  The strong belief in the Dollar is the reason it is always the preferred currency that other smaller nations and their populations run to when they have a local currency crisis.  In Argentina during the currency crisis in 2001-2, as Ferfal chronicled, if you had Dollars in an overseas account you could access, you could do OK, although it was still a wicked dangerous place even if you did have some.

The Financial reasons become ever more obvious when you watch the manipulation and how easy it is for the Westerm Banksters to put the Thumbscrews down on a country even as large and well gifted with resources as Mother Russia is.  Since Oil is priced in Dollars, most International trade is done in Dollars and the Western Banking Cartel has control over all the computer systems which handle global trade, anytime they wanna cut you off from access to international credit they can, no matter how big you are or how much Oil you have left in the ground.

The physical reason should be obvious, the Dollar maintains some value because ineffectual as it is, the Big Ass Military still holds the threat of bombing your country back to the Stone Age if you don’t buy in Dollars.

Taken altogether, this makes the Dollar look like the best Dogshit in the Pound out there, it still buys stuff at the supermarket and so when your local currency gets hit, this is the preferred “safe haven” to run to. Despite all the jawboning about bilateral tade agreements, currency swaps and a Sino-Russian Yuan-Ruble currency regime taking over from the collapsing Dollar, at least so far the opposite appears true, which is that the Dollar appears to be collapsing Yuan and Ruble.  Not so fast with the Yuan, but the signs in China aren’t too good these days for the big Growth numbers they need and the exploding internal demand from middle class Chinese

In any event, either way whether the Dollar or or Yuable ends up as the last one standing, everybody has run to the winner, THEN WHAT?  It’s really only at this point you get to see what paper claims denominated in the Winning currency actually represent any real value and which do not.  Mostly, they are quite worthless.

http://siliconangle.com/files/2012/12/jolly_santa_saying_ho_ho_ho_0521-1012-0313-4538_SMU-300x264.jpgThe other possibility here is that as soon as one of the 1st Tier currencies like Sterling, Yen or the Euro starts Hyperinflating, there will be a terminal liquidity lockup and then everyone goes down together simultaneously, rather than a cascade of weaker currencies over time.  If that occurs, things will spin out of control REALLY fast.

Either way, 2015 looks to be a Watershed year for us Kollapsniks, as many of the issues we have discussed finally become obvious to all as the Tide Runs Out here.  I can only hope the Internet is still up next Christmas so we can look at all the Doom Gifts in Santa’s Bag for 2015.

HO, HO, HO.

Santa RE

Peak Customers: The Final Liquidation Sale

Off the keyboard of RE

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Published on the Doomstead Diner on December 13, 2014

 

…and the WINNER is…The ENVELOPE Please!…



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Coming Soon to a Laptop Near You: Oil Crash!!! Part 2

               HYPERINFLATION       OR              DEFLATION

http://dailyreckoning.com/dr-content/uploads/2014/11/Wheelbarrow-of-Money.jpghttp://static5.businessinsider.com/image/4c1202727f8b9a3b6ed20000-480/money-black-hole.jpg

…DEFLATION!

For the last 7 years since I began chronicling Collapse on the pages of the Peak Oil Forum, one debate has resurfaced over and over again, whether the monetary system would collapse in a Hyperinflationary Vesuvius of Wheelbarrows Full of Worthless Weimar-Zimbabwe style Dollars, or descend into a Deflationary Black Hole.  On the Diner Forum, the Hyperinflation vs Deflation thread runs some 33 pages long now, over 450 posts and that is just since we opened the Diner in February of 2012!

http://img2.wikia.nocookie.net/__cb20080112042230/memoryalpha/en/images/1/16/Finnegan_jaunty.jpgFor most of the time on the Econ websites, the Hyperinflationistas Ruled the Roost, as Helicopter Ben rolled out one QE Ship after another to salvage the imploding banking system.  People like John Williams of Shadow Stats and Speedy Gonzalo Lira predicted imminent Hyperinflation as the virtual printing presses went into hyperdrive.  I personally had numerous arguments with Jim Quinn of The Burning Platform, who produced an endless stream of articles making an Inflationary case.  Sorry Jimmy Boy, you lose. 🙂

All during the time this was ongoing, a few of us, most notably Nicole Foss of The Automatic Earth, Steve Ludlum of Economic Undertow and myself made the Deflationary case.  Now that Deflation has grabbed hold and just about everyone from the Central Banksters to Ambrose Evans-Pritchard and even to the Inflationista camp at Zero Hedge has joined this bandwagon, I took the opportunity to claim VICTORY for the Deflationatos on the pages of the Diner Forum.

One of the Diners asked me to PROVE my History as a Deflationato, which sent me back into the archives of my Reverse Engineering Yahoo Group to look for posting I made on this topic.  There are many, but I came up with these posts from 2009 & 2011 which make the case quite clearly:

FLASHBACK!  BLASTS FROM THE PAST…

Popping the Inflationista Bubble Theory

July 13, 2009

One of the pervading fears many people have is of the Hyperinflation they believe will come as a result of the non-stop printing of Funny Money by Helicopter Ben and Turbo Timmy. The images of Weimar Germany and Zimbabwe are fixated in many people’s minds as the inevitable outcome of this explosion of debt based fiat currency.

What the Inflationistas fail to consider is the fact that MOST of the money in the money supply of Dollars is NOT in the form of FRNs. It is MOSTLY in the form of debits and credits lodged on the computers of our biggest banks. Though the Fed is creating money to drop onto Banks to keep them numerically solvent and able to resolve the transactions you do with your debit card, the US Mint is not insofar as I know currently printing up an equal supply of FRNs to the amount of digital money they are loaning out through the discount window to the Banks.

What is happening to all that money? Well a large part of it is just sitting on the disk drives of these banks as part of the Capital Reserve they are required to hold here. However, with the exception of Goldman and to a lesser extent JP Morgan Chase all these banks continue to bleed red ink as fewer of their mortgages are serviced and fewer of their investments of all types pay interest. The result here of course is the interest they pay out to YOU these days for keeping your FRNs in their “safe” keeping is virtually non-existent. Maybe you get 1% annualized if you will lock up your money in a 90 day CD. Forget interest on Checking or Savings accounts, its well below 1% now. What is the benefit to J6P other than some perceived “security” of having your money held by a bank now? Keeping a months worth in the bank to facilitate your bill paying makes sense, but beyond that I can’t see why anyone would leave money in the hands of the banksters these days.

So anyhow, the banks will continue to push more digital bits around in a big circle jerk, but there aren’t that many more FRNs out in circulation now than there were 2 years ago before they ramped up QE. Beyond that, more Digital Bits are not being deposited into J6Ps account either, in fact quite a few less are going that way as J6Ps all over the place lose their jobs. Since an economy that is based at least 70% on consumer spending requires all those J6Ps to have money to spend, such an economy HAS to deflate here. It cannot inflate in the sense most people think of wheelbarrows of money to buy a loaf of bread unless you find some way to actually GET the wheelbarrow of money out there somehow. Such a means has not yet made itself apparent. When Da Goobermint puts EVERYBODY on the Dole and starts handing out Stimulus payments on a monthly basis, THEN you could get price inflation, but that solution is not yet on the table.

What will happen here is the debts will eventually be resolved through Bankruptcy of all parties involved, Creditors and Debtors alike. MOST of the recently created money will disappear from existence in these bankruptcies. The Trillion or so we owe the Chinese and Japanese is basically toast. They are never going to get back most of that money, and they can’t spend it either because trying to do so will just push down the value of the money all that much quicker. They have much more ability to flood the market with Dollars than the Fed does, but in their case also it doesn’t help them unless that money gets into the hands of Consumers who will then again recycle it to buy more worthless Chinese Toys.

After all is said and done, in the absence of a Revolution and dissolution of the US Goobermint, you’ll still have FRNs being used as Money. The Dollar never went away in the Great Depression, it just became very scarce and hard to come by. Many people lost their life savings because they had their FRNs stored in Banks which shut their doors one day and they were SOL. Right now, the FDIC continues to backstop banks, but they will become insolvent also, and in the end unable to ship FRNs to every person with an Insured FDIC account.

My guess is that for about a year or so after the banking system of Credits and Debits collapses, the FRNs will continue to work in local commerce, at least for whatever is actually available to BUY in local commerce, mostly people selling stuff in Garage Sales. The Food Economy is another story entirely, if you actually HAVE a Twinkie would you sell it for an FRN?

My guess here is the Food Economy goes off the grid as Da Goobermint grapples with a complete loss of faith and function in Banking. The industrial food apparatus will be Nationalized, along with the Transportation system. In the Great Depression this came in the form of Soup Kitchens, in today’s world I imagine they will utilize the Walmarts as Food DCs, and you go to the Walmart with your weekly allotment of Food Stamps to buy some seriously rationed food. There also will be Gas Coupons for your seriously rationed Gas. Black Markets of course will develop here in both areas, and fraud will be a problem as well. Even more insidiously evil things will occur, as some J6Ps will trade away food coupons for their children to get one last 6-Pack. If you have a Victory Garden going though, you might actually be able to save up Food Coupons, and then use them for trade for other things you need.

In any event, I am firmly in the Deflationato Camp, and I believe the Inflationistas are quite wrong here. The inflation they are worried about ALREADY OCCURRED, it occured in the inflation of housing prices and the inflation of goods and services that for the most part we do not really NEED. Asset Values became OUTRAGEOUSLY inflated, for Assets that are essentially quite WORTHLESS, such as McMansions, Malls, Auto Factories….the WORKS here in terms of assets that are ALL dependent on the availability of cheap energy. All of this was fueled on Fiat Money in the Debt Game, but it is collapsing here as we speak, and you cannot inflate it anymore. The mere printing of money is NOT inflation. It can only inflate an economy if the surface of the bubble still has enough integrity to hold the air. Our economy no longer has such integrity, there are too many places where the air leaks out as soon as it is put in. Obama can Stimulate from now till the Cows come home, but the money disappears as quick as you print it. Its not inflating ANYTHING here, just look around you at the closed Biznesses, the Unemployed and the Foreclosed on Houses.

Inflationistas have their heads up their collective assholes IMHO. Even if eventually the Fed finds a way to print up enough FRNs so you would need a wheelbarrow to buy a loaf of bread, there will be no Trucks on the road to ship those FRNs out to the population to spend. We are in a Deflationary Depression, or rather the endgame of that which is a Monetary Sytem Collapse. 300 years in the making since Master of the Mint Sir Isaac Newton and the Bank of England came up with this scheme, now the End is upon us. We are not going to inflate our way out of this one with any bubble. Game OVER.

RE

Here’s one on China from 2011.  Note the closing line:

Realities of Exponential Growth

Dec 26 8:59 AM

While all eyes remain focused on Europe, the next “wave” of the Crisis looks more and more like it will come from Asia and the Chinese.  Of course, some of this may be the usual Zero Hedge Hyperbole, but one thing is for certain, China’s “growth” miracle is a fucking Ponzi that makes Subprime Mortgages all over the rest of the world look like ants from the top of the Empire State Building.

“Money”, in the form of rehypothecated DEBT from the West has been flowing steadily into Asia for the last decade.  The chinese, “honest” bizmen that they are proceeded to take the Trillions in worthless debt thrown at them and leverage THAT up a few dozen times at least.

So now the Chinese, having just a bit of trouble meeting coupon payments on all the bonds they issued to build vacant cities, bridges to nowhere and Halloween Lawn Ornament Factories are looking to borrow money from their oh-so-flush neighbors, the fucking JAPANESE.  Yes, that’s the same set of islands currently at a 200% Debt to GDP ratio not INCLUDING the Off Balance sheet costs of basically waiting until one or all of the Fuk-U-shima reactors goes Supercritical.

Apparent to anyone now who is not completely BRAIN DEAD is that the Money Masters are Circle Jerking themselves around the world, with one Insolvent Nation-State after another buying up ever more irredeemable debt at positively EXPONENTIAL rates, with absolutely NOBODY wanting to be the first one to CRY UNCLE and call it quits on the game.

Now, thing is here, exponential math has a way of blowing up into INCREDIBLE numbers very fast, once you reach a critical point, which we passed a while back here ont he monetary level.  The thing is also, that its not until the very LAST of the Doublings that people tend to recognize the problem, because of real ignorance of exponential math.

Here’s how it works.  I’ll reference Albert Bartlett here for those of you who have not watched his vids, Google them up.

Right up until the last doubling time, there seems to be PLENTY of energy/money to go round.  In just the last MINUTE though of the Clock when the next doubling occurs, all that you consumed in the prior time put together is consumed in the very last MINUTE.

This is a metaphorical “Minute” of course, since Doubling Times can be in the years here, and around a 7% increase translates to about a 10 year doubling time  this wa the case for Oil per capita consumption right up until around 2010 or so.  At this point, the growth STOPPED far as per capita energy consumption was concerned, but it did NOT stop the legacy of such doublings in money supply.  For without that, you also do not keep up with the increasing population, also a lagging indicator here behind the collapse of Oil production doubling rates.  You must continue to increase Money supply to the population at eqaul rate to population increase, elsewise of course everyone has less money to work with.

The “Crash” as it were comes when you no longer have the rate of doubling in the per capita energy supply you do in the population, at which point the CB tries to KEEP inflating the money supply to keep pace with population, but of course less energy is available to buy.  The value of the money created relative to the energy supply drops, no matter how much money gets created.

This is where we are at NOW on the “curve”.  If the CBs do keep trying to inflate the money supply to match the population, it will decrease in value relative to the per capita energy available.  If they do not increase the money supply, then not only will money become very scarce to buy energy, but beyond that legacy debt based on future production will all implode.  So in the last “minute” or so of the doubling time, on a monetary level either you will get a MASSIVE Hyperinflation or a Hyperdeflation.

There are a few Caveats to this on a Global Level.  First off, both Hyperinflationary and hyperdeflationary events can be Localized.  Essentially this is Triage, as some areas are CUT OFF from energy distribution, and if those are high population zones then this leaves a lot more per capita energy for remaining zones not so cut off.

Second of course, any increase in the Death Rate globally will slow the doubling time on per capita energy expenditure, so long as the energy harvesting remains constant.  Also, conservation of energy on any large scale will slow the doubling time.

In real terms globally, to maintain the value of money in any individual location, it has to shrink into the envelope of the available energy for that community.  So as long as say the FSofA can keep available energy from rapidly disappearing per capita, the Dollar will hold value UNLESS it is produced at a rapid clip to stave of BKs of the TBTF and so forth.

Globally also though, all nations are in competition for the last Minute’s worth of fossil fuel energy, which means there is no great assurance the FSofA can even keep this constant, though TPTB will no doubt try to do this by drilling anywhere some geologist says there might be some positive EROEI Oil still in the ground.

The end result here is that at least at the Beginning, the Die Off will come in the most overpopulated regions with the least amount of available energy they can acess locally. India and china with large populations and low energy reserves locally seem destined for the largest by percentage and in absolute number Die Offs. Africa is also likely to be hit hard here, since they will have their Oil stolen from them.

Once this threshold is crossed over, its not Doubling times you are concerned with, but Halving times. In the Contraction phase, as the remaining energy reserves deplete, you’ll see the remaining population halve in size at some periodic rate probably on a similar 10 year timeline for the doubling that occurred for a few decades, until such time as the total population only uses the energy that is avaialble each day from the Sun, as opposed to  using Fossil fuel energy.

All of this is just Math, and not subject to Political issues which will crop up along the way.  No society will quietly go into the Good Night without trying every last means available to them of not being the first to DIE.  When the problems really start to hit the big population zones of India and China, these folks will strike out in some way, and both of course have NUKES.  It just remains to be seen how these weapons get used along the way.

At least at the moment though, despite the rapid descent into Fascism, the FSofA still looks to be amongst the best places to be situated as the Die Off commences.  I definitely would trade it for China, regardless of China Bulls who think they are the next great Empire in waiting.  IMHO, the Chinese are TOAST.

RE

Dollar Devaluation
Oct 14, 2009

    The more I read various armchair assessments of the impending “Dollar Crash”, the more ticked off I get at the narrow view most folks take of this monetary crisis. Clearly various policies are bein pursued here by Da US Goobermint to devalue the dollar and in so doing “rob” the citizenry of whatever wealth they might have accumulated in dollars. One of the MOST obvious things just occurred, with the Fed purchasing some $50B in SDRs, which themselves are a manufactured currency of a basket of currencies including Gold of course.

The problem here seems obvious enough to me, but perhaps its not so obvious to everyone? All the currencies are mathematically connected, and the so-called “basket” that constitutes the SDR reflects the value of all those currencies. Thing is, all those currencies are just the same thing as the Dollar is, abstract value notations. Is there any inherent reason why a Yen is more valuable than a Dollar or a Gold Coin either? None at all really, especially when the obligations they represent cannot be met by any country issuing their currency.

The policy the Chinese are following right now is to blow a bigger credit bubble than we did, but they can’t sell any of their products to anyone, especially not to anyone who has a currency devalued against the Renminby. Our armchair currency pundits are VERY provincial intheir thinking, they focus entirely on the incredibly stupid policies being followed by the Fed here in the US, while entirely IGNORING the fact that every other CB and Nation-State on EARTH is doing precisely the same things at the same time, in some cases going even further off the cliff of mathematical logic, the UK for instance.

What about the DEBT!?!?!? is the Clarion Call here for the Audit the Fed Lemmings. Lemme bring this down to a smaller situation we can understand better. What about YOUR CC debt? Are YOU worried about this debt now? I sure wouldn’t worry about it much. Run it up so long as you have a credit line, you’ll never pay it back of course. In agregate, this is what is going on EVERYWHERE. NOBODY is ever oing to pay back on this debt, which really is just a mathematical abstraction of obligation. I loan some money to my brother in law. He is broke and can’t pay me back. I am bummed I won’t get paid back, but that’s how it goes when you loan money, its a risk you take.

Of course TPTB aren’t quite so forgiving here, mainly because they use the obligation of debt as a means to enslave populations. Its really quite simple, en masse you just repudiate the debt! Of course also, they won’t let you repudiate it, they use the force of “law” and the military to tax it out of you if you won’t willingly cough up the interest on your Option ARM Mortgage. Unfortunately, if your population isn’t actually making ANY money or producin anything, there is nothing here to TAX. System Implosion.

The underlying REASON for this type of collapse comes from compound interest, which persistently accrues more debt obligation than you can actually produce. Its a function of Capitalism and a function of the Banking system which supports it. As long as you pay Interest and then Interest on Interest, in a fairly short amount of time by Geologic standards the monetary system will implode, that is even WITHOUT the restriction of a planet with diminishing resources and expanding population. Add those into the mix, and the monetary system is just TOAST no matter WHAT you do.

Devaluation of the currencies involved here is inevitable, and mainly its a race to the bottom and some folks are playing a carry trade between the currencies betting on which one is the last to fall here. IMHO, betting on the Dollar as the last one to fall is a bad bet.Too much of the world wealth is denominated and held in dollars, so some value must be maintained here in that currency. The Pound Sterling could go down the Toilet and only a few Limeys would get their clocks cleaned. A whole lot harder for the wealthy of the world to sell off all their dollar holdins here and maintain wealth and power. The dollar will devalue, but it won’t TANK entirely. Some other currencies will. The Renminby is likely to be one of them, for the simple reason that the Chinese have 1.3B mouths to feed in a country with serious water shortage problems. Buying Chinese is an exercise in financial suicide IMHO.

Disclaimer: I am not a registered Currency Trader and hold no position in Remnimby. LOL.

RE

…and now BACK TO THE FUTURE!

http://cdn-static.denofgeek.com/sites/denofgeek/files/styles/insert_main_wide_image/public/0/29//bttf-1.jpg?itok=bmUrZjNy

So above is the history, and it is playing out remarkably close to how I pictured it, although I will say the timeline has been a good deal longer in playing through than I thought it would be.  The Central Banks up to this point have managed to keep deflationary forces at bay, although at the great cost of impoverishing the vast majority of people while enriching the very few at the top.  Of course, for the people calling the shots at the top, this is not a Cost, but rather a Benefit.

toast2Besides the general deflationary trend, another of the noted predictions was the the Chinese would end up suffering worse and harder, rather than emerging on top as the next World Superpower and Empire.  My general Tag Line for that ideas has been over the years, “The Chinese are TOAST”, and I have no idea how many times I used the graphic at the right here with posts and articles on this topic, but they were many for sure.

Bad as things are for the Chinese though, things are a good deal worse over in Japan, now sinking extremely rapidly as their export market collapses and their huge overhang of debt catches up with them.  On the currency level, you see the difference here and how important the RELATIVE valuations are between currencies, rather than precisely how much credit is being dished out to the TBTF Banks by the Central Banks in the form of QE.  The Yen is rapidly depreciating now, having lost around 30% of its value already with no bottom in sight for that.  They will experience a Hyperinflation as far as imported goods are concerned, including of course basic commodities and energy.

Similarly, the Europeans are not doing too well as the Euro collapses here, and they also are experiencing an enormous loss of wealth and ability to import Oil as a result of this.  In both the cases of Japan and Europe, this explains the rapidly dropping price of Oil, which is an Internationally traded commodity.  Here are two VERY large industrial societies who have seen roughly 1/4 to 1/3 of their purchasing power for Oil and its products yanked right out from under them.  These folks simply do not have the MONEY anymore to keep consuming their share of the oil still being extracted, so that demand is GONE, in all likelihood permanently.

This of course leaves this portion for Amerikan Happy Motorists to consume, but despite the dropping price at the pump, they aren’t stepping up to the plate here as Consumer of Last Resort.  Why not?

Well, despite the fact the Dollar has increased in relative value and buys more gas, fewer and fewer people here actually HAVE any surplus dollars to spend on gas.  The slight bonus they are getting from cheaper gas prices doesn’t do much if they are already Unemployed and not driving back and forth to work every day.  As a whole, these consumers are all already enormously in debt, and if they do have any extra money now as gas prices decline, they probably are using it to pay down some of that debt, not do any new consumption of other products.

What that means is that the Sales at the retail outfits continue to decline, and operations like Sears, JC Penney and Radio Shack are basically on Life Support now, and probably will go under in the next year or two the most.  Who does that affect most?  Our friends the Chinese, who have an enormous amount of funny money invested in overproduction, and whose economy is based on a mountain of Shadow Banking Debt that likely dwarfs even the FSoA Federal Deficit!  So that one is destined to implode here also, although it looks like it will take a little longer than the Japanese and Euro regions to completely crap out.

Far as the Ruskies are concerned, between the Sanctions and the decreasing demand for their Oil, the Ruble is Cratering even faster than the Nip Yen, and that is saying a LOT.

https://syrianfreepress.files.wordpress.com/2014/11/putin-chess-vs-eu-usa-529x336.jpg?w=529&h=336Russophiles like Dmitry Orlov, Saker and Pepe Escobar put a Brave Spin on this, it’s all part of Vlad the Impaler’s Master Plan as a Geopolitical Chess Grand Master, but the fact of the matter is that Ivan 6 Pack ( I6P) has lost close to 50% of purchasing power with his Rubles far as imported goods are concerned.  The Ruskies are in better shape than the Nips or the Eurotrash of course since they have their own domestic source of energy, along with decent food growing capability,  so they may be able to weather the storm while waiting for the Western Banking system to implode.

Time for a CRAZY IVAN!

http://beforeitsnews.com/mediadrop/uploads/2014/04/678fe7670f830441b9069abbf9c7b7cb61037642.jpgMore important than I6P though far as Vlad is concerned is the collection of Oligarchs that form his primary support base, and these folks are both seeing their wealth evaporate, along with having a good deal of it frozen by the Clowns & Jokers in Brussel Sprouts.  Whether these folks will go to the wall with Vlad or not remains to be seen, although he certainly does better in Popularity contests than Obama-sama does here, despite the fact the FSoA so far is not suffering the worst of this collapse.

What’s left of the Major Currencies?  Not too much, you got Norwegian Krone taking a beating from falling Oil Prices, and the Swiss in order to keep the Swissie from skyrocketing in value buy up endless amounts of Euro toilet paper, on basically a thimble size population base and economy, floating themselves as an ultra leveraged Financial Ponzi.  Not a real good bet as a currency there either.

So the Best Dogshit in the Pound remains the FSoA Dollar, though to be sure it will puke blood too eventually here, and when it does the whole system goes Tits Up.  What remains uncertain is precisely how long this will take to occur, but it definitely does not look likely that the Frackers can stay floating much past another few months or so, and that ponzi collapsing will reverberate through the whole economy, Jobs, CapEx, GDP, you name it.

All that spells further Deflation, even if Da Fed launches QE 99 or whatever the number is right now.  This notional money just does not escape into the real economy, so consumption, 70% of FSoA GDP in da good old days just can’t rebound.

helicopterbenCan the Smartest Guys in the Room keep the Banking System floating with all of this and stave off a Bank Holiday still longer?  Maybe, but it still won’t fix the deflationary spiral, since really there is no good “credit worthy” customers to lend to, and in reality the actual pie of resources is shrinking rapidly here.  If they wanna get price inflation, they literally WOULD have to drop FRNs from Helicopters, because its not going to flow out from the  Job Market.

Unless and until something like that occurs, deflation and diminishing liquidity in the markets will continue to rule, until there is a terminal breaking point.  The currently crashing price of Oil is such a breaking point, and it looks like it has further to fall in the next week.

The bottom line on this is DEMAND DESTRUCTION, and it is neither a result of nefarious Saudis trying to destroy their competition in the Fracking Fields of the FSoA, or Da Fed pulling back on QE, both of those are SYMPTOMS, not CAUSES.  It’s not even the result of Neo-Cons wanting to sink Vlad the Impaler, that is also just  symptom and not a cause.

The DD is accelerating here due to the collapsing currencies of the Yen & Euro primarily, which basically has priced most people in these economies out of the Happy Motoring lifestyle.  It’s not that demand in the FSoA is diminishing for Oil that is driving this, although there is diminishing demand here.  What is driving this is CRASHING demand in Europe and Japan, and likely China also, although their numbers are so faked it’s impossible to have any real clue as to what is going on in real time, you only can figure it out a year or two later.

10s if not 100s of 1,000,000s of people in the European and Japanese economies are no longer customers for Petroleum, at least directly as Gas or Petrol for their own Cars. If they still do have a car, they are driving it way less.  Meanwhile, due to all the credit provided to Energy Extractors over the time period, production of Oil has remained relatively steady despite ever decreasing demand for it on the consumption end.  This of course results in a GLUT on the market, and the extractors are forced to sell at whatever price they can get for it once the room to store it has been filled up.  It’s not just the Saudis selling at discount prices, ISIS controlled Oil facilities are doing it, and so also are frackers in the Bakken.

http://images.fineartamerica.com/images-medium-large-5/everything-must-go-total-liquidation-closing-signs-in-a-store-in-saskatoon-saskatchewan-canada-joe-fox.jpgThis of course is a classic LIQUIDATION SALE, where EVERYTHING MUST GO! before the store goes OUTTA BIZ.  Credit is drying up for the extractors as it finally DAWNS on the Dimwits on Wall Street that the customers are not BUYING, and the Junk Bonds they issued out at High Yields are worthless toilet paper that won’t ever be repaid.

QE never worked to put any more credit into the hands of the CONSUMERS of Oil, it only worked to blow a bubble on the Extraction end of this economy.  Unless you provide credit to the consumption end, you don’t have CUSTOMERS.  There are insufficient customers of Oil now to buy what is extracted, so the extractors have to keep discounting to get rid of inventory.  This is called GOING BROKE.

The only question now is precisely who will be the first to go Chapter 11, and how Da Goobermint will try to bail out or bail in banks that have extended out $TRILLIONS$ in Funny Money to the Oil Extraction industry over the last decade.  It’s going to be a BLOODBATH, in more ways than one, that is for certain.

Coming Soon to a Theater Near You.

It’s the FINAL COUNTDOWN now…

RE

Welcome to the Hotel California Mushroom Farm

Off the keyboard of RE

Published originally on Reverse Engineering on November 21, 2010

Discuss this article at the Economics Table inside the Diner

Note from RE:  No time this week to write the Sunday Brunch on the Diner, so I went to the Reverse Engineering Refrigerator looking for Leftovers.  Found this morsel from 2010.  Makes me look like fucking Nostradamus, because if I said I wrote it today, nobody would bat an eyelash.

Some new information has begun circulating across the Blogosphere which is shedding some new light and new perspectives on the Inflationista-Deflationato Debate. Specifically, its Newz of rapidly spreading Inflation not in the FSofA where the Money is being printed, but rather in Emerging Markets over in Asia. Hong Kong apartments are going for $4500/sq ft, China declares a 4.4% Inflation rate that is probably double that in reality, etc.

China Ghost CitiesThe reason for this is Obvious. Capitalista Pigmen who are close to the Money Spigot aren’t taking the freshly printed Toilet Paper and loaning it out to J6P Small Bizman here, said Bizmen are already too in debt to take on more and already are not paying back what they owe. So instead of making biz loans to every Tom, Dick and Harry here, these banks are shoveling the money at every Chin, Chen and Chang over in China. Said Bizmen are happy to build Ghost Cities and Bridges to Nowhere with this money.

Its all pouring into the EMs like a Niagara Falls of Money. This is the “Hot” market with the “endless possibilities for Growth” that our Pigmen Asset Managers like Jim Rogers are investing in as they chase Yield. Does this have the same Stink as all the money that got poured into Eastern Europe after the fall of the Berlin Wall or what? That ended well. The Swiss Banks are going to be eating that mistake until Helicopter Ben Bails them out.

Asia is a HUGE Bubble, or as I like to call it a Liquidity Trap/Asset Class Sinkhole. Such places are like a Roach Motel for Money. You can Check In, but you cannot Check OUT. Or the Hotel California of Money. You can Check Out any time you like but you can NEVER leave with the Money. LOL. Or at least sometime in the very near future you won’t be able to when some Yellow Swan comes in for a landing and everyone runs for the Asian Fire Exit at the same time.

So yea, Inflationistas like Gonzalo Lira and Deflationatos like me have something which we can agree on, which is that massive Money Printing does have to cause Inflation SOMEWHERE, and in this case where the Inflation is taking place is in the Hong Kong RE market and assorted other Malinvestment directed at Asia at the moment. Like the money loaned out here to build McMansions; like the money loaned out to Eastern Europe to join the Capitalista “Party like its 1999” orgy; like the money loaned to Ireland to become Pharmaceutical Exporters; like the money loaned to Spain to build Tourist Resorts for German Pigmen on the Costa del Sol, it is all destined to go up in SMOKE here, in the Greatest Bonfire of Paper Wealth in All of Recorded History.

schrodingerRoughly 75% of all the Dollars in existence are not here in the FSofA, they are floating around outside our borders, and MOST of them are tied up in some kind of Investment in some Asset class. Most of them are NOT FRNs stuffing the mattresses of the Chinese Overlords. Of actual FRNs, there are only around $1T of them out there, a drop in the bucket of what is probably in the QUADRILLIONS of notional money floating around the Shadow Banking system. The rest of the money only exists as Digibits in a Database, and when as MUST happen eventually all the Assets are Marked to Market instead of Marked to Heisenberg’s Uncertainty Principle, those Dollars will POOF disappear just like Schrodinger’s Cat when you try to pin down its location. You can pin down Position or Velocity, but when you pin down one, the other one becomes undefinable. So when the Velocity of Money goes to Zero, you can’t pin down its Position. It might still exist somewhere, but it’s probably halfway across the Universe by now in another Galaxy along with Schrodinger’s Cat. Unless Han Solo transports it back to us at Warp 10 in the Millenium Falcon, we are SOL. LOL.

I don’t see a Hyperinflation of Huge Influx of Dollars here as Foreign holders of Dollars try to dump them, because they don’t REALLY have Dollars. What they have are DOLLAR DENOMINATED ASSETS, most of it Notional money in the form of CDS, MBS etc. When they try to sell those Assets for Dollars, they will only get Pennies for them, if they can sell them at ALL. Since most of those Assets are in fact held by the TBTF Banks and their Illuminati Owners, POOF they are massively Insolvent AGAIN, even more insolvent than they already are. Is Da Fed going to then go and BUY every Resort on the Costa del Sur at Par from them with still MORE Funny Money? Reducto ad Absurdum, somewhere along the line this collapses.

This goes right along with the idea that as the Muni Market collapses, Da Fed will be going in to buy all of THOSE also. And of course Da Fed will ALSO print up enough money to fund the IMF so that all the PIIGS can be Bailed Out, and CA ALSO of course. Meanwhile, EVERYBODY KNOWS the FSofA itself is functionally BK, so for how long is it possible that people keep accepting the idea one BK country can Loan money to another BK one or buy Assets with money it does not have? That this Circle Jerk hasn’t collapsed already is a Testament to the Cognitive Dissonance which occurs in the failure of a Monetary System.

The Geniuses like Helicopter Ben and JC Trash-it who are running the whole show as Illuminati Apparatchiks simply cannot accept the idea that they can’t solve the problem. They don’t really have any answer for this problem other than Money Printing followed by War, and the goal there for the Illuminati controlling the Clueless Apparatchiks is to bet correctly on who wins the war and maintain control over the Banking SYSTEM they use and tie up the right Assets under their own Ownership, and have the New Goobermint validate their Asset Claims once the War is finishes, which in this case it never will in any clear manner like the end of WWII leading to the original Bretton Woods accord. Thus by funneling money to Prescott Bush’s Union Bank, the Thiessen Family was able to maintain their ownership and control over German Industry despite the fact that Hitler, who they ALSO funded lost the War.

Now, as this process works itself through, besides Emerging Markets the next Asset Class where a lot of the Hot Money flows is into Commodities. We have seen already serious Price Spikes there, but such Price Spikes are not Hyperinflation. Commodities are also a Liquidity Trap-Asset Class Sinkhole, but they operate on a shorter timeline than stuff like Property Bubbles, which can take a decade or more before they POP. Commodity spikes have a much shorter timeline, a few months or at most a year. The reason for that is most of them are Consumables like Food and Oil. They take an End Consumer who has money enough to pay the outrageous prices to stay Bubbled Up in price. However, as we saw with $147/bl Oil, this Taps Out the end Consumer VERY quickly, and then you get a crash in the price of that Commodity down to the $35 price level before it started creeping back upward. Whoever bet on it and wasn’t well Hedged or who did not unload his position before the inevitable crash came lost his shirt.

http://www.theblaze.com/wp-content/uploads/2012/09/Food-Stamps-Yearly1.jpgSmall Economies like Weimar and Argentina and Chile and Zimbabwe can undergo prolonged Hyperinflation because the Market as a WHOLE does not respond to the fact a small country like that is getting Priced Out of the commodities market. It’s a Small Blip on the Radar if those countries are Priced Out and their population is Starving because their Money has gone worthless. It is NOT a Small Blip if a very LARGE country with a very LARGE Military gets priced out of the Food Market. Then it is a very LARGE Blip which perturbs the Market as a whole, and the price crashes.

You have an even BIGGER issue when one currency functions as the World RESERVE Currency. Then every time you get a Price Spike in commodities, its not just the Issuer of that currency who gets hit, but every country on the PLANET that is using that currency to define Asset Values and their own currency value, if they have one of their own.

What does a Price Spike in Food do here in the FSofA? At the moment very little because food is a relatively small percentage of income for most folks in the FSofA who have not already fallen off the Economic Cliff. For those who have, we also are running the SNAP Card program, insulating this ever growing number of people from “Food Insecurity”, aka STARVATION.

mushroom

However, in all the Developing Nations (aka “Emerging Markets”) of the world where food is a BIG part of the family budget and there isn’t a Safety Net like SNAP, Food Riots pop up like Mushrooms on a cool and damp morning in Kennett Square, PA. (Mushroom Capital of the WORLD! LOL) This would INCLUDE Chen Rice Wine over in China, because while the Chinese Overlords are doing quite well, your average Chinese Peasant or Factory Worker is still subsisting on an annual salary of like $3000 (the salary J6P would also have if we want to compete with China for cheap labor). Chen is going to be going HUNGRY when Rice goes up 30% in price. Not good for the Stability of this EM. The Chinese Overlords MUST STOP this inflation or else they are going to lose control of their country. So they Bluster at Helicopter Ben to STOP Printing, and HB Blusters Back for them to STOP manipulating their currency. Something gotta GIVE here of course. Who will Blink First? It doesn’t really matter, because when either side does Blink, the only Recourse is WAR.

http://blog.heartland.org/wp-content/uploads/2013/03/gold-bars-3.jpgAll the consumable commodities are destined to Spike and Crash for as long as this monetary regime stays functional and/or until the War exits the Political/Economic sphere and migrates to the Battlefield. As long as Oil is priced in Dollars this will remain the case, and the BRIC countries are not going to be able to replace that with another Fiat currency, nor will the World Bank be able to do so. Same problem would occur with ANY Global Currency, based on ANYTHING, even Gold in an Industrial Economy whose total basis for value is on Cheap Energy. That my Gold Bug friends is the REAL crux of the matter. Follow the MONEY. The real MONEY or Economic Wealth of Industrial Civilization is in OIL and its control, NOT in Gold Bars.

Let us do a Thought Experiment. If say TOMORROW all the Fiat Crashed and the House of Saud would only take Payment in Gold for Oil, what happens? Of course all the people who have no Gold are SOL immediately. However, even all you well Prepped Pigmen with some Gold Eagles in your Basement Safe are going to have to cough them up to the House of Saud in order to get the Oil and its Products AND services you depend on, like a Functioning Goobermint that protects your Property Rights. The Oil Producer essentially holds everyone dependent on that Oil Hostage for their Gold, until all the Gold is in THEIR safes. Then what do you buy Oil with (if any is left under their Desert Sands by then)?

Of course it is not quite so simple as that, since Saudi Arabia is a Food Importer, so as long as you are a Food Exporter and can Price Up the Food to match the Oil Price Input you could have a round robin trade going on there of Food for Oil, with the Gold serving as a measure. The problem there is that this trade cannot go on in perpetuity, since while the Gold does not get destroyed, the Oil does. When the Oil runs OUT, the Saudis are left with lots of Gold in the Basement Safe, and nothing to EAT, since of course you cannot EAT Gold, and unlikely anyone with meager quantities of food will trade it for a lump of metal they cannot eat.

The Food exporter is in slightly better shape (but not much) since even though he has No Gold left and No Oil either, he still does have some possibilities for producing Food, though not nearly in the quantity possible when the Oil was flowing in from Saudi Arabia. So with no Oil and now little Gold to function as Money, this population is going to have little to work with beyond Barter to keep the Economy moving, but by then your Goobermint has gone the way of the Dinosaur and nobody is going to be out there protecting your Property Rights over “your” land other than YOU.

You think the FSA is a problem NOW? Wait until the SNAP Card program collapses. Communists will start popping up like Mushrooms on a cool and damp morning in Kennett Square, PA. Over in Greece, the Communist Party is already growing. The reason is their “Socialist” Goobermint isn’t doing jack SHIT to keep them from being turned into Debt Slaves to the Illuminati. The last Refuge for the hopeless and disenfranchised with Nothing Left to Lose is Communism. Its no problem at all philosophically or economically for people who have NOTHING to agree to share Everything. LOL. Only people who have something left to lose are afraid of Communism. You can battle against this only for so long as you keep the number of Have Nots in the Population below a certain Critical Mass. The CM seems to be about 25% of the population Unemployed, where no Safety Net exists to keep them going. At the point you have that many completely off the cliff, you probably have another 50% of the population barely hanging on, and 25% still in Control and doing OK. This is where the Battle for their Hearts and Minds and Warm Bodies to serve as Cannon Fodder comes in, as some in the middle 50% go with the Communists because they are afraid if they don’t they will attacked by the “hoodlums”; and others in the middle sign on to be Soldiers for the Illuminati with a Hot meal and a place to sleep if they fight to preserve the Status Quo. Depending on who wins the battle, you end up with either Communism or Fascism, and in large societies both are variants of the same thing, Totalitarianism. The only time you can get some kind of Middle Ground is when there is sufficient Surplus in the economy to keep everyone at least fed and housed. Such a surplus existed here in the FSofA right through Lyndon Johnson’s Great Society Program, which bought off the FSA for more than 40 years, using the Thermodynamic Energy of Oil first in the years directly following WWII, followed by Financialism and ever upward spiraling Debt in the years since the Great Society. It was NECESSARY to incur that debt in order to STOP what was happening in the FSofA in the 60s, the draining of enough resource wealth to keep everyone fed and housed in the Industrial paradigm. This was resulting locally with increasing Civil Violence, and internationally with Wars of Aggression for Hegemony over the world in places like Vietnam. Of course our Illuminati Masters did not REALLY stop this, all they did back then was Kick the Can down the road a piece with the Great Society.

It never ceases to amaze me reading the amount of Bile spit at the Free Shit Army on the pages of TBP, and more than a few other Blogs I read. Since the very MOMENT money became used as the instrument of commerce back in the time of the Sumerians, every one of these societies has been stuck with the dichotomy of Haves and Have Nots. For the great preponderance of the time in between, from about 5000BC to 1865AD or so, explicit Slavery was the answer to the Have Not problem. The Industrial Revolution made many if not most forms of Productive Human Labor quite valueless by replacing it with the thermodynamic energy of Oil, so you didn’t even really need Human Slaves anymore in the direct Ownership sense of an individual Human Life. Economic slavery became the order of the day, as a whole new economy developed based on the consumption of the Oil resource. As it grew, many forms of “Make Work” industries developed to employ people, but they didn’t really produce anything of value. In fact the people who make the MOST money produce nothing at all, they merely sit behind a Bloomberg Terminal and place bets on where the next Bubble will pop up. Closer they are to the Money Spigot, more money they have to Leverage and bet, the more they make. Thus Goldman Pigmen can go an entire MONTH not losing bets on a single trading day. Nice work if you can get it of course.

All the make work stuff of the post Industrial economy led by the IT sector never resolved the problem of poor folks falling off the economic cliff for one reason or another, and the Industrial Economy never could provide enough Good Paying jobs to keep everyone employed. It only did for a while here in the FSoA when the Industrial Capacity everywhere else in the “developed” world had been LEVELED in WWII. Once that capacity was rebuilt, and then additional capacity overbuilt in Asia, the price of Industrial Labor fell precipitously, and it was an easy thing indeed for Unions to be destroyed and Capital to move its way over to Cheap Labor countries like China. That merely accelerated the process of more people falling off the economic cliff here in the FSoA, which in order to maintain social cohesion necessitated an ever expanding population of the FSA. Many of them did find work in low paid service sector jobs for a while, but as the consumer based economy of the Industrial paradigm collapses, so also collapse all those service sector jobs. So every day now the FSA increases in its numbers, to the point now where even many of our readers are members of the FSA, collecting their UE checks after being downsized out of their job as an IT Engineer or having that job outsourced to an Indian Geek in Delhi, who will write the same code for 1/10th the price the FSofA IT Geek needs to pay his mortgage.

Although certainly the 30 Blocks of Squalor and the long term FSA populating those decaying streets are the most visible evidence here of the collapsing Industrial Economy, for now less visible members of this army are hunkered down Squatting in McMansions yet to be foreclosed on, collecting UE Bennies and feeding their children with SNAP cards. Those McMansions still look pretty good if they are still occupied since they were all built in the last decade, but in a few years they will have the same dilapidated quality of the housing in the 30 blocks of Squalor. No money available to do maintenance, no money to buy gas for the John Deere Riding Lawn Mower.

People revile the Free Shit Army until the day they JOIN that army. Ever so parochially, they believe “This will never be ME!”, since they have their Sheepskin from the University of Illinois where they studied the Productive Subject of IT, eschewing their interest in the Fine Arts so they would be prepared for a Job in our economy. As this economy spins it way downward, all those nice young WHITE boys and girls who started families and moved into McMansions will quickly become members of the FSA as well, if they are not already. Should those boys reject the UE Bennies, should they reject the SNAP card to feed their young children? Who in their right mind would do that?

As we transition out here from the Industrial/Information Technology age, unless as a society we provide some buffer to make the transition, MANY people will go Hungry, and they won’t all be the Black folks in the 30 Blocks of Squalor who fell off the cliff quite some time ago, barely after explicit slavery was abolished after the War of Northern Aggression. More and more, the FSA is going to be composed of the predominant group of White people who for a while rode the Great Train of prosperity that followed the accessing of the thermodynamic energy of Oil.

http://www.jewishvirtuallibrary.org/images/hitler1.jpgThis new group of the Impoverished and Disenfranchised will be led to revile the old group of I & D, and our Illuminati Masters will direct their hatred toward them, with an ensuing Race War quite likely as a result. Even more likely to begin over in Europe than here in the FSofA, if you read blogs like the Gates of Vienna and the subtext of policies the Dutch MP Geert Wilders espouses. Over the last 20 years, from France to Germany to the Netherlands, they have been importing cheap labor and filling up their “suburbs” with Muslim populations to do the scut work of their society, but as they run out of scut work for them to do more of them fall onto their social welfare roles. Now at best they would like to Export all these folks back to the countries they migrated from. A bit easier to try and justify than exporting the Black population of the FSoA back to Africa since they have been here since the 1700s, but equally implausible in practical application. Since exporting the Impoverished is less possible now than it was when the Jews migrated out of Europe toward the shores of Amerika, one can only suspect a new iteration of the Final Solution being undertaken over in Europe. Here in the FSoA as well this time also.

The FSA is an artifact of Industrialization and exchanging Explicit Slavery for the Economic Slavery of Capitalism. A Trade Off was made starting in the time of Otto von Bismark to develop a Social Welfare state that would handle the problem of the Have Nots that has always existed since monetary systems were implemented in the aftermath of the Agricultural Revolution. Utilizing the Thermodynamic Energy of Oil, it has through this period in the developed Industrial economies been possible to “buy off” the impoverished by providing them a basically free living, although not a very pleasant one in the various Ghettos around the world that are mirrors of the 30 Blocks of Squalor. As the Oil Age comes to a close, its no longer possible to do this Buy Off, which leaves only two possibilities, explicit Slavery or Death via the Final Solution.

Here in the FSofA, because the FEAR of Communism has been so thoroughly inculcated into the population, unlike Greece its unlikely that we will see a real resurgence of a Communist movement like the Wobblies of the Great Depression. FDR only managed to hold this off at the time by buying time with some Socialist reforms like Social Security and the Myth of Home Ownership financed through Goobermint guaranteed Loans from Fannie Mae. It was a last ditch compromise by the Illuminati of that time financed with the Thermodynamic Energy of Oil, then present in copious quantities underneath fields in OK and TX. In the intervening years since, the Illuminati consolidated their control running a Corporatocracy which is now morphing into an explicitly Fascist State, evidenced by increasing intrusive Full Body searches at all Air Transit Checkpoints and ever expanding control of commerce in all sectors of the economy. The whole apparatus is so well entrenched now it is doubtful any kind of Communist movement would stand a chance of success, so for those of you worried about that outcome here, its not likely. You will of course have to live with the alternative, a Fascist Goobermint which watches your every move and controls every aspect of your life. All you can really do during this period is wait for said Goobermint to eventually collapse on itself through internal corruption and the collapse of the Conduits. That could take quite some time, depending on how well our Fascist Leaders are able to run the War machine along with the Police State. Given the general level of Incompetence in Goobermint and decreasing Energy to hold the system together, I don’t think the timeline will be all that long, however.

We are now fresh OUT of Can Kicks, and there is nowhere in the world with great resource wealth to rape anymore, certainly not China, which is already a post industrial Cesspool. All the Hot Money Helicopter Ben is Printing is going into Malinvestment in Asia, hyperinflating their economies and setting up enormous Bubbles waiting to burst in every Emerging Market. When it collapses, as it MUST, there will simply BE no place for Capital to migrate to. Nowhere left to Run, Nowhere to Hide. Then it will become a real Global War of the Haves v. the Have Nots, and the number of Haves will be exceedingly small in number. ALL the Conduits, including Money will collapse in the course of this War, and the Death Toll coming down the pipe is close to incalculable, though it cannot be more than the entire population of Homo Sapiens, so it has an upper limit as an Extinction Level Event.

I keep my fingers crossed this is not the end of our experiment with Sentience on this planet. I do hope that there are at least a few remaining small tribes of people who will rebuild a new civilization based on better principles of Stewardship of our Planet and Generosity toward Others, rather than the Planetary Rape and Intraspecies Greed which defines Capitalism. The only thing for sure here is that if that time does come, its not going to be for a VERY long time, and the intervening years are going to be filled with Death, Anguish and Pain beyond measure for most of Humanity. The most important thing to come from that time is to make sure that Justice is Done, and the Greedy are made to Pay for their Sins. There is no level of Violence too great to Exact Retribution for the Violence done to the world and its people by Capitalism. Eternal Justice WILL prevail, and the Meek Shall Inherit the Earth. Right AFTER the Meek get very, VERY Angry.

See you on the Other Side.

Musical Dollars

Off the keyboard of RE

Published on the Doomstead Diner on June 22, 2013

http://parathiro.net/wp-content/uploads/2013/05/13-mousikes-karekles.jpg

Discuss this article at the Economics Table inside the Diner

In the last couple of weeks we have begun to see a rapid unwind across all asset classes, from Stocks & Bonds to Commodities like Oil and Precious Metals.  For many people this seems confusing, since usually when one Asset Class goes DOWN, another one goes UP.

Also confusing to the Gold Bug crowd is why PMs are getting SLAMMED, when quite clearly all the Fiat Paper out there is completely WORTHLESS TOILET PAPER!  Why isn’t EVERYBODY dumping their Rolls of Charmin and snapping up PMs here?

The reasons are many, and they have been evident since the first major phase of the collapse began back in 2008 with the failure of Bear Stearns and Lehman Brothers, yet along the way many predictions have come across the net that the Dollar was going to Hyperinflate in the Near Term, Gold would Skyrocket to $5000/oz and the Dow would hit $30,000.  Rather what we have seen is even though massive “Quantitative Easing” has been undertaken by world Central Banks, they are barely able to keep the whole Titanic from Sinking.

Anyhow, Golden Oxen our Resident Gold Bug on the Diner thinks of me as a Tool of Central Bankers because I don’t see PMs as a real good alternative to Fiat Currency, even though I despise Central Banking and in fact all Money.  So I once again tried to explain to him why it was always quite likely that Gold would suffer an Asset Collapse here along the way, and this explanation follows below as a part of this article.

Saying What?

Saying basically that across the board Asset Price Collapse was predictable given the extreme amount of leverage in the system.

Whether you like it or not, the financial system is organized around the Reserve Currency of the Dollar, and Dollar Liquidity and Availability to the people who push around Big Money determines the prices of EVERYTHING.  If there is a shortage of Dollars moving around the system, it’s like a Shortage of Chairs in Musical Chairs.  When the Music Stops, everybody runs for a Chair, but somebody HAS to be left Chairless.

There is CLEARLY a shortage of Dollars now moving around the Asian Markets, that is why the SHIBOR is skyrocketing.  Similarly, “Investors” aka the TBTF Banks are trying to Liquidate Investments in Developing Markets like Brasil for example, which further drains liquidity from the system.

http://qzprod.files.wordpress.com/2013/06/overnight-shanghai-interbank-offered-rate-shibor-_chart-2.png?w=1024&h=576

Helicopter Ben’s announcement the “Tapering” would begin was the equivalent of Stopping the Music in the game.  Some Players are getting left Hung Out to Dry without Chairs, and some of them hold very large positions they are then forced to liquidate into a falling market.  There are thus Sellers, but no Buyers.  If you are a Trader, you are not even going to Buy Gold into a falling market, it is better in this case to hold onto your Dollars and in fact go ahead and Short Gold, further driving down the price.  This is a Game of Chicken, to see just how far you can go at driving the price down before finally jumping back in and buying when the assets finally bottom out.

Relatively speaking, compared to the Sovereign Bond Market and the Derivatives Market, the Gold Market is pretty small.  So when Bond Prices start falling, many Players with Large Positions in Bonds get some BIG ASS Margin Calls there, and to cover they then have to start liquidating smaller positions in Gold.  The smaller Gold Market thus gets overwhelmed by the larger Bond Market this way.  The counterparty risk in the Derivatives Market also forces liquidations, the FEAR is that the counterparties cannot pay off on these instruments.  It all feeds on itself once it gets going in earnest.

At this point it is going to be a very hard thing to stop, because the problems are distributed so widely across so many economies now, it is a much worse situation than it was in 2008.  The Central Banks basically shot their wad in stopping that Cascade, they don’t have tools now to stop it again.  Credibility is completely shot here, and EVERYBODY KNOWS the CBs themselves are Insolvent, holding at Par Value TRILLIONS in Bonds that will never Pay Off.

So there will be a Washout Phase here, as Andrew Mellon said:

Quote from:  Andrew Mellon

Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.

In this case it is more like:

Quote from: RE

Liquidate Bonds, Liquidate Derivatives, Liquidate CDOs, Liquidate Stocks, Liquidate Real Estate, Liquidate Student Debtors, Liquidate Commodities, Liquidate Precious Metals, Liquidate the ENTIRE FUCKING INDUSTRIAL ECONOMY!

Now, down the line a ways it is marginally possible PMs will make a Comeback as a Currency, though the Coinage and Distribution problems remain a very large obstacle to this.  However, the nearer term Washout & Liquidation phase has been predictable as an outcome for quite some time, at least since 2008 when I first picked up on the phenomenon.  Stoneleigh of The Automatic Earth also picked up on this around the same time, I don’t know anybody else who did though.  Steve from Virginia of Economic Undertow maybe, but I don’t think he started publishing until 2009.

Recently jumping on this Bandwagon is Chris Martenson of Peak Prosperity.  He notes with some concern the Mad Dash For Cash going on in Asset Classes across the board:

The Dash for Cash

The early stage of any liquidity crisis is a mad dash for cash, especially by all of the leveraged speculators. Anything that can be sold is sold. As I scan the various markets, all I can find is selling. Stocks, commodities, and equities are all being shed at a rapid pace, and that’s the first clue that we are not experiencing sector rotation or other artful portfolio-dodging designed to move out of one asset class into another (say, from equities into bonds).

Here’s the data. Let’s begin with the place that the most trouble potentially lurks  bonds and here we have to start with the U.S. Treasury 10-year note, as that is the benchmark for so many other interest-rate-sensitive items, such as mortgage bonds.

Here there’s been a very interesting story that predates the recent Fed announcement by nearly two months. This chart of the price of 10-year Treasurys tells us much (remember, price and yield are exact opposites for bonds; as one moves up, the other moves down):

The first take-away is that the current price of 10-year Treasurys is now lower that at any time since late 2011. The second take-away is that this has happened despite both Operation Twist and QE3.

That is, after all the hundreds and hundreds of billions of dollars of thin-air money-printing and bond-buying, Treasurys are now lower in price than when the Fed initiated Operation Twist and QE3.

In the meantime, until this washout is completed, you have some very WEAK currencies that gotta get slammed here, notably the Yen and Euro.  People holding large positions in those currencies are going to look to trade them for increasingly scarce Dollars.  This drives up the value of the Dollar relative to everything else including Gold until the Conduits begin to fail in earnest, at which point perhaps people try to unload Dollars for what Gold they can get their hands on, except it is in Permanent Backwardation.  You likely won’t find much to buy at any price in this situation.

Next week will be a good indicator whether the CBs still have enough Firepower to put the brakes on it again.  Even if they do temporarily though, it can’t last long.  Too many weak links now.

You have to remember always that all Money is an Abstraction which represents a perceived value of other things, mainly the Resources of the Earth and the Value of Work done, which can come in the form of Human or Animal Labor, or in the days since the Industrial Revolution began from the Thermodynamic Energy contained in fossil fuels, themselves a Resource of the Earth available only in a Finite Quantity.  When the money stops representing what is truly available and truly has value, the monetary system starts to deteriorate, and it really doesn’t matter WHAT is being used for money.  Precious Metals are no more “Sound Money” than anything else chosen to represent the real value of other things which at some point are either no longer available or lose their utility value.

There is a persistent Myth that before we got stuck with Da Fed and Central Banking, PMs provided a stable Monetary system for the world, but they in fact never did that at all.  During the Free Banking era of the 1800s when Gold & Silver both were in some circulation as Currency in the FSoA, there were very regular Depressions and Crashes of the economic system.  Going back to the Colonial era over in Europe, Gold & Silver would appear and disappear from circulation in various economies as the trade, production and THEFT of these metals sometimes put more in circulation, other times pulled them out of circulation.  Wars were a constant state of life in those times.  War does not indicate stability of any sort. The Hundred Years War, the Napoleonic Wars, quite endless there really.  Certainly utilizing PMs for Currency did not make the economy of the Roman Empire stable once it reached its Limits to Growth.  So there is no real good reason to suspect that returning to PMs would make for any more stable an economic system now than it did back then.

From Wiki, here is the list of Recessions/Depressions/Banking Crises JUST during the Free Banking Era up to the Great Depression:

US recessions, Free Banking Era to the Great Depression
Name Dates[nb 2] Duration Time since previous recession Business activity [nb 3] Trade & industrial activity[nb 3] Characteristics
1836–1838 recession ~2 years ~2 years —32.8% A sharp downturn in the American economy was caused by bank failures and lack of confidence in the paper currency. Speculation markets were greatly affected when American banks stopped payment in specie (gold and silver coinage).[3][14] Over 600 banks failed in this period. In the South, the cotton market completely collapsed.[9]
late 1839–late 1843 recession ~4 years ~1 year -34.3% This was one of the longest and deepest depressions. It was a period of pronounced deflation and massive default on debt. The Cleveland Trust Company Index showed the economy spent 68 months below its trend and only 9 months above it. The Index declined 34.3% during this depression.[15]
1845–late 1846 recession ~1 year ~2 years −5.9% This recession was mild enough that it may have only been a slowdown in the growth cycle. One theory holds that this would have been a recession, except the United States began to gear up for the Mexican–American War, which began April 25, 1846.[13]
1847–48 recession late 1847–late 1848 ~1 year ~1 year −19.7% The Cleveland Trust Company Index declined 19.7% during 1847 and 1848. It is associated with a financial crisis in Great Britain.[15][16]
1853–54 recession 1853 –Dec 1854 ~1 year ~5 years −18.4% Interest rates rose in this period, contributing to a decrease in railroad investment. Security prices fell during this period. With the exception of falling business investment there is little evidence of contraction in this period.[3]
Panic of 1857 June 1857–Dec 1858 1 year
6 months
2 years
6 months
−23.1% Failure of the Ohio Life Insurance and Trust Company burst a European speculative bubble in United States’ railroads and caused a loss of confidence in American banks. Over 5,000 businesses failed within the first year of the Panic, and unemployment was accompanied by protest meetings in urban areas. This is the earliest recession to which the NBER assigns specific months (rather than years) for the peak and trough.[5][8][17]
1860–61 recession Oct 1860–June 1861 8 months 1 year
10 months
−14.5% There was a recession before the American Civil War, which began April 12, 1861. Zarnowitz says the data generally show a contraction occurred in this period, but it was quite mild.[15] A financial panic was narrowly averted in 1860 by the first use of clearing house certificates between banks.[9]
1865–67 recession April 1865–Dec 1867 2 years
8 months
3 years
10 months
−23.8% The American Civil War ended in April 1865, and the country entered a lengthy period of general deflation that lasted until 1896. The United States occasionally experienced periods of recession during the Reconstruction era. Production increased in the years following the Civil War, but the country still had financial difficulties.[15] The post-war period coincided with a period of some international financial instability.
1869–70 recession June 1869–Dec 1870 1 year
6 months
1 year
6 months
−9.7% A few years after the Civil War, a short recession occurred. It was unusual since it came amid a period when railroad investment was greatly accelerating, even producing the First Transcontinental Railroad. The railroads built in this period opened up the interior of the country, giving birth to the Farmers’ movement. The recession may be explained partly by ongoing financial difficulties following the war, which discouraged businesses from building up inventories.[15] Several months into the recession, there was a major financial panic.
Panic of 1873 and the Long Depression Oct 1873 –
Mar 1879
5 years
5 months
2 years
10 months
−33.6% (−27.3%) [nb 3] Economic problems in Europe prompted the failure of Jay Cooke & Company, the largest bank in the United States, which burst the post-Civil War speculative bubble. The Coinage Act of 1873 also contributed by immediately depressing the price of silver, which hurt North American mining interests.[18] The deflation and wage cuts of the era led to labor turmoil, such as the Great Railroad Strike of 1877. In 1879, the United States returned to the gold standard with the Specie Payment Resumption Act. This is the longest period of economic contraction recognized by the NBER. The Long Depression is sometimes held to be the entire period from 1873–96.[19][20]
1882–85 recession Mar 1882 –
May 1885
3 years
2 months
3 years −32.8% −24.6% Like the Long Depression that preceded it, the recession of 1882–85 was more of a price depression than a production depression. From 1879 to 1882, there had been a boom in railroad construction which came to an end, resulting in a decline in both railroad construction and in related industries, particularly iron and steel.[21] A major economic event during the recession was the Panic of 1884.
1887–88 recession Mar 1887 –
April 1888
1 year
1 month
1 year
10 months
−14.6% −8.2% Investments in railroads and buildings weakened during this period. This slowdown was so mild that it is not always considered a recession. Contemporary accounts apparently indicate it was considered a slight recession.[22]
1890–91 recession July 1890 –
May 1891
10 months 1 year
5 months
−22.1% −11.7% Although shorter than the recession in 1887–88 and still modest, a slowdown in 1890–91 was somewhat more pronounced than the preceding recession. International monetary disturbances are blamed for this recession, such as the Panic of 1890 in the United Kingdom.[22]
Panic of 1893 Jan 1893 –
June 1894
1 year
5 months
1 year
8 months
−37.3% −29.7% Failure of the United States Reading Railroad and withdrawal of European investment led to a stock market and banking collapse. This Panic was also precipitated in part by a run on the gold supply. The Treasury had to issue bonds to purchase enough gold. Profits, investment and income all fell, leading to political instability, the height of the U.S. populist movement and the Free Silver movement.[23]
Panic of 1896 Dec 1895 –
June 1897
1 year
6 months
1 year
6 months
−25.2% −20.8% The period of 1893–97 is seen as a generally depressed cycle that had a short spurt of growth in the middle, following the Panic of 1893. Production shrank and deflation reigned.[22]
1899–1900 recession June 1899 –
Dec 1900
1 year
6 months
2 years −15.5% −8.8% This was a mild recession in the period of general growth beginning after 1897. Evidence for a recession in this period does not show up in some annual data series.[22]
1902–04 recession Sep 1902 –Aug 1904 1 year
11 months
1 year
9 months
−16.2% −17.1% Though not severe, this downturn lasted for nearly two years and saw a distinct decline in the national product. Industrial and commercial production both declined, albeit fairly modestly.[22] The recession came about a year after a 1901 stock crash.
Panic of 1907 May 1907 –
June 1908
1 year
1 month
2 years
9 months
−29.2% −31.0% A run on Knickerbocker Trust Company deposits on October 22, 1907, set events in motion that would lead to a severe monetary contraction. The fallout from the panic led to Congress creating the Federal Reserve System.[24]
Panic of 1910–1911 Jan 1910 –
Jan 1912
2 years 1 year
7 months
−14.7% −10.6% This was a mild but lengthy recession. The national product grew by less than 1%, and commercial activity and industrial activity declined. The period was also marked by deflation.[22]
Recession of 1913–1914 Jan 1913–Dec 1914 1 year
11 months
1 year −25.9% −19.8% Productions and real income declined during this period and were not offset until the start of World War I increased demand.[22] Incidentally, the Federal Reserve Act was signed during this recession, creating the Federal Reserve System, the culmination of a sequence of events following the Panic of 1907.[24]
Post-World War I recession Aug 1918 –
March 1919
7 months 3 years
8 months
−24.5% −14.1% Severe hyperinflation in Europe took place over production in North America. This was a brief but very sharp recession and was caused by the end of wartime production, along with an influx of labor from returning troops. This, in turn, caused high unemployment.[25]
Depression of 1920–21 Jan 1920 –
July 1921
1 year
6 months
10 months −38.1% −32.7% The 1921 recession began a mere 10 months after the post-World War I recession, as the economy continued working through the shift to a peacetime economy. The recession was short, but extremely painful. The year 1920 was the single most deflationary year in American history; production, however, did not fall as much as might be expected from the deflation. GNP may have declined between 2.5 and 7 percent, even as wholesale prices declined by 36.8%.[26] The economy had a strong recovery following the recession.[27]
1923–24 recession May 1923 –
June 1924
1 year
2 months
2 years −25.4% −22.7% From the depression of 1920–21 until the Great Depression, an era dubbed the Roaring Twenties, the economy was generally expanding. Industrial production declined in 1923–24, but on the whole this was a mild recession.[22]
1926–27 recession Oct 1926 –
Nov 1927
1 year
1 month
2 years
3 months
−12.2% −10.0% This was an unusual and mild recession, thought to be caused largely because Henry Ford closed production in his factories for six months to switch from production of the Model T to the Model A. Charles P. Kindleberger says the period from 1925 to the start of the Great Depression is best thought of as a boom, and this minor recession just proof that the boom “was not general, uninterrupted or extensive”.[28]

In all cases through the Growth Period of a Civilization, Debt & Credit have been used as a means to facilitate Commerce and accelerate the Growth of a Civilization to the Limits of its Resource Base.  When those Limits are reached, the Monetary system begins its collapse phase, because the associated Debt & Credit systems are all predicated on persistent Growth of the Economy.  The Interest being paid on any money can only be paid if the economy grows.  If the money is Gold or Silver, said interest can only be paid for so long as more Gold and Silver are mined or Stolen from others.  If the money is Fiat, the interest can only be paid as long as the containing economies produce more and more stuff from the resources of the earth.  When the expansionary period is finished, you can’t return on investment, you can’t pay interest.  Thus now in our case, you have the ZIRP policy, but unfortunately said policy has the Blowback that nobody’s Pension Plan will pay off anymore and there is about no Asset Class you can buy into where there will be an organic return on the investment.

To conclude here today in this episode of the Financial Collapse Phase of Industrial Civilization, we still have a bunch of Workouts and Unwinds that have to occur here before the Dollar is abandoned as the Numerical Arbiter of Value in the Global Financial System.  A couple of Smaller but nevertheless still pretty BIG currencies have to be unwound, namely the Euro and the Yen.  Investors trying to unload these currencies are most likely to head for the Dollar, backed as it is by the Big Ass Military.  Hedge Funds looking to Unload securities they hold large positions in in Developing Nations will also be looking to unload them for Dollars.  TBTF Banks concerned about counterparty risk in Derivatives they hold written by other TBTF banks seek to unload those for Dollars.  As many Dollars as Helicopter Ben has Printed here over the last 5 years, there just are not enough to go around in a Shadow Banking Economy that very likely is measured in Quadrillions.  There are not enough Chairs here to go round.  When the Key Men in the game begin to fall, it all begins to accelerate.  It appears now this Game is Afoot at last.

holmeswatson2

RE

Ostriches on the Blind Side

Off the keyboard of RE

Published on the Doomstead Diner on June 1, 2013

Discuss this article at the Economics Table inside the Diner

ostrich-head-in-sandAnyone watching the Financial Newz over the last couple of weeks has been treated to a marvelous show, watching the 3rd largest Industrial Economy in the world implode on the financial level.  The economy is of course that of Japan, and said Implosion is long overdue, it really should have gone into Overdrive right after Fuk-U-shima.   Keeping it Propped Up has been a Priority, since a Cog this big in the Industrial Machine going down has so many bad financial consequences that essentially the Disaster of the Physical Sense was Ignored by the Financial Markets, except for a couple of weeks in the direct aftermath of the Tsunami.  After that, it was assumed those Plucky Nips would get it all back together and go on with Biz as Usual, Pumping out the Nissans, Nikons and Hitachi Front End Loaders and Backhoes from the Factories surrounding Tokyo.  If they could not draw power from the Nuke Plants to power said Factories, they would replace it by importing more Coal & Oil, keep the JUICE Flowing, and keep exporting the toys to a Positive Trade Balance.

Sadly for the Salarymen and Mrs. Watanabe, this idea did not work out so good over the last couple of years.  Japan’s Trade Surplus evaporated, and it’s already OUTRAGEOUS Public Debt which was somewhere in the Stratosphere over 200% of GDP ballooned even more, with no end in sight at this time, that is for sure.

In the intervening Time Period since Fuk-U-shima, all Eyes have been focused on Eurotrashland.  Greece on the Greasy Skids, Cyprus puking Ruskie Gangsta Money, Spain and Portugal sucking up to the IMF…you know the story by now.  Somehow though, despite the fact absolutely ZERO has been resolved in any of these Eurotrash Nations, over the last two weeks any problems they have simply VANISHED into the Ostrich Head Sand of of the MSM.  Nobody in the MSM is talking about the Eurotrash now in the MSM, because you see, the Eurotrash are on the BLIND SIDE of this week’s Collapse Story.  We are focused here now on the Nips and THEIR collapse problem, which so surprisingly (sic) has emerged once again here.

http://www.kids.esdb.bg/images/ev2.jpgWhy has this story re-emerged here now?  Essentially because after a couple of YEARS of complete FAILURE getting their Mercantilist economy running at a PROFIT again, Da BoJ has gone on a Printing Spree that makes Helicopter Ben look like a PIKER.  Abenomics is giving a BLOW JOB to Paul Krugman, with the supposition that by simply SHOVELLING Credit at the Nip Banks, they can get the Toyotas moving out of the Factories again and heading for the Open Road of the Eisenhower Interstate.  Small problem here, the Happy Motorists who drove those miles are fresh OUT of Gas they can afford to buy, and there are PLENTY of decent Used Carz on the market which do quite the same job of getting you here to there as a new Nissan EV does. Most of said Happy Motoristas are in CC debt up to their EYEBALLS already, and can only even buy a Used Car on a “No Credit Check, No Money Down” deal from the local Used Car Salesman.  After buying said car to get to work at Mickey Ds for $7.25/hr, the only way they can afford Gas for it is to stop paying on the Mortgage.  Sense a PROBLEM here with this methodology?  LOL.

How many years/miles would you have to drive an EV priced at say $40K to match up to a Used Car you pick up for say $3000?Ballparking it here, this leaves you $37K to spend on Gas.  Say your workplace is 20 miles away, and your Used Car gets 20MPG.  So each week you drive 200 R/T miles to make it to the Workplace and Back to your McMansion, stopping at Safeway on the way home to pick up the Groceries.  You put approximately 10K miles/year on the Used Car this way, which takes about 500 Gallons-o-Gas to cover.  Price the Gas at $10/Gallon.  So it costs $5000/year in fuel to run the car to get you to work.  Even at $10/Gallon, it takes more than 7 YEARS for you to make up the price differential between the ICE Used Car and the New Prius utilizing Electric Power, and that is assuming the Electricity comes completely FREE!  Which it does not of course, even if you have enough Solar PV cells on your McMansion Rooftop to charge up your Prius every night, those suckers cost you a decent piece of change ALSO.  Absolutely BEST CASE scenario here, it would take a Decade at least to make up the cost differential between a Prius and a Used Car with Gas priced at the currently in the FSoA OUTRAGEOUS price of $10/Gallon!  How long do you think the Lithium-Ion Battery Pack in said Prius lasts?  If any of you have experience with Li-I rechargeables in your Laptop, you know these suckers generally give up the ghost after 2-3 years if you regularly charge and discharge them.  So at the very LEAST over this 10 year lifespan of the Prius, you will need to replace said Battery Pack 3 times, at a CURRENT price in the $15K range!  Not accounting for how much MORE it will cost to replace said Battery Pack 3 years from now, if you can even GET one shipped over from China.  On no level whatsoever is this the least bit economic or sustainable, and only if you are absolutely ROLLING in DOUGH can you afford such a vehicle as Insurance against a disappearing liquid fuel supply.

So overall, between Decreasing Demand for their Automotive product of ANY type, ICE or EV, and Increasing Energy costs due to the need to import still more Fossil Fuels to make up for lost Electric Production from their Nukes, the Nips have gone from Trade Surplus to Trade Deficit now, and they still got that ever ballooning 240% Debt to GDP ratio to deal with.  WTF is going to buy JGBs here to finance the massive QE Abenomics is trying? Only the BoJ, and maybe Da Fed to keep the Yen from completely collapsing.  The Ostriches here all have their heads in the sand, you obviously cannot solve a systemic problem like this just by shovelling Funny Money at it.

While Japan represents the Disaster of the Day in MSM Economic Newz and even on the pages of Zero Hedge, the very SAME Ostrich problem is going on in Eurotrashland, and here in the FSoA as well.  Eurocrat Clowns run around in a Kabuki Theatre presentation of a Keystone Kops movie as though they can really “solve” the problems every last nation in the Eurozone has (INCLUDING the Krauts!) by dropping Austerity down on everyone, slashing Goobermint Jobs and Pensions, doing “internal Devaluations” cutting salaries in the Private Sector also, all of which is supposed to lead to a “Recovery”.  How?  Cut everyone’s salary, tax receipts fall, they have less income to spend to buy Kraut Kars or Vacation Condos on the Costa del Sol and the Velocity of Money drops to near ZERO!  Super Mario Dragon can print money to his hearts content but it goes NOWHERE but into Ballooning Bubbles and never hits the street economy at all.http://doctorbulldog.files.wordpress.com/2010/03/keystonecops.jpg

Same deal goes on here in the FSoA, still masked a bit better in most places, though not in places like Detroit, Stockton and Harrisburg, already BK and far down the Toilet of FAST COLLAPSE.  I would challenge John Michael Greer to walk the Streets of Detroit and call that one “Slow Catabolic Collapse”.  LOL.

With the Ostrich Movement so prevalent at the very Top End of our society and its control structure, is it any wonder really that on the Personal, Local and Individual level you find Ostriches all around you, amongst your Family Members and Friends?  The “Big Boys” aren’t admitting the TRUTH here, they are busy spinning BULLSHIT on the pages of the Wall Street Journal and the UK Telegraph, courtesy of Shills like John Hilsenrath for the WSJ and Ambrose Evans-Pritchard of the UKT.  OK, granted most dimwit J6Ps don’t read either Hilsenrath if they live in the FSoA OR Ambrose if they live in Jolly Old England, but they do still absorb the next few levels down coming off Faux Newz and MSNBC.  When they can tear themselves away from Lindsay Lohan’s latest Rehab adventure or Kim Kardashian’s marital break up.

These folks are Ostriches of Ignorance, a sad evolutionary consequence of our “Culture”, but they are not RESPONSIBLE for what has gone down here, they are victims of it with about ZERO power to make any difference at all no matter WHAT they do.   Even if they do manage to wake up soon enough to possibly enhance their own survival chances, they sure can’t make a difference on how the Military-Industrial Complex will try to enhance its survival chances.  At least not until such time as the playing field is Level Enough that such a fight could be undertaken and actually WON, which still is a bit down the line here.  It will take a good bit of time for the Industrial Military to collapse on itself, it is likely going to be the very LAST of the Conduits to succumb to decreasing Resource availability to run the War Machine.

To Undercut this, to take DOWN the apparatus before it succumbs to Entropy as it must, at some point a fundamental Weakness has to be exploited, and that is the only real HOPIUM that exists for cutting short an unacceptable spin down of population reduction run by and for TPTB aka Illuminati.  The weaknesses are there all over the place to be so exploited, but dumb ass OSTRICHES on the BLIND SIDE do not see them.  YET.

http://2.bp.blogspot.com/-pHneOZTuq9Y/Ti9ySgiKtBI/AAAAAAAAI8o/LgNkY7ZD6dE/s400/StampedeMentality.jpgFor those of us who DO see the weaknesses, we sit and WAIT, and to the best of our ability try to wake people UP to what is coming down the pipe here.  Bringing round Loved Ones who do not see these things, do not WANT to see them is very tough.  Frustrating to be sure for many Doomers.  Trust me though, if you Stay the Course, keep hammerring down on what is EVIDENT here in the progress of Collapse, eventually you will break through the sand to reach the Head of even the most deeply buried Ostrich.  When that time comes, when FINALLY you can bring the Ostrich Heads from the Sand, when finally the Playing Field is sufficiently Level to make a real FIGHT of it you can WIN, THEN comes the time you make the Final Battle for All the Marbles.  Then you TAKE NO PRISONERS.  Then you TERMINATE WITH EXTREME PREJUDICE.  Then you make the Pigmen REGRET THE DAY THEY WERE EVER BORN!!!  Then you do not just GET MAD, YOU GET EVEN!  You ROLL over them with the POWER OF NUMBERS!  You STAMPEDE THE MOTHERFUCKERS.

This is NATURAL LAW. Backfire.  Fight Fire with Fire. You want some Darwinism here Mother Fucker?  I’ll give you some FIRST CLASS Darwinism.  Where’s my GUILLOTINE?  LOL.

RE

History & Future of Coinage & Money

Off the keyboard of RE

Published on Reverse Engineering June 2009

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Discuss this article at the Money Table inside the Diner

Note from RE:  Monsta and I have both been engaged lately in taking a deeper look at how Money works, particularly in the aftermath of the Gold Smackdown that went down in the paper/digital markets a short while back.

This is not a new topic of course, it’s an old one in the collapse blogosphere, particularly as it relates to the effects of Deflation & Hyperinflation, and I’ve hit on the topic numerous times in the past.  In the course of putting together the most recent series on Money, Monsta turned up the following articles originally published on Reverse Engineering.  Since they relate to my last Future of Money article, I’m republishing them now here on the Doomstead Diner.

RE

We all love to hate Fiat Money. I certainly write plenty of metaphors about “Printing” and “Burning Up the paper we use for currency (though less these days than the Digibits in your account, accessed with your Plastic Card and Password). As the digibits and the paper dissolve and burn up here however, recidivists of the PM variety pine longingly for the days of a Precious Metal Standard. Gold Sovereigns, the Pound Sterling, that sort of thing. I think many fantasize about their own little cask of Louis d’Or Gold coins buried in their backyard, and some may even have the equivalent of that in Gold Eagles or Kruggerands.

http://fc08.deviantart.net/fs71/i/2010/291/f/c/pieces_of_eight_by_werden-d311zw2.pngWhat I would like to discuss here is the limitations of PM Coins as a Currency, and why they in fact are much easier to counterfeit and debase than the paper stuff is.
First off, as you hopefully know, the total amount of gold and silver available for coinage is pretty limited. For Gold, it amounts to about .7 oz for each person on the earth. So, even if you made tiny gold goins of .1 oz each, distributing them out across the world each person could only have an average of 7 coins. One a day, that actually works out nice 🙂 Small though that number is, you still could imagine such a system working if in addition to the 7 Gold Coins you might earn each week, you also could exchange them for say 70 silver coins to use in actual commerce. You give say 20 Pieces of Eight to your landlord for rent, 30 pieces of eight to buy groceries, 10 pieces of eight to buy fuel to heat your house and cook your food, 5 pieces of eight to save for a Rainy Day and 5 pieces of eight paid in TAXES.

Seems like a fair system right? Now, I am not even going to get into how easy it is to counterfeit and debase PM coinage, but I am nevertheless going to demonstrate to you why even fairly applied; this currency system fails over time.

You always have some people who save, and some who spend. In a situation where nobody is ALLOWED to borrow or lend, nobody can spend more than they actually earn, and similarly nobody who earns more than they spend can make any money in interest payments. However, even in the absence of THAT, the system still fails, and the reason is the Savers or Hoarders if you prefer.

Say you start out your system with 100 people, 7 Gold coins to a person for 700 total Gold Coins in your community. To augment that, you have 7000 Pieces of Eight you use for daily commerce. Your entire economy is defined by 7000 POEs and 700 GCs.

Start out, Week 1. J6P Saver gets through the week saving his 5 POEs. So does another J6P Saver. Joe Spender cannot spend more than he earns, because he isn’t allowed to borrow. What happens in Week 2? Well, in Week 2, if you assume half the J6Ps are savers and half spenders, 50 of them will be hoarding 250 POEs. That means after that week, 3 POEs are out of circulation and in the Piggy Banks. In said scenario, with half the people saving about 8% of earnings and half spending and no borrowing or lending, it would only take about 28 weeks before ALL the POEs were out of circulation and sitting in Piggy Banks! You could exchange them all for the 70 GCs you have and get another 28 weeks out of it, but at the end all the money left is in the hands of the 50% of Savers, the other half of your Tribe has NOTHING. What do you DO with that half of the Tribe? Put them in Prison? They didn’t even go into DEBT! They just did not save while others did.

Well, we added on to this idea with interest and lending, and even more exotic financial instruments like CDS contracts, but the principle remained the same over the ages, and more and more of the money got centralized over time. The ONLY thing that ever really redistributed wealth of the monetary kind was war or revolution; Savers generally are not predisposed to GIVE their money away to spenders.

It’s not just Borrowing and Lending that wreak havoc on a monetary system; it’s the whole concept of SAVING. As soon as you have some Squirrels in a society who harbor a fixed amount of nuts, eventually the nuts run out for all the other squirrels. It doesn’t even matter if they did it fairly or by insidious theft (the latter being the leading cause since about 1600AD), you STILL get the effect of half your society as Haves and half as Have Not’s. Even THAT isn’t the real problem though, you could always just Exile the Have Not’s. The real problem is you dried up the liquidity in the money supply, which is fixed because it’s based on PMs. It gradually comes out of circulation as people save, or in more common circumstances as Goobermints tax it all away from you. Like a Vacuum Cleaner, eventually all the money ends up in ONE bank. Long as you accept what is IN that bank as money, there can be no more commerce past barter. That is the Restart that has happened over and over again through history. Monetary system crashes, Barter replaces it, monetary system reintroduced by hoarders of Gold.

Gold Bugs actually are the BIGGEST cause of Fiat Money. Because they accept Gold as Wealth, they lay the seeds for a Fiat Money system to follow it. What I am trying to drive home here is that a monetary system based on Precious Metals CANNOT work. It’s just a precursor to the Fiat system, which ALSO cannot work. The whole CONCEPT of Money is wrong. That is what is so hard to make people understand.

RE

http://heritageofjapan.files.wordpress.com/2008/09/nihonnoruutsu-yayoi-rice.jpg

Far as a sustainable Banking System, I have written about this a few times, and its my hypothesis we need a system based on Food Energy, the Calorie of the food kind which is related to the kilocalorie of the Joule kind which represents thermodynamic energy.

The closest historical model I am aware of is from Feudal Japan, where a “Koku” of Rice represented Wealth. However, as with all the other monetary systems this one also was open to abuse, as more Koku Notes were issued than rice actually existed, especially in times of famine.

The BIG problem you always have in a monetary system, whether it is Paper Money or PM Coins is making the Money Supply MATCH the absolute output of the society in terms of its food supply. Fossil Fuels THOROUGHLY disguised this problem with the Green Revolution, food became EXCEEDINGLY cheap, to the point it had to be GIVEN away in the form of Food Aid, which of course just exacerbated the Overshoot Problem we face now.

Retreating here now, REVERSE ENGINEERING our way back off this problem requires to things primarily. First it requires tying the currency we use to the ABSOLUTE amount of food produced in any year worldwide. Then it requires honest accounting to withdraw or add currency to circulation as the total amount of food calories rise or fall in a given year. ALMOST impossible to do of course, but not completely IMPOSSIBLE either.

http://images4.wikia.nocookie.net/__cb20130206182109/l5r/images/7/7a/One_Koku.jpgEssentially, you have to issue NEW Currency each year based on the total Harvest, and this also prevents you from SAVING any “money” from year to year. The only thing you could actually save is the REAL commodity it’s based on, if it was Koku its RICE. If in ADDITION to the Harvest, you ALSO had 5 Bushels of Rice in your Doomstead Larder, Koku Currency could be issued on that as well.

Max SAVINGS for any individual with such a system? Perhaps around 7 Years, the max you might keep bushels of rice stored in your grain cellar without it going bad or eaten by mice. Do I hear JOSEPH here? Do I hear the BIBLE? Hello, that shit was written with 5000 years of human experience gone before it, all that stuff about “Never a Borrower or Lender Be” and 7 years of Famine were written for a REASON. Why do you think they wrote all that shit about the Golden Calf? The Gold thing left them impoverished OVER AND OVER again! So eventually a bunch of them said to HELL with that, and made a new set of rules, which of course nobody really followed.

Economic systems and savings is all about consolidation of POWER. They became increasingly complex with time, but the fundamentals remain true. Because some peoples save and others spend, wealth consolidates over time as long as you define some object as the repository of wealth. That object historically was PMs, lately it has be US Treasuries, but in NEITHER case did these objects represent REAL wealth in absolute terms, they only represent it for so long as a particular monetary system holds up, which traditionally is no more than around 50 years. Thus the reason for that other tradition in Judaism, the Jubilee Year, were all debts are Forgiven.

I am not in favor of Jubilee Monetary system. I advocate for a yearly system based on the absolute number of food calories produced in that year. Clear Accounting of the production, and then a clear issuance of currency to match what was produced plus what was saved from prior years. That is correct accounting of the wealth, and trade can proceed from there in a Mark to Market fashion, NOT mark to Make Believe. There still will be winners and losers, there still will be savers and spenders. However, outrageous accumulations of wealth will not be possible, not past the 7 year lifespan of most food. I am OK with somebody being 7 times wealthier than me because they are a good saver. I am NOT OK with somebody being 7000 times wealthier than me because their ancestors took control of our monetary system. That is patently unfair, and needs to end here.  End it will, by default in both senses of the word.  A contracting economy can’t support a monetary system based on growth, and in the absence of copious amounts of Energy, our economy is destined for contraction for the forseeable future.

The Future of Money

Off the keyboard of RE

Published April-May, 2010 on Reverse Engineering

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Discuss this article at the Economics Table inside the Diner

Note from RE: File this article under “the more things change, the more they remain the same”.  What follows is an exchange I had with Toby Russell, a quite brilliant Brit 3 years ago on Reverse Engineering, pondering on the Economic Issues of the day and the Future of Money.  We rehearse these questions now on the pages of the Doomstead Diner for a somewhat larger audience, but in all honesty in 3 FUCKING YEARS, not a whole lot has changed here as of yet and the same questions remain to ponder on until they do.

Toby and I had many a great chat on the subject of money, and inside the Diner I will paste a few more of them.  With luck, Toby will find his way to the Diner as well, and we can renew, refresh and update the $64,000 Question on the Future of Money in the post-Industrial Economy.

RE

To begin, from my keyboard:

Who ARE the Bond Vigilantes?

Exactly how the monetary system will come apart remains an open question, but more and more each day you see a structure developing for the collapse.  It comes in the form of the internal battle between Nation States and those who have “invested” in Nation States in the Bond Market, which in Europe is currently in a Death Spiral that can only be slowed if the Sovereigns “guarantee” the bonds currently being repudiated by whoever it is who buys those bonds. The so-called “Bond Vigilantes”

So who really ARE the Bond Vigilantes, and WHO is the “market”?  Its not J6P for the most part, I mean who buys Greek Bonds with their spare change?  In aggregate J6P who actually HAS  401K might be buying some of this trash as part of his portfolio, but inr reality most of this trash is bought by the Big Banks as proxies for the Iluminati.  Once it starts to go BAD, they want to offload it all onto the balance sheet of J6P the taxpayer, that is what Bailouts amount to.

There is a BIG confusion in using the term “market” when it comes to the dealings of Big Capital.  Most people think of the market as the aggregate of what all the people in society are buying and selling, but that is not true at all with respect to sovereign debt.  The massive TRILLIONS in debt that are being issued these days by Sovereigns all over the globe cannot be absorbed by the savings of J6P, because the money didn’t exist before to buy it.  It really can only be bought by the Big Banks who can Borrow money from the Central Banks at close to Zero Interest.  The CB then writes the money into existence and loans it to them.

It’s all a big Circle Jerk, and the end result is it loads up all the bad debts on the balance sheet of the Taxpayer, which the taxpayer cannot actually pay because he is Unemployed and no longer pays taxes, so the Bond Vigilantes/Big Banks drive the interest rate up still higher for borrowing.

The problem is coming to a head now, and it pits varying Pigmen and various arms of Da Goobermint against each other.  Neil Barofsky has a plethora of litigation ready to undertake here that will make the little SEC lawsuit against the Squid look like child’s play.  T will be undertaken also, because the Political Survival of most of the apparatchiks depend on finding Scapegoats.  Besides that, you have lawsuits that will be filed on behalf of States that got fucked by the Banksters along the road as well.  Pigman vs.Pigman, the battle begins.

Greece is and remains Small Potatoes in this battle, but what is done here to Bail them out only sets up bigger bailouts for the other Hostages to the Banksters, the rest of the PIIGS.  Because their debt is “risky” now, the “Bond Vigilantes” are driving up the debt costs for the other nations also.  Which means they also must seek a Bailout. Some pundits think when this hits Spain the market will choke on it, maybe so maybe not.  However, its also going to eventually hit the FSofA market after all the weaker chickens have been slaughtered here.  Nobody is out there to Bailout the FSofA sovereign, not even the Chinese, because they hold the debt already, into the Trillions.  That is their “savings”. No reason to buy MORE worthless toilet paper for the Chinese.

So, the only “out” here is for the FSofA to buy its own debt in perpetuity, issuing more and more paper.  Hyperinflation of the money supply, but not necessarily hyperinflation of prices until and unless those newly created dollars start filtering out of the system into the hands of J6P, which is nowhere on the horizon.

The reality here?  Goldman Sachs, JP Morgan Chase et al are now engaged in a circle jerk trading with themselves, they ARE the “market”. They can keep propping it up so long as the CBs keep issuing them Interest Free Money to speculate with.  Problem is of course, that is just driving the sovereigns into ever deeper bankruptcy.

Eventually one of these sovereigns will crash, and nobody will bail them out.  The CDS will trip, and then the House of Cards will crash here.  Still has a coupel of layers to go though.  They will print the money to Bailout Greece, and probably Portugal and Spain also.  When the Debt Tsunami hits the ISSUER of the Debt, the Federal Reserve Bank, then it will come to an end.  How long will that take?  Based on progress since Bear Stearns of upward Cascade Failure, my guess is 2 years.  In the meantime, Volatility is going to be WILD. Very hard to pinpoint what asset class or what Sovereign will be the next target of the Bond Vigilates. However, target them they will, because they have to make a PROFIT here.  The only way to do that is to turn the world into their Debt Slaves.

RE

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From Toby:

I’m getting very interested in MMT, as I have posted at my blog. What we are really saying when we argue there is too much debt (there is) and this sucker is going down, is that money is the most important thing there is, that nothing can be done about it, someone’s got to pay, and so on. But in reality of course money’s just so much numbers. Ecological issues aside, real wealth is not diminishing, only debt obligations are growing. What do we do about this? Drown in our idea of what money is, or redesign it?

MMT would embrace the printing of money, by spending it into the economy interest free, into education, infrastructure etc. Tax is seen as nothing more than a drain when things start to inflate, and the issuing of and buying back of gov debt is used to control money supply and interest rates. The chief difference in printing money for the economy at J6P level rather than for the bigbanks, is that the money actually gets to do something, instead of digging deeper debt holes as the pigmen sociopathically destroy the horse they rode in on, battling it for the “honour” of delivering the final blow.
MMT welcomes fiat, seeing it as the chance to free money creation from the private credit institutions, whose activities, in the absence of a gov spending money into existence, represent an institutional ponzi scheme, one that is dragging us all down as we speak. To separate gov from credit institutions would be also to remove them from lobby power and make taxing far more effective, which would stop the vast imbalances of wealth we currently see. Gov would not rely on the pigmen. Pigman loses his leverage, gov can start to function as it should. So the theory as I have been understanding it.
I’d be interested to hear what others see in this new take on how to do money in a modern economy. Bill Mitchell’s blog has masses of work to lay out the basics: http://bilbo.economicoutlook.net/blog/ And there are two posts on MMT at my blog: http://thdrussell.blogpost.com
Cheers
Toby
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From RE:
I read through some of Billy Mitchell’s Blog and through a couple of your posts
on MMT as well. Many of the concepts we have covered in the past seem to be a
part of this. You seem to favor these days offering up the whole panopoly of
currency forms here, from Demurrage money on the international level to a
variety of state and local currencies all operating at the same time.Clearly, if this was actually operating on the local level commerce would be
quite the bear for your local Convenience Store clerk. You show up at the store
with some of RE’s Moosechips, and the clerk has to check to see first if MCs are
on the list of currencies he is authorized to take. Then he has to check the
daily (hourly?) exchange rate for Moosechips to price out the merchandise
against whatever currency it usually is priced out in. Granted, the Computer he
uses probably could be programmed to do this all automatically and even monitor
exchange rates in nanosecond intervals, but its still going to mean a drawer
full of lots of different notes, and how do you make change?Next problem is exactly how do you save your money? Do you save it in
Moosechips? This is kind of like the problem people who worked for companies
that paid in their own Scrip faced. Its only good for buying stuff at the
Company Store, and when the Company goes outta biz, its worthless Toilet Paper.
Sort of like what will happen when the FsoA goes outta biz on the grand scale.
LOL.

Beyond this, I don’t see how having many forms of currency operating resolves
the Interest problem. People who Loan out money will still expect Interest on
it, elsewise there is no point in loaning it out. With many currencies
operating, the problems you have now of unscrupulous Banskters creating more
notes than they actually have assets to back them up would be even more
intractable than it is now.

Clearly on the International level the Top Level Demmurage Money has to be used
as a settlement form, and a 5% Demurrage is liking saying you have 5% Inflation
all the time. If you aren’t growing faster than that you are gonna be losing
money. Is there room for 5% Growth in our real economy? Considering the Energy
problems we have even BEFORE the Big Spill, I think we would be lucky to keep
the Shrinkage at 5%, which is a total 10% differential between the Demurrage and
the Negative Growth rate.

As bad as our Money problem is, the real problem here for the Industrial society
remains the Energy problem. For the Transportation portion of this economy, its
more than that, its Portable Energy as well. The society needs to be
restructured along lines which require less movement of goods and people around
and a slower pace of life all around. Unfortunately, all the infrastructure we
have built here is built around precisely the opposite concept, and REBUILDING
it now with substantially less Available Energy per capita will be quite
difficult, if not impossible. Of course, a 90% Die Off of the Human Population
would solve the per capita problem by lowering the denominator, but this is not
a concept most people consider a good solution.

My guess here remains that the current monetary system we are using is going to
continue onward here in Epic Fail mode for a while yet to come, exactly how long
I am not sure. Whether it reaches a Critical Point that results in a Sudden
Stop Event or whether it just continues to deteriorate and we all slowly Boil
like Frogs also is open for debate. If/When the Dollar fails completely,
likelihood would be states and local communities will substitute their own
currencies, but even if well managed and temporarily successful all will also
collapse due to the interest problem in a negative growth environment. It
doesn’t matter if you put a Demurrage on the Money of 5% or Inflate the currency
at 5%, it’s the same result in either case. In fact 5% is even more onerous
than the 2% or so Inflation the Fed sets as a Target Rate, so I expect you would
see a monetary collapse even faster than the typical 60 –80 year cycle we see
now.

So, is it all HOPELESS and we are just spinning our wheels here to no purpose?
Well, if the hole they poked in the crust of the Earth down in the GOM keeps
spilling out PUSS here, yes its quite hopeless and worrying about what kind of
money we are going to use in the future is a massive waste of the short time we
have left breathing the last Oxygen the phytoplankton produce for us. However,
on the slim chance that the Bozo Engineers who popped this pimple can plug it up
and we are not currently experiencing the beginning of a new Permian Extinction,
the exercise is worthwhile. Not so much for us in this generation, but for
those a few generations down the line AFTER the great Die Off is finished.
Perhaps we can leave a legacy for them of how they can build a Better Tommorow
and NOT make the same mistakes half a millennia of Capitalism led us into here.
Talk about EPIC FAILURE of an economic system, Capitalism is going out with a
mighty Big Bang here. Yeesh.

RE

http://www.lightspeedca.net/images/Future-of-Money_logo.png

From Toby:
Local currencies are already in operation and work in the various ways
they work. It is not about some guys saying accept my MCs because I say
so, or the two of us agree so, but is more well thought out than that.
I’m not going to go into all the details, but there are variants out
there in operation and have been for a while. Time will kill off the
weak ones, and favour the strong, as it always does.As for the demurrage currency, that is global and for investment and
international trade purposes only, not for saving. The demurrage
inspires investment in projects which have long term value. See the
Bernard Lietaer talk: http://vimeo.com/6491175for more details.Interest/usury still acts as it does now on the natinoal currency, as a
kind of vacuum cleaner on fiat national currencies and spur to savings,
so people will get into debt and so on, as the prudent will be able to
save, though the kind of future the changes I hope for would initiate
would change plenty, perhaps even how saving and retirement works. But
when big problems through over indebtedness arise there won’t have to be
any bail outs. Those banks that got too greedy have no leverage on the
sovereign to save themselves with, because the sovereign controls money
supply with the tools laid out in MMT (existing tools actually like
taxation and bond issuance and purchase). Life would still have its
financial ups and downs, but they would not represent systemic threats.
The ride would be a bit smoother.All of this is moot in an energy crisis, as you say, but the viable and
working alternatives to oil are out there (unless that GOM spill undoes
everything — time will tell). Also an absolute necessity is the death
of our lust for eternal GDP-growth and a corresponding transition away
from consumerism. MMT offers an attitude to money which allows us,
culturally, to be more open minded about where value lies. To my mind
real value lies in healthy relationships: ecological, socioeconomic and
societal. Technological unemployment could be embraced too by a more MMT
way of thinking about the economy, which would help us review what we
are alive on this planet for, and the kinds of activities and behaviours
which really make life sustainable and enjoyable.So in the end this is going to be about striking the right balance
(isn’t it always?). It’s not just Joe’s currency versus Jack’s, versus
fiat versus the Terra (Lietaer’s suggestion for the global demurrage
currency), but other things too, outlined above. To me MMT is but one
important plank in all this, though perhaps the first that needs to be
laid down, because the way most people think of money and value, they
seem prepared to let the world go down for money’s sake. That’s plain
stupid, and I don’t want any part of it.Toby

http://assets.tape.ly/uploads/tape/image/195/The_End_of_Money_-13.2.2012.jpg

Whither Gold?

Off the keyboard of RE

Published on the Doomstead Diner on April 14, 2013

Discuss this article at the Economics Table inside the Diner

The financial story of the weekend is the 4% hit Gold took going into the weekend, dropping $88 to finish below $1500/oz. The fall isn’t limited to just this week though, it’s been ongoing since Gold hit it’s peak at around $1900/oz back in early 2011. Predicitions from the Gold Bug crowd at the time being that Gold was set for Parabolic Liftoff, heading for $5K or even $10K/oz. Never happenned of course and it’s been on a pretty steady downward track since Q2 of2012.

What’s happening and why? One important factor most recently was the collapse of the Cyprus Ponzi, which led me to short Gold a couple of weeks ago.

There also is likely a Margin Call Event coming down the pipe from this in Europe. It will force Liquidation of Assets across the board, and the Eurotrash have a lot of Gold. I forsee a massive Collapse in the PMs market when the Euro Collapses. I think it is a 6 month-1 year timeline. Disclosure: I am going to short PMs and go LONG on the Dollar through this Shitstorm.

While the Cyprus Event accelerated this trend, it’s been ongoing in Eurotrashland for quite some time, everybody is liquidating assets trying to get out of the Euro Sewer. Thing is, it’s not so simple as just trading a pile of Euro Toilet Paper for a Shiny Paperweight.

The folks with large positions in Euro based assets don’t really HAVE a lot of Euros stuffed in Mattresses, they are leverred Hedge Funds who have to liquidate one asset to buy another, and if they are liquidating into a losing position they are getting progressively deeper in the hole. The have to find an asset INCREASING in value as fast as everything they have is losing value just to stay even. What is increasing in nominal value? The Stock Market of course, because that is what Da Fed is propping up! You don’t wanna buck Da Fed, so you don’t buy Gold, you buy APPL if you are a Eurotrash Hedge Fund manager looking to reallocate assets.

The next issue you have to deal with is “who has money?” and “who has Gold”?  The reality here in the FSoA (and in Europe and China too), is 80% of the population has no more in the bank than a couple months worth of Bills, which they need to keep liquid and in the bank to pay those bills. They can’t realistically keep this money in gold coins in the basement safe, run to the coin dealer when they need to pay a bill, convert it at whatever the spot rate for the day + the dealer’s charge to dollars, run to the bank and deposit it, then write a check on this to pay a bill.

Similarly, any company still in Bizness isn’t paying their employees in Gold Eagles in little Pouches, they have a Payroll Account and are paying in Dollars or Euros. Similarly, they have accounts to pay their suppliers and pay their fixed bills. They can’t keep all this money in Gold and liquidate as needed to pay bills, it’s all moving around too fast for that from one persons account to another. This is where most of the MOVING money in the system is, it’s not in large stashes of cash that some squirrels could take and shift to Gold coins to “store value”. Not to mention, when you go from $1900 to $1500 in the course of 2 years time you are LOSING money at 10% a year, which is not a great store of value. Maybe long term gold coins hold more value than fiat, but short term for the last 2 years they got HAMMERRED.

After looking at where the Money is, you gotta look at where the Monetary Gold is. When I say Monetary Gold, I mean the BRICKS of Gold held in the CB Safes, not Gold Wedding Rings, which generally don’t get sold off until somebody is really hurting. The only people with large amounts of Gold to SELL are the CBs, Sovereign Wealth Funds and a few Illuminati. They can either Dump gold on the market if they want to see the price go down, or Buy it if they want to see the price go up. Gold Bugs call this “manipulation”, but it’s what any pigman does when they hold a near monopoly position in any commodity. That is how the Game WORKS.

What is most curious here is that DESPITE the fact CBs are BUYING gold, the price is still going DOWN. What that tells me is that Hedge Funds are liquidating Gold positions faster than the CBs can or will buy that gold at the moment. Which only makes sense, because it is the Hedge Funds that are NOT quite TBTF that are in the deepest doo-doo, especially in Europe. Certainly the Ruskie Mafia in Cyprus got hit hard here, despite the fact the better connected escaped out the Back Door in the City of London.

So what is the medium and long term prognosis here for the PMs? Well, since de-leveraging in Eurotrashland still has quite a ways to go here, downward price pressure on Gold is likely to remain pretty strong, and you would have to count on Da Fed and the PBoC to buy it and keep the price propped up. In this respect, Gold Bugs should be GLAD the CBs are manipulating the market, because if the PBoC STOPPED buying, in all likelihood the floor would drop out from under Gold. Like with the Bond Market though, the CBs will try to keep any given asset class from being abandoned en masse by buying it. What level the CBs see as “right” for Gold is hard to say, and depends a lot on political machinations. My guess is a floor around 1350, but subject to change if/when TSHTF in the Nip Bond Market or Italy or Spain go Tits Up. Then you are likely to get wild Volatility and Fluctuations as liquidations are undertaken and the hoi polloi scrambles to dump whatever Toilet Paper they are holding in favor of what shiny paperweights they can locate.

Finally in this mix is general psychology, which is not the same amongst the vast majority of Homo Sapiens as it is amongst Doomers. Doomers see the End Game as IMMINENT, so those who do have some “wealth” are putting it into Possessible PMs if they believe in this asset class as a store of that wealth. Long term they do likely hold more value than Toilet Paper, but how much more is a very open question. For most people here in the FSoA and stronger Eurotrash economies like Krautland, while they may not be happy with their Goobermints they don’t see them as in imminent danger of collapse. Current Boomers and Silents receiving Social Security checks don’t see it likely the check won’t arrive next month, and they are likely correct in that assumption. Overall, the number of people who BOTH see collapse as IMMINENT and HAVE enough money to drop a significant amount of it into PMs as a choice is EXCEEDINGLY small both relative to population size AND relative to the centralized wealth pools controlled by the CBs as proxy for the Illuminati. J6P can’t push around the prices of these asset classes, he doesn’t have a big enough slice of the financial pie with which to do it. So one can only assume that those who do hold the vast majority of Monetary Gold will manipulate the price best they can until the Plug gets Pulled at some other end of the financial spectrum. When that occurs, it’s hard to predict where the CBs will put their support behind, but not sure it will matter either because the system in general will be so out of whack that no commerce will be moving anywhere.

In that longest term outcome for this post, I would agree with the Gold Bug that Gold will hold more value than Fiat does, but probably not by a whole lot and it will be difficult to keep, difficult to exchange and likely taxed to beat the band as well.  Right now, it’s mainly a specualtive medium, a GAMBLE only to be taken if you can afford to lose the bet. I sure would not leverage gold Short or Long now, it can swing as wildly as Bitcoin. Like all the rest of the financial markets it is a CRAPSHOOT.

Gold has some appealing properties which made it work both as Currency and as a Store of Value during the expansionary period of the Money game in the community of Homo Sapiens.  Its chemical properties make it difficult (impossible without Nuclear chemistry) to produce at will, thus you can’t “counterfeit” real gold, though you can of course do metal dilutions that are difficult to detect during typical commerce.  It lasts essentially forever, doesn’t rust, hell it’s even impervious to that most corrosive of environments, sea water. Still TONS of gold sitting at the bottom of Davey Jones Locker in basically the same condition it was when a Spanish freighter was sunk by a French Privateer.

Regardless of those qualities, to function as Currency, Gold had to be widely distributed, which it once was but no longer is.  Because it was perceived as a store of value, it was over many millenia CENTRALIZED into very large pools, which really don’t ever get redistributed, they just wheel them from one cage to another in the basement of the FRBNY. I’ve never run into a Gold Bug who could plausibly explain to me how these huge piles of Gold would ever be broken up and redistributed out to J6P as Coinage to use as currency.

As long as there ARE big centralized Piles of it, whoever controls those piles controls its “going price” on the market, not selling any if they want the price to rise, dumping if they want the price to fall.  It behooves those in control to keep a floor price under gold, but also not to let it rise to stratospheric levels, because then it loses representative value. Put it this way, if Gold were to rise to $10K/oz, 10 1 oz coins could buy a nice Doomstead in the Ozarks. Happy Days for a Gold Bug if that were to occur, but a highly unlikely outcome here.

Nowadays, the PM market is a Casino, mostly well controlled by those who control vast quantities of it, and also control the Mines where it is dug up from under the ground as well.  If you do have a lot of extra spare change and place a Bet on the PM Number on the Roulette Wheel, you’re probably better off than holding Euros, but in the near term not better off than holding Dollars, especially if you are leveraged, which just about all hedge funds are, and Sovereign Wealth funds also for that matter. As a future Currency, Gold holds very little promise, its mostly well sequestered into Safes controlled by others far more powerful, and it’s not ever coming out of those safes for redistribution.  Its value is just PERCEIVED value, not Utility Value.  Unlike a gallon of Gas, it won’t make your SUV go anywhere.  Unlike a patch of Land in the Ozarks, it won’t grow any food for you to eat.

Most of all, unlike Friends, Gold will not stand by your side and help you protect and defend you children and loved ones. Bet on something you can depend on. Bet on your FRIENDS. Bet on COMMUNITY. That is the FUTURE, not Gold and not Money.

The ROOT of all EVIL.

RE

 

Yes, We Have No Bananas

Off the keyboard of RE

Published on the Doomstead Diner on April 2013

Discuss this article at the Frosbite Falls Daily Rant inside the Diner

As the Collapse marches its way around the world and both Sovereigns and Banks are “discovered” to be completely Insolvent and BROKE, the BIGGEST of Newzpeak inventions is the idea of “Recapitalization”. This sounds Technical and Capitalist enough that most J6Ps buy it without a PEEP, even when their own Deposit Money is stolen for the purpose of “Recapitalizing” a Bank which has just gone BK and lost everybody’s money!

If I go BK, does anybody Recapitalize ME? WTF do people accept the idea FAILING Banks who JUST lost EVERYBODY’s Money should be “Recapitalized”, with the SAME jackasses running the show who just lost everything?

What a fucking RACKET! Anytime you Go Broke in the Casino, you just “Recapitalize” and go out gambling AGAIN!  You just gotta be close enough to the Nodes of Power at the Top of this Game to ALWAYS get “Recapitalized”, even when the whole SYSTEM goes Kaput!

Then there is the Nonsense of Splitting Failed Banks into a “Good Bank” with performing Assets and a “Bad Bank” with all the garbage. Who will Buy Stock in the “Bad Bank”?  The Bad Bank is just a Newzpeak Euphimism for TAXPAYER LIABILITY.  Da Goobermint gets the Bad Bank, the Illuminati get the Good Bank! There’s a Fair Deal for you! Privatize the Profits, Socialize the Losses in a NUTSHELL!

Next is the Dumbass idea of “Nationalizing” Failing Banks. WTF do I want to Nationalize a LOSER company? Put the whole NATION on the Hook for the bad debt of said Bank, that’s a GREAT IDEA! Why not just let the LOSER Bank go to the Great Beyond and start a NEW Bank on a National Level?

Why NOT is because of course everyone bought into the system, and if you let those Bad Banks go Belly Up, lotsa folks won’t get their Pension Checks.  Hell, they won’t even get back their Savings or Checking Account Money nowadays!

Money is a SYSTEM people become dependent on, just like say having a Smart Phone. When I was a kid, you had a Phone at your house, that is how people could talk to you from far away, but you did have to be HOME to receive the call. “Answering Machines”, the precursor of Voicemail didn’t exist at the time.  Those Cassette Driven Recorders didn’t emerge until I was well into my teens. Nowadays though, you simply can’t EXIST and be a part of the Techno-Economy without a Smart Phone, to not only keep you Hooked in to communication with your Workplace (why didn’t you pick up?  we NEEDED you to come in and fix the Server Crash!), but of course also to Tweet to all the WORLD your latest 1 sentence declaration on Monetary Collapse! Even fucking Bill Gross of PIMPCO Tweets idiocy!

Somehow though,before Voicemail, before Answering Machines, before even the Fucking TELEPHONE was invented, society managed to function OK, to one extent or another.  In my parents time when they were kids, though the Telephone had been invented, almost nobody even had a phone in their domicile. How did they “Call in Sick” to work in those days? Answer, they didn’t of course.  Workplace made do, so-and-so isn’t here today. If SaS does this too often, he gets fired. Now though, you gotta answer the phone, concoct a REASON (my dog is having a mid-life crisis!) and show up next day with a note & diagnosis from the Canine Social Worker to explain yourself and your Dog’s emotional angst. LOL.

Dependent most of us are in the Industrial Economy on our Automobiles, and Cheap Fuel to push them down the Road to get us to Walmart to buy Everything at Low, Low Prices Every Day and to get to the Workplace or to get the Kids to Skule…etc.  That is a tough dependency to BREAK, but NOTHING compared to breaking the dependency on the Monetary System.  Removing yourself from this inside Industrialized Nations is for all intents & purposes quite impossible for most people, there isn’t any real Wilderness left to escape to and do Jeremiah Johnson. OK, up here in Alaska you can still sorta do it if you stay on the move all the time, but soon as you drop down a Cabin anywhere the Rangers will drop in on you. You certainly can’t start a COMMUNITY out in the Bush without Goobermint dropping in to regulate your lives.  A LAW up here is if you have kids, your Domicile has to have Hot Water and Toilets. You can’t keep your kids if you live in TeePees and use the Great Outdoors as a Toilet like every other mammal does. Child Protective Services will drop in and take the kids and drop them into the Foster Care system.  Which is a pretty good Racket also if you DO live in a McMansion with Hot Water, you get around $700/mo from the state for every kid you take in this way. The state does NOT however pay the Original/Biological Parents 700 Bananas/mo to maintain the kid. How fucking STUPID is this system?

The coming REALITY of course is that the State is FRESH OUT of Bananas. Amongst the FIRST Casualties of Banana Shortage will be the Pension Funds of J6P, first the Corporate Ones from BK companies, then the Municipal and State ones, finally the large Goobermint ones like Social Security.  All these funds are already being raided to keep the failing banking system propped up with creative accounting tricks.

Sadly of course, JUST raiding Pension Funds isn’t sufficient to prop up a system which in Euotrashland is leveraged probably 100:1, and here is probably 50:1, though nobody KNOWS really because so much of the leveraging is in the Shadow Banking System of Derivatives. No, now they ALSO gotta “Haircut” the Depositors, who don’t REALLY own their Money as soon as they Deposit it in a Bank. Once deposited, the Bank is free to Legally Gamble it however they like, Pledge it as Collateral 10 times over in Rehypothections schemes, and it just ONE of those bets goes South and they get a Margin Call, you can say Bye-Bye to your Money.

So, due to insufficient Pension Funds and Deposits to STEAL here to make good on all the various BAD BETS of Filthy Rich Pigmen Banksters, after everything is STOLEN, what is asked for NEXT?  RECAPITALIZATION!

Let me explain this concept to you in PLAIN ENGLISH.  Somebody else can translate it into Kraut for our Kraut readers. The Chinese Readers are SOL since we have no Han Diners I am aware of at the moment, and the Chinese are TOAST anyhow. LOL.

The folks who Own the World run this system of Ownership through the TBTF Banks they Own. If the Bank goes Belly Up, they lose everything, money and Ownership, it all gets thrown into a big Bankruptcy Pool to be divied up and sold off to whoever still has some money, which really is about nobody.

What “recapitalizing” a Bank really is takes theoretical Future Tax Revenue from the Taxpayer and GIVES it to the Uber Rich, the VERY SAME PEOPLE who just LOST EVERYTHING to begin with! As I said at the beginning of this Rant, WHAT A RACKET!  You can’t EVER go Broke, every time you lose your bets in a big CRASH of the monetary system you are running, you get J6P to “recapitalize” you because you so expertly handled his life savings last time.

In reality however, “Capital” is not Debt nor is it the Fiat Money representing that Debt nor is it even Piles of Gold stored in Basement Safes of Sovereigns, Illuminati or Small Time Zero Hedge Piglets either.  Capital is the Resources of the Earth, Energy stores in particular in the form of Fossil Fuels through the Industrial Era.  Through the process of the War Machine and the Legal System regulating Property Ownership, a small Cabal of People gained control over most of the important Resources of the Earth, Land to begin with, Energy stores in the form of Coal & Oil through the Industrial Era.  Here in the FSoA, around the time Da Fed was chartered in 1913, this Cabal was probably around 150 Industrialists and Banksters, probably somewhat larger now though the ones who got in earliest on the Ponzi remain the most powerful ones here. In the FSoA,you can identify the Rockefellers, Astors, Vanderbilts, Morgans et al, the “Robber Barrons” of the 1800s as the main players. Part of a still larger Ponzi which goes back to the Collapse of the Roman Empire, same general Monetary System has been perpetuated throughout the millenia, though it took a Big Hit during the Dark Ages. Did not disappear though, it was mainly perpetuated under the auspices of the Holy Roman Catholic Church through the Dark Ages. This crowd mainly identified by the Rothschilds, Kuhns and Warburgs on the Banking end, and the Plantaganets, Hapsburghs et al on the Political End in Eurotrashland.

Why is it every time there is a Massive Monetary Crash (and this is not the first one by any means, they occur regularly every 80 years or so), the SAME people get “Recapitalized” by J6P to remain in what appears to be Perpetual Control over the Resources of the Earth, and the Political Systems which Goobern the life of J6P? The reason was probably best stated by Henry Ford, who went BK around 5 times on his way to becoming one of the world’s most “Wealthy” men:

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

You see, probably 99% of people have ZERO understanding of how the Monetary Sytem works at ALL. They simply TRUST in it, and they don’t have smarts enough to separate and devise their own. In fact you DO have to be VERY SMART and CRAFTY to set up a Monetary system which will last any length of time at all, and even then you have to have Political Control over vast resources of the Earth to do it. Such has been the case for most of History, going right back as far as the Tower of Babel. Those IN CONTROL recruit and sift out people who can run such a system, Ben Bernanke and Mario Draghi are examples of that. “The Smartest Guys in the Room”. J6P can’t field anyone who holds a Candle to these guys, they ARE really smart, even if they are working from some really flawed basic principals.

So when a given iteration of the Monetary System fails, you get a buncha Wars as was the case in Eurotrashland from the collapse of the Roman Empire circa say 350AD or so, or WORLD WARS as was the case around 1900 to Present Day.  WWII never ended, its just been pursued at a somewhat lower level regionally since Armistice was signed between the major powers of the Industrial Era.

Why do we get stuck with a NEW iteration of the same Bad Old System every time so far? Because when the Monetary System collapses, the SAME people are in control of the Military Apparatus. J6P has no control over that, he just ends up as Cannon Fodder fighting the battles as new alighnments and geopolitical and economic structures are refabricated. This leads MANY people to believe this will be the case in perpetuity, it is a Popular Meme amongst many Diners even. I have Ranted at length on numerous occassions why this is not so, but I STILL don’t have too many BELIEVERS on this subject. It’s hard to get people to understand Money to begin with, still harder to explain a Paradigm Shift of this nature.

You see, all reconstructions of this type of Monetary System depend on a SURPLUS of Capital,aka NATURAL RESOURCES. Mathematically speaking, you simply cannot reconstruct such a system in the absence of such resource, THAT is the Capital! It’s not the money, it’s not even  the Gold. It is what those things REPRESENT, and when it is GONE, both represent nothing at all.

Are resources COMPLETELY gone?  Of course they are not, but relative to current population size, they are in serious DEFICIT.  You cannot get any REAL GROWTH out of this, no way no how, so you cannot pay any Interest.  Thus you get ZIRP. Under ZIRP, Pensions, Equity Investment, everything FAILS. ZIRP is a KLUDGE to keep the system rolling another day, but it fails to bring return on investement, regardless of money printing to prop up markets.  That is mainly just a redistribution of wealth mechanism, taking money from the Poor to Prop up investments of the Rich.  All going south though, just the poor get hit first here this way.

The structure is bound to implode mathematically speaking, it doesn’t have basic energy support to keep it running. It CANNOT be rebooted in the absence of copious energy, or a massive population die off of Homo Sapiens.  The latter is a likely outcome, but such a massive die off would deconstuct Global Power Structure, so you still don’t arrive at equilibrium this way. You’ll just get a lot of flux in the system as it re-equilibrates. I don’t think too many of the Pundits understand the equilibation dynamics, I am quite sure John Michael Greer doesn’t, nor Jimmy Kuntser. Dmitry Orlov to an extent. Steve from Virginia sorta gets it, but he traps himself in the 1700 Paradigm most of the time.

Anyhow, Recapitalization of Banks is COMPLETE garbage, and needs to be Politically Repudiated, which it will be. Unfortunate OUTCOME of that is most of the systems we take for granted will collapse, and and EXTRAORDINARY number of people will DIE. So it goes. You can’t make an Omellette without Breaking a Few Eggs.

RE

Homo Collaboratus

Off the keyboard of RE

Discuss this article at the Frostbite Falls Daily Rant inside the Diner

In his recent article The End of Technocracy and Zero Government, Steve from Virginia tracked the progress of the City of Detroit to the status of “Failed State”.  Not just Detroit is in this situation of course, you see it progressing all over the world from Somalia, to Egypt to Greece…and not long to arrive in Italy or France either.  Whose fault is this?  Where does the BLAME lie for the failure of this model?

The ‘Blame the Victim’ Game in Detroit

In areas where technocracy has been installed such as Greece, both the initial conditions and the failure of the process is blamed on the inhabitants. Greeks are ‘corrupt tax-cheats and lazy’. Detroiters are ‘stupid, drug-crazed Negro savages bent on murder and destruction’, French are ‘near-communists and cowards’, Irish are ‘ugly … drunken child molesters’. The purpose of the blame game is distraction while retirement savings are stolen by the establishment. The elderly ‘deserve what they (don’t) get! The blame game hits the target by appearing to miss it.

In Detroit, the citizens didn’t chase retail stores away, they didn’t over-invest in the auto industry, they didn’t ghettoize the city with ill-conceived developments and a web of freeways, they didn’t pollute the city with lead, zinc, chromium, mercury, toxic petroleum-based chemicals, they didn’t sell the city out to billionaire developers.

The citizens didn’t pave the city over with parking lots or built thousands of monstrously ugly concrete box- buildings. Detroiters are being shot by criminals, being driven out by block busting and urban decay, losing what little property wealth they had, having already lost hundreds of thousands of jobs. Detroiters have been abandoned by their country not the other way around.

The US spends hundreds of billions of dollars in Afghanistan, why not Detroit?

Why not Detroit?  Basically because it’s burned out, polluted flotsam of the Age of Oil, and costs too much to clean up.  Predatory Capitalism doesn’t clean up the messes it leaves behind, it moves on to make new messes elsewhere, always promising the inhabitants a “better standard of living”, which a few Elites get while the rest of the herd is left hung out to dry.

Steve isn’t the ONLY Blogger tracking Failed State development, John Ward also has been cateloguing the collapse of the Greek State, as well as numerous others in Europe.

Greece is the first country Russell has ever cut to emerging from developed market status, although given the state of the EU it seems highly unlikely it’ll be the last. The Russells haven’t considered doing the same to Spain and Italy just yet, the paper says, because ‘we haven’t seen the same degree of decline as we’ve observed in Greece’. The two conclusions I draw from that are first, Russell guys need to get out more; and second, the company has a lot to learn yet about Spanish accounting, and Italian reporting accuracy. Don’t forget, this latter is the country whose Hadron Collider scientists only six months ago got the speed of Light wrong.

But the main thing it is still hard for the casual observer to get his head round is what you are if you emerge, having once been developed. The vagueness, it seems to me, lies in the interim bit between the two states of Being. In 1936, Nazi Germany was a developed State led by a lunatic, which was then crushed to a pulp by British, American and Russian forces who’d become a tad concerned about the Fatherland’s wanderlust habit. The interim stage was the crushing thing. This is what’s missing from the Russell Investments analysis about recent Greek history.

Why does it progress in this fashion? Going back to November of 2011, I wrote an article titled Homo Collaboratus on Reverse Engineering looking at the progress toward failed State in Egypt. I am going to quote the article in full, since it is not accessible to non-members of Reverse Engineering.

Egypt is now in its 3rd Day of an increasingly Bloody “Revolution”, where all that the Military Repression has succeeded in doing is bringing still MORE “Protesters” back  into the streets….AGAIN. You can see here how and why even having vast techno power against protest eventually does FAIL, because of the Power of Numbers.

What I read in one MSM report was a quote from one member of the Military Junta currently running Egypt, which was that all this mayhem would succeed in doing was “Destroying the State”. That is a paraphrase, but essentially was his analysis, and its also quite TRUE.

The Hodgepodge of People out there on the street throwing Rocks have NO CLUE on how to set up a WORKING Goobermint, and once you pile them all together inside any kind of Newly Elected Parliament the Bickering will start all over again, and whomsoever they Choose to lead any new Goobermint will be just as powerless to bring any equity to their economic system as the last Dimwit Power Seeker was.

It’s the road obviously to a FAILED STATE, like say Somalia or Zimbabwe already are. The old soviet Union also turned into a Failed State, but they recoallesced into the smaller States it was composed of and briefly have slowed the devolution there. However, Eastern Europe is now on the brink of catastrophic debt collapse, and eventually here you will also get Failed States in places like Hungary and all the Balkan States.

Failed Nation States will become the Norm here over time, rather than the Exception that they are now in places like Somalia and Zimbabwe. In each Failed Nation State, people are dropping down to the next level of Organization, Tribal Affiliation. This as I see it is the medium term result which will occur through all Nation States as smaller groups of people Herd together for Self-Preservation.

In places like Afghanistan where they are not all that long removed from their Tribal Affiliations, the Pashtuns will gather together again fairly naturally, but what of Lazarus? Lazarus in this case being the vast multicultural diaspora of people who came to live in the FSofA, who have no real “Traditional Tribe” here and who have lived for generations under the political system of the Nation
State? Can they, WILL THEY be able to form up Tribes for mutual Survival and Protection?

In my general POSITIVE Spin on this topic, I believe that they WILL in fact form up such Tribes SPONTANEOUSLY. My rationale for this is as follows.

Homo Sapiens demonstrates BOTH the traits of Predatory Animals and Herd Animals alternately, depending on circumstances. It’s likely one of the main reasons Homo Sapiens has been such a successful species overall, the adaptability to take on different survival paradigms dependent on circumstance. Real Herd Animals like Buffalo can never become Predators, and real Predators like Lions can never function as Herd Animals, but Homo Sapiens can function either way, pretty much equally successful either way also.

The circumstances we have been living under for the last few 1000 years is one of general Surplus in the environment, which Favored the Predatory paradigm. We have many Herd Homo Sapiens and a few Predators who live well by predating on most of the Herd. However, as the herd is Culled here, the Predators will die in greater numbers by percentage than the Herd does. If you look at any complex ecosystem with predators and prey, once the prey drops below a certain level the predators drop off a cliff. They essentially disappear. The “Ponzi” that is the Food Chain works from the Bottom Up, the Predators cannot be successful until the Prey is available in sufficient quantity to support them.

The Herding tendency in Homo Sapiens is evident any time the species is confronted by massive external stress. You see it whenever a Tornado Hits a Small town. All of a SUDDEN, people who otherwise simply can’t stand each other are all Pulling Together to dig others out of the Rubble. You see it in OWS. All of a sudden, generally Middle Class people become ACCEPTING of the long term Homeless in their midst, and they in fact LEARN from them strategies to handle living on the Street. Don’t drop your Tent onto the Ground, put it up on Pallets so you’re not losing Heat into the ground from your Sleeping Bag. Etc.

IMHO, OWS is the BEGINNING of a NEW TRIBAL Paradigm here in the FSofA, with those who are already off the cliff or close to it gathering together in HERDS for self-protection and SURVIVAL in the face of the Predators, exemplified by the Gestapo who Pepper Spray them and fire the Tear Gas Canisters at them.

MANY of the Herd will DIE here. But NOT as many by percentage as the Predators. The very ACT of Protest and Forming Up the Circle of the Herd is what will PROTECT the Herd in the end. They will lose many on the periphery. But they will also STAMPEDE the Predators.

In the end, they will almost all go to the Great Beyond. However, some of the herd will make it through, some of them will retreat into the Mountains, the Great Wall that GOD built to protect the Independent Souls of the World. The Predators will Die Off, and over time, the Herd will reproduce and RETURN from the Mountains to once again populate the Flatlands.

Where once again, if all goes as it has gone here so many times and in so many ecosystems, the predators will emerge once again. For Homo Sapiens however, who remain adaptable and who DO have the ability to LEARN, perhaps in the next go round we can make the LEAP to a new species, Homo Collaboratus, the first Species EVER to jump beyond the Predator and Prey paradigm. it is my great HOPE that those who do survive this latest incarnation of Armageddon will be the progenitors of Homo Collaboratus. Certainly, the incarnation of Homo Industrialis has been a Magnificent FAILURE here, and one we will not repeat again.

Sadly, I will not be around to see this from this side of the Great Divide, unless perhaps I do return in another corporeal incarnation. Even if that does not occur though, I’ll see it to be sure.

I’ll see it, and you, from the Other Side.

RE

The progession to Failed State is inexorable, baked into the cake of the monetary system.  Depending on the resources and technology available, it can expand itself for a few Centuries, perhaps a Millenia before it reaches the Growth limits.  Although the Collapse is Gathering Steam now, it’s been underway a LONG time for anyone with their Eyes Open to see.

When I was in HS in NY Shity,  the City was BROKE.  The Subways were dilapidated, apartment complexes built in the 40s and 50s were Roach Motels.  My Aunt and Uncle lived in an awful complex called Vanderveer in Brooklyn.  Fortunately they lived on the 1st floor, because the elevators never worked.  Nothing was ever maintained, and none of it ever paid for itself in terms of “increased productivity”.  That was always just a euphimism for increased energy wastage.

The folks in charge of Credit Creation financed all of it through Debt, even JP Morgan didn’t have Gold enough in his Basement Safe to finance building the Railroads.  He also sure was not going to pay Irish and Chinese Coolies in Gold either.

These folks have refinaced themselves innumerable times, back in the 70s about ALL the major Banking Houses should have gone broke from Bad Loans made to South America in the 5os and 60s, when my dad was in the Biz of making those loans.  Financial Legerdermain kept it rolling, but it doesn’t work FOREVER.

You can’t create new Resources by issuing more credit.  Without copious resources to waste, its pointless to issue more credit. The ONLY reason more Credit gets extended to Greece now is to keep the whole House of Cards floating another day.  Nobody in their right mind can possibly believe Greece can ever pay its debts.

So, one by one they collapse, the Somalias, the Egypts, the Greeces and the Detroits.  The Money Masters and the Political Class work together in a Kabuki Theatre, trying to manage the collapse by blaming the Victims while preserving their own wealth and status.

The fact the collapse is accelerating now makes it clear these folks cannot control it anymore.  The last 40 years since the 1970s has been all about Financialism as a means of containment, but it is running out of steam. The old tricks just ain’t WORKING anymore.

All due respect to John Michael Greer and fans of the idea of a Slow “Boiling Frog”  form of catabolic collapse notwithstanding, systems as complex as this one eventually reach a “tipping point”, beyond which they can no longer function.  5 years ago when I began writing on collapse topics, NOBODY ventured the opinion a European Nation like Greece or now also Italy and Spain would be on the cusp of Failed State status, with numbers like 50% Youth Unemployment and GDP figures dropping like a rock.

It may seem “slow” to you on the span of your life for it to take 5 years for Greece to descend from “functioning” industrial economy to FAILED STATE, but even on the scale of the industrial revolution as a whole that is mighty fast.  If you figure the Industrialization of Greece began with the Marshall Plan in the aftermath of WWII, it took them about 60 years from 1945 to 2005 to reach the Zenith of Industrialism there, and it has just about ALL been undone in the last 5 years.  Greek “factories” are not producing Jack Shit, if they ever did.  About the only big Industry out of Greece was Shipping, and their Shipyards are Ghost Towns now, there is overcapacity of ships, international trade is collapsing and the Baltic Dry Index is so low you could hire a ship wit your Unmployment Check.

How long do we have HERE in the FSoA before it also is a Failed State?  The takeover of Detroit by the State of Michigan is a Canary in the Coal Mine which should let you know the collapse has begun in earnest now here.  Michigan itself is of course no more solvent than Detroit, so eventually will be “taken over by Da Federal Goobermint.  Who will take them over?  The Ferengi?

That the FSoA will devolve to a Failed State is not a hypothetical, it WILL occur, and based on the timelines already apparent in Europe, it will not take more than another decade to be apparent even to those Ostriches with their heads most deeply buried in the sand.

The fact though that it probably will take that long gives people in the FSofA aware of this a short Window of Time to prepare for it, and Reverse Engineer for themselves a non-industrial way of life.  You have to get started NOW in Collaboration with others to make such a transition possible.

Homo Industrialis and Homo Predatorus is going the way of the Dinosaur.  Only Homo Collaboratus and Homo Herdus can survive the Zero Point.  Form your Tribe NOW!  Circle the Wagons.  Defend the weak and the innocent.  STAMPEDE the PREDATORS.

Bring ON the POWER of NUMBERS.  We are not Sheeple.  We are BISON.  In number, NOTHING can stop us.  It is time now to STAMPEDE.

RE

More Musings on Money

Off the keyboard of RE

Published originally on The Burning Platform on December 24, 2010

Discuss this article at the Frostbite Falls Daily Rant table inside the Diner

 Note from RE: This article was originally titled Christmas Musings on Money, since I published it on Christmas Eve of 2010.  Since we are well past Christmas of 2012 and even further from Christmas 2013,  I retitled the article for this publication.

I’m having a debate over on REVERSE ENGINEERING with Toby, who many of your may remember from Raging Debate and occasionally contributing to TBP1. Unlike my Christmas Poem, this is more in keeping with my verbose style. This sort of theoretical stuff doesn’t usually engender much real debate on TBP, so I have for the most part stopped submitting this kind of post here. However, perhaps the Christmas Spirit will inspire some critical thought on where the real source of our problems lie, which from my point of view is embedded in the nature of money and interest.

Now, most of us are aware that a strict reading of the Bible forbids Interest as Usury, although this definition has been manipulated quite a bit over time. The Bible isn’t fond of Money in general, but that hasn’t stopped generation after generation of people from using it either. You do have to ask yourself however just why it was that the writers of the Bible found so much wrong with Money, other than perhaps being informed by God that it was bad, which I will discount for the moment as a likely possibility.

First off, money has 3 Primary Functions.

1-It puts a Numerical Value on the Worth of any asset or service.

2-It provides a means of exchange as intermediary in Trading

3-It provides a Store of Wealth

Now, its at least theoretically possible to divide up these functions, but that hasn’t been the case since using money became prevalent in Biblical times. The result of the first 3 functions result in some subsidiary effects.

A-A division of classes of people between Haves and Have Nots

B-Creation of the Financial Intermediary Class, aka Banksters

C-Aggregate effects of amassed Wealth and the concept of “making money with money”. Call this proto-Capitalism if you will.

This post is mainly concerned with C, although I am sure I will drift off to discuss all the rest of the factors here as well. However, lets explore the concept of “making money with money”.

This is where charging Interest on Loans comes in. Without interest, there isn’t a monetary incentive to loan out money, so without it whatever you use as money will tend to aggregate up and disappear from circulation. Back we go to RE’s Island, where 100 people landed and found 10,000 Nuggets of Gold, which they decided to use as Money.

Over time, anybody who has control over the land and other productive assets will aggregate the money. So right off the bat, money is mainly about Power and Control, which Jesus wasn’t to big on. How does the Money get distributed back out in this situation? Only through Labor, which is the only thing someone who does not have power over the means of production has to trade for it. With many people competing for low skill jobs, this eventually leads to penury and a slave class, even if its not explicit slavery.

However, in the real world off the Island, back in the olden days there wasn’t One source of power and wealth, there were many, and they were all competing with each other. Gold became a very good Measure for aggregate Wealth and Power, because since its so rare, in order to keep accumulating more of it you must control more territory. This is where Debt comes in as it applies to the State.

A King holds say his Castle, some land surrounding it and his Treasury of Gold. He wants more Power and more Gold though, which is sitting over in a neighboring King’s Treasury. Unless he has amassed a fortune, chances are he is not going to have enough in the Treasury to pay all the soldiers he needs to capture the neighbor’s Gold. In fact, its mostly Kings who have a depleted Treasury who find it necessary to go after the Gold of the neighbor’s Treasury. So how does he fund this War? Through Debt obviously, thus was born the War Bonds.

Now, anyone anywhere with some Gold, even on the opposite side could go and buy Bonds, which garnered Interest. This makes them better than the Gold itself, because assuming the side you bought Bonds from wins, you get back more Gold than you loaned out. You make money with money this way.

As you can see, this is why the Debt market goes hand in hand with War Mongering. Going back to the very beginning of the use of money, loaning Gold to Sovereigns to fund wars of conquest brought the very best in the way of returns, generally much better returns than slow growth building schemes. This goes right back to the time of Rome, and almost certainly before that to Sumeria. Egyptian Pharoahs got themselves into a world of shit borrowing money from Roman Banksters.

So the “Market” which is discussed with such reverence by Capitalists has always been for the most part the Debt market that grew in response to the need Sovereigns had for funding wars of conquest. Gold came to represent a measure of that conquest, how much you actually were in control over. The only way the pile of Gold increased in size was to take it from others, once the easily mined up stuff in your own neighborhood was exhausted. Of course, much later the thermodynamic energy of Oil allowed for much more Gold to be mined up, but by this time having a pile of Gold wasn’t making you any richer, controlling factories and the Oil resource was what made you richer.

Around the time of the Enlightenment, the Debt market for Gold and War Mongering began to morph into the Debt Market we know as Capitalism. Now what holders of Gold and other assets bought were Equity shares in companies that they felt would grow in the Colonial and then Industrial era. Of course, a lot of Industrialization was centered around building a better War Machine of course. Almost all the seminal inventions from guns to trains to automobiles and trains all make an industrialized nation far more powerful than a non-industrialized one, so if you are bent on conquest, this is what you will invest your money in.

Now remember here, anybody who was doing this kind of investing throughout the ages had by some means acquired a fairly large pile of Gold to begin with. Inheritance, theft, and of course the occasional wise Saver and lucky Gold or Oil prospector. The common man up until very recently in western societies never had much surplus to “invest”, and really to make any significant income at all from investing at say an average yield of 5% you need quite a large pile hoarded up. Once hoarded though, assuming steady growth and not too many foolish investments over the years, it keeps compounding up ever bigger all the time.

So, going back here again to the Biblical times, its likely that the writers of the Bible were all well aware of how Money aggregates through interest, and its close relationship to War mongering. So they defined money and interest as Fundamental Evil. Of course, simply setting up a Religion wasn’t sufficient to stop the Juggernaut once the cat was let out of the Bag. Even the destruction of the Roman Empire never ended the use of and manipulation of Money by Power Seekers, although there were any number of periods through the Middle Ages where money was extremely scarce. You almost could define the Dark Ages by the lack of a functioning money in the western world.

By the 1500s, in places like Florence and Venice, wealth had consolidated once again, and again the process of issuing Credit on that is how the great exploratory voyages got funded. While risky, some of those Investments provided some awesome returns, .like for instance the Spanish who came in with the Kick Ass Mother Load of Gold of all time when they knocked down Montezuma. However, such a rapid influx of Gold into the Spanish economy quickly devalued it as Money, which is proof in and of itself that Gold doesn’t have a real intrinsic value, just a value based on relative scarcity and the choice to use it as money because of some of its basic properties, which are good from the Storage point of view.

Other Metals, and even Gold coins weren’t ever given their value by actual market conditions when used as coinage for currency, they were given their value by numbers stamped on the coin. Even today doing transactions in metal by weight would be about impossible, so for a coin to have value it had to have a Value stamped on it by the Sovereign. The people who really had control of the currency were of course the Coiners, the folks who ran the Mints. They had the power to debase currency just as Helicopter Ben does, by mixing in base metals. Where the real ability to control currency in metals came in was in how you could arbitrage the value of one metal against another and create artificial scarcities of Silver or Gold in a given neighborhood. If you control the Silver Mines, its easy enough to halt production, driving the relative price of Silver up. No wonder of course the House of Rothschild was a founding Stockholder of the Rio Tinto mining group, eh?

Anyhow, to return to the original thesis of this post, Interest results from using the dependence people have on Money for commerce. Once you control a sufficient amount of whatever the Money is, the entire rest of the society depends on that, INCLUDING the “Sovereign”. I put sovereign in quotations because no King or State is truly Sovereign if he or she does not control what Money is in his neighborhood. The general acceptance of Gold as Money going back to Biblical times has allowed for the Money Changers, the financiers of the world to become the real Sovereign here, and over time this has consolidated ever more, with of course the Final Push for a New World Order and One World Currency being the wet dream of the Illuminati. However, I think they came as close to that as we will ever see with the Dollar as World Reserve Currency, backed by the Thermodynamic Energy of Oil. In the process of that transition, I think the general acceptance as Gold as money became forever lost, although at least for a while here it may retain some of its properties as a store of value.

As this monetary system fails, more people will be forced into considering what Money really is as it becomes ever more scarce. All the currently Dead Broke Sovereigns of the world will have to consider their own Sovereignty and how to become unchained from the Money Masters, the International Banking Cartel that has dominated the world since the time of the Medici. Most if not all of them do not have enough Gold to coin up as money, and I think even Silver would be a challenge for many places. Besides that though, commerce in the sense we have engaged in it for these last 500 years cannot function without Credit, its just impossible to move tons of metals around all the time to settle accounts.

Demurrage money may well be a part of this mix in some places around the world. However, even negative interest may not be sufficient because this makes explicit that money isn’t a long term store of value, and that is one of the qualities people want most in money. To be sure, inflation serves the purpose of devaluing money anyhow, but at least in theory in a growth paradigm you can find areas to invest in which will bring you a return greater than the loss of value from inflation. In the Demurrage economy, will there be investments you can make which will return more than whatever the Demurrage rate is set at? If there are, this pretty much defeats the concept of demurrage, because it won’t keep the money circulating, rather it would be hoarded by investing in whatever non-monetary asset was growing in value, or at least maintaining value.

The simple example here would be Gold, if you assume Gold will retain its qualities as a store of value. Immediately upon earning your paycheck, paying your monthly bills and stocking your larder with food, you take whatever is left of your still 100% value recently issued bills and buy some Gold with it. You don’t save the demurrage money, you save the Gold instead. You still have the problem of Hoarding.

Of course, in the case of Gold, this is predicated on a few assumptions. First one is that Gold will retain its value, which in a shrinking economy it probably would not. As other more necessary items become more scarce, Gold would lose value relative to them. Besides that, you would have to be able to find somebody willing to sell you Gold for your Demmurrage Money, and that person would only do that if they themselves were in need of the DM to transact business. For the most part, I would think as long as Gold was holding value, it would be in a state of permanent backwardation, and unavailable to buy at any price.

Gold is just an example though, there are many other things which might be invested in, for instance Shares in Monsanto. Long as you figure Food is necessary and Monsanto will be providing the bulk of it, shares in such a company should hold value. So again, rather than hoarding by holding onto the monetary instrument itself, you hoard by using it to purchase other assets which you expect will not decrease in value as fast as the rate of demurrage.

The fundamental problem here lies in having excess earnings beyond what you need to live on, regardless of the monetary instrument. As soon as you have excess, you can find some means to hoard it, and of course like squirrels the Human Savers of the world always prepare for the Cold Winter by storing up their nuts and seeds. In aggregate, this is always taking money out of circulation, and always ends up with the effect of people who have a large pile loaning some of it out to needy people at interest, essentially preying on their desperation. So again you see on a Moral Level why the Bible has the injunction against Usury, though despite that injunction for so long as the world depends on money, desperate souls will always borrow and hoarders will always lend, in the effort to prosper from the need of another.

So now besides having to somehow prevent hoarding to keep the money moving around, in order to do that you need to prevent people from earning or acquiring more on a regular basis than they need to live on, which of course smacks of Communism. In a small Tribal society for the tribe as a whole to survive, members of the tribe do this naturally. You don’t go out and hunt down more Buffalo than you actually need so you all can grow Obese on McBuffalo Burgers, you only take what you need and leave the rest grazing so there will be plenty next year. In a large society though, particularly one where the thermodynamic energy of Oil can provide seemingly endless quantities of food, few people feel the cultural imperative to limit their own consumption. Nor do most people feel naturally inclined to limit how much they will earn, rather since the society seems so plentiful the imperative is to go out and earn as much as you can, so you have the excess not only to hoard, but to live an extravagant lifestyle, with the McMansion and the Hummer in the driveway. Or better yet, the GulfstreamV Jet and the 400’ Yacht.

So, when I bring up Communism and bring up the idea that some means of controlling how much a person earns, you DO see how Central Control gets manifested here in trying to make any form of Money work. Capitalism is also a Central Control paradigm, its controlled by the “market makers” who are the TBTF Banks, and the BIS, which is the clearing house for international currency valuation. Is this strictly a limitation of my vision, because I am immersed in a Central Control paradigm to begin with? Perhaps that is part of the problem, but I do pride myself on my ability to think outside the box, so rather what I think is the case is that Central Control results organically from the aggregation of a large society. I am trying to think of any large system that doesn’t have a Central Control at the core, and from Banking to Transportation Networks to Computer Networks, I really cannot think of one. The Internet would come the closest I suppose, but even there you have the Nodes of the Routers, and the Central Control of the Protocols and the Language used for the communications. Imagine trying to make the internet function without agreed on address protocols, or having browsers function with many different codes used. Whoever controls the Java Script controls the net. Whoever controls the Search Engine controls the net. Once systems get very large, having a distributed control paradigm may be organically impossible. Not saying that is absolutely true, but there does not seem to be a human engineered system extant that exemplifies distributed control in a large system.

Now, in the Natural World, the opposite seems to be the case. Ecosystems are very large, they are very organized and balanced, yet there does not seem to be any Central Control. You can of course postulate that God is the Central Control for natural systems, but given that we cannot observe how God is controlling these systems from our reference point, you might try to mimic a Natural System with Money if you could Model it properly. Int his case, the Model would function in the role of God, but then whoever builds and tweaks the Model becomes your Central Controller. Big Brother if you will, or HAL 9000. I would be very hesitant in any event to put an AI program in control of a monetary sytem.

The best outcome I see as possible is rather than one single system, the breakup of the One to the Many results in many smaller redundant systems. If each of those systems is made small enough to be below the Critical Mass at which Central Control becomes necessay, then they can run by Distributed Control and Individual Responsibility. That size for Human Systems as I have written before I believe to Max Out at around 10,000 Human Souls. Is there some way to limit aggregations of people and Political Units to 10,000 souls? Historically there has not been since the Age of Agriculture began, large civilizations emerged with this technological development. So here again, I do not think we will achieve such small political units again (except in some very remote locations like where I live) until the Agricultural paradigm in the form it developed no longer functions. This is a ways off still I think, although overall the depletion of nutrients and the decreasing availability of water in many Ag lands might bring this along sooner than I expect likely.

If such a breakup doesn’t happen organically, might it be possible to legislate it into existence? This might be possible, but of course worldwide it would be very difficult if not impossible to enforce. Still, just the fact that mechanized armies will go the way of the Dinosaur means that modern means of maintaining control over large swaths of the Earth surface will become increasingly more difficult. It will be a while I think before another Mongol Horde utilizing Cavalry reasserts itself, and lessons of the past on how to limit the effectiveness of Calvary might prevent such an army from ever forming up again with so much power.

Anyhow, as usual I have drifted off somewhat from my original topic and ended up once again looking at my Crystal Ball and seeing a reversion to more simple technologies and a lower energy footprint overall for Homo Sapiens as the outcome here, assuming we do not self-extinguish before that comes to pass. I still have a hard time seeing how most of the technology we have that is dependent on the Thermodynamic Energy of Oil will persist long into the future, and I think that once most of that goes the way of the Dinosaur, the monetary structure will be the LEAST of our problems for quite some time to come.

In the short term, to prevent a descent into Mad Max, we must substitute some sort of Money, because big as this population is now, there just is no way its going to operate on Potlatch. Demurrage money is worth a try, despite the problems I identified above, and its certainly a more likely possibility than coining up metals. If it can at least slow the spin down and extend the die off over a few generations, this would be a worthwhile goal in and of itself. The other outcome here is just too horrible to contemplate, although I certainly do as is my Doomer nature.

One thing is for certain. The world of Tomorrow is not going to look ANYTHING like the world we have today in its structure. There must be and there will be vast changes here, because what we have constructed in our current systems is thoroughly unsustainable, and reaching the end of its working lifespan. The End of Humanity? Hopefully not. TEOTWAWKI? Most certainly.

RE

Liquidity Traps & Asset Class Sinkholes

Off  the keyboard of RE

Published originally on Reverse Engineering on October 27, 2010

Discuss this article at the Economics Table inside the Diner 

 Examining the Monetary system and looking at the possible outcomes of Deflation or Hyperinflation have been a concern of mine since the Collapse of Bear Stearns.  In honor of the Anniversary Week here on the Doomstead Diner,  I dug up a pair of related articles on the topic I wrote in the Reverse Engineering Yahoo Group in October of 2010.  This topic has since been explored inside the Diner in great detail at the Economics Table, in the Hyperinflation vs Deflation thread.  It’s one of the most popular Dishes serve up in the Diner.  Visit with the regular Diners and drop in your thoughts on this still unresolved question.

Liquidity Traps & Asset Class Sinkholes

I want to examine a very important concept in the Inflationista-Deflationato
debate which I think has been overlooked in a contracting economy, what you
might call Liquidity Traps or Asset Class Sinkholes.For markets to operate efficiently, you have to have Buyers and Sellers of the
various Asset Classes, so that if you decide you want to sell something you own,
you can readily find a buyer for it at the price you think its worth, which in
general is something near what you paid for it at least. If you are an
Investor, what you hope for is that the asset has appreciated in price between
the time you bought it and when you try to sell it, that is how you make a
profit.As more and more asset classes were defined, markets developed to trade those
assets on a daily basis. To keep them operating efficiently, you have “Market
Makers”, Banks that have enough liquidity to put in a buy order at near the
market price for anything you choose to sell. It gets very complicated when you
talk about all the derivatives and abstract financial products out there now, so
I’ll simplify it here to the Used Car market.Lets say I have a Car as one of my assets which I decide to Sell, because I have
to pay my mortgage and have been laid off from my Job and my UE bennies have run
out after 99 weeks. In normal times, I might take out an Ad in the paper and
put a For Sale sign in the window of the car, and wait for a Buyer to come along
and give me the price I think the car is worth. However, sadly for me, times
are not normal, lots of other folks are UE and ALSO have their cars up for sale,
and no buyer shows up. So now I drive it over to the Market Maker, the Used Car
Dealer. In normal times, the Used Car Dealer will ALWAYS buy my car at some
price, just probably not anywhere near what he thinks he will be able to sell it
to someone else at. The difference between those prices is how the market maker
makes a Profit. Sadly for the Used Car Dealer at this time, he is overloaded
with inventory of Used Cars he can’t sell, and he won’t buy my car at ANY price.My car is an Impeccably Maintained Jag which I paid $120K CASH for new two years
ago, but now I can’t sell it to anyone at any price! My Jag is a Liquidity
TRAP. An Asset Class Sinkhole. It’s a lovely hunk of Metal, Leather and Glass
sitting in my driveway, but it has ZERO value because I cannot SELL it.Now, let us look at what has happened in the RE market, and then further the
commodities markets including PMs. Many people bought McMansions at inflated
prices, and besides that they didn’t even buy them in Cash, they have loans
outstanding on them they have to service. Now they want to sell off the
Vacation Home, but there are no buyers for it, so sad. The Market Maker here,
the Banksters ALSO can’t sell it, their Used Car lot of McMansions is ALREADY
full, so they don’t even want to Foreclose on it. Then they have the liability
on the Upkeep of the McMansion and the Taxes.The McMansion is a Liquidity Trap/Asset Class Sinkhole. It now has Zero value
because it cannot be sold to anyone. Nobody wants to invest money in something
they won’t be able to sell later if they need the money for some reason.

So now, let us assume you are just FLUSH with money, but you are really WORRIED
that Hyperinflation is going to turn your mattress full of Cash into worthless
Toilet Paper. You now need to take that Cash and BUY some Asset Class you think
is going to at least hold value, if not increase in value. So you run to the
Commodities Market and bid on Pork Bellies, because you KNOW there are 1.3B
Chinese out there who love Pork Fried Rice, so you know you will have a buyer
who will pay what you ask to make a profit on those Pork Bellies. Problem being
of course that in bidding for the warehouse full of Pork Bellies, you were
bidding against somebody who had exactly the same thought process, so the price
went up pretty high. When you go to sell the Pork Bellies against some other
Pigman you won in the auction, Chen Rice Wine only has enough money to buy half
as much Pork as he did last month, so you are left with a warehouse still half
full of Pork Bellies, which if you don’t discount them will just start
attracting flies. You are also paying storage fees, so eventually here you sell
them at a loss or you burn down the warehouse and try to collect Insurance
damages on them. LOL. Yes indeed, you guessed it, those Pork Bellies were a
Liquidity Trap/Asset Class Sinkhole.

So you still are trying to protect your gobs of Money, and you run from the
Comex over to the NYSE to buy some Stocks, which you do not need to Warehouse
and which won’t attract flies when they go bad. Problem here is those Stocks
are just like the Used Car, you buy it but once you bought it you cannot SELL
it, not at the price you paid for it anyhow. This is where the TBTF Banks are
at right now. They are taking all the Free Money Helicopter Ben issues them and
buying stocks with it, propping up that market, but they cannot sell those
stocks in any kind of volume even to each OTHER, for if they do, the asset class
will drop precipitously in value as HFT Algos Go WILD. The Stocks are a
Liquidity Trap/Asset Class Sinkhole.

To maintain some Liquidity here, Da Fed as World Market Maker keeps Buying any
Dogshit that the TBTF Banks want to unload off their Balance Sheets and they
print more money to make that purchase from them, and forkload over a truckload
into Lloyd Blankfein or Jamie Dimon’s Basement Safe. At which point the TBTF
rinse and repeat and use the money to buy still MORE of the same dogshit Stocks
they bought last week after the las POMO, AAPL and Netflix! Is ANY of this
“money” making its way out into the economy to hyperinflate ANYTHING except the
stock of AAPL? Almost NONE of it is escaping into the general economy, beyond
the Bonus Money the Pigmen pay themselves and use to buy $5000/night Hookers.
The Hookers use the money to buy $5000/oz Coke to stuff up their noses and the
Mexican Drug Dealers use the $5000 to buy the truckloads of Ammo they need to
stay in bizness and the Ammo producers use the $5000 to pay off Congress
Critters in their district. This is the money multiplier effect of Commerce in
the FSofA today. Sadly however, keeping Ford Models noses stuffed full of Coke
and the Ammo production lines running does NOT do wonders for the general
economy J6P is part of. LOL.

Eventually for one reason or another the TBTF Banks will face a margin call here
because some Illuminati Pigman will demand a Put Back of the Fraudulent MBS they
bought from Another Illuminati Pigman, and they will have to unload overvalued
stocks on SOMEBODY OTHER THAN DA FED. Da Fed cannot directly go and buy the
stocks, THAT is why they are using the Primary Dealers to buy them. Anyhow,
once that happens all the Toilet Paper printed here to drive these values up
goes UP IN SMOKE. NO BUYERS. Through the Primary Dealers, by Proxy, for almost
ALL asset classes right now, Da Fed is the ONLY buyer! Its ALL Notional money
issued by Da Fed, and so now all anybody would be left with is a lot of
worthless TP issued by Da Fed, but not actually owning ANYTHING. Can-U-Spell
C-I-R-C-L-E J-E-R-K?

Its never going to get that far of course, because the Illuminati are not going
to sell off everything and once they stop taking Fed TP in exchange for other
assets, the Music Stops. What assets will they try to retain? No doubt the Oil
Companies and the Railroads (didn’t Warren Buffett buy Burlington Northern?) as
well as as much decent Farmland as they can buy up. Issue here is all such
assets are subject to expropriation and nationalization as the Political
Landscape changes in the aftermath of the monetary system collapse.

Perhaps hyperinflation plays out in some neighborhoods at some time in this
theatrical production of Civilization Collapse, but its not the driving force
here, Credit Collapse is the driving force. This is by nature DEFLATIONARY,
since Debt is Money, and a lack of Credit means a lack of money. If/when the
Banksters start Lending money to J6P WILLY-NILLY again, THEN we might see
Hyperinflation inside this portion of the world economy. That HAS been the case
for the last decade, which is why yes this decade HAS ALREADY seen
hyperinflation in various asset classes, primarily Real Estate but also Car
loans etc. However, are the TBTF continuing to loan money out now willy-nilly
to J6P? Nope. Short of an Executive Order to do so, I don’t see Banksters
loaning money out to J6P, nor do I even see J6P taking the money if it was
offered now, he’s already in debt up to his eyeballs and cannot pay it back.

Anyhow, as this Theatre plays itself out, I do see extreme Volatility in prices,
especially in Commodities, they will ROCKET upward, then followed by downward
CRASHES sans parachute. Any Hyperinflationary endgame will be very short lived,
and will simply mark the end of Fiat Money on a Global Basis. So if it does
happen, I would expect it to happen in the last few months before 12/21/2012.
Gotta love the Mayans.

RE

All the talk about the hyperinflationary end game here keeps me pondering on the
nature of the inflation of the money supply to begin with. Under the Fiat/Debt
as Money system, the only way to increase the money supply is to keep issuing
more and more Debt, which requires of course that you get some sucker somewhere
to Sign on the Dotted Line and take on some debt. As soon as he does, the Local
Bankster puts in a phone call to Helicopter Ben who then prints up the money and
Loans it to the Local Bankster at a lower Interest Charge than the Local
Bankster loaned money to J6P. The Retail Bankster never had the money to loan
in the first place, and in fact it only got created the moment J6P signed on the
dotted line. The local Bankster makes his money on the Spread, the difference
between the Interest he is charged by Helicopter Ben and the interest he charges
J6P. At least that is how its supposed to work. Remember however that nowhere
in this Creation of Money here has enough money been created to pay the Interest
Charges

Now, let us take a trip back in Mr Peabody’s WAYBAC Machine to the Post WWII
period and the Bretton Woods agreement, and the need the Banksters had to create
more money. The way it was done was through the idea of “Home Ownership”, the
creation of Fannie Mae and “cheap” loans to J6P Veterans to buy his very own
Levittown Tract House with a White Picket Fence. This was the “retail” end of
money creation in Post WWII Amerika, along with similar models in Europe.

At the same time on the “wholesale” Illuminati end, HUGE sums were loaned out to
well connected Bizmen to ramp up Automobile Production, and now with tons of
money flowing through the economy greasing the wheels of commerce, J6P starts
toiling hard to make enough money to pay for his tract house and Ford Mustang.
Still more new money is created and lent out as various other industries
develop, and the economy is now swimming in still MORE money. However, at no
time in any of this loan making process is money created to pay the interest
charges that accrue over time, but as long as the economy keeps growing and
there are more people who will take out loans to build still further out the
system keeps running. Of course as time goes by, some individuals and biznesses
fail, their assets are taken by others but in that process STILL no new money
was created to pay the interest charges.

Real Growth probably stopped around 1970 or so when the FSofA reached local Peak
Oil. To continue the process of Build Out into suburbia after that, J6P had to
be convinced to continue to take on more Retail Debt, which mainly came in the
form of ever increasing Housing Prices with longer debt repayment schedules, all
while wages remained stagnant. Debt was layered on debt here as J6P used the
ballooning value of his House to buy still more toys produced in China, which
created still MORE money, but STILL no money being created to service the
interest charges that were accumulating.

Mathematically speaking, all the debt accumulated here at the individual,
corporate and state levels has become unserviceable now that real economic
Growth is no longer occurring. So its crashing everywhere in all sectors at the
SAME time. The only way to Reinflate here is to get SOMEBODY to take on more
debt. However, nobody will willingly do so now, and besides if they are
unemployed or underemployed or still employed but underwater on their mortgage,
they wouldn’t be qualified for a loan anyhow. Biznesses won’t take out Loans to
expand, because people do not have money to buy their products or services
already. With neither the average J6P OR Biznesses willingly taking on Loans
and creating money, Da Goobermint is doing it FOR them and by proxy putting the
bill for the loan onto the backs of the Taxpayer, DESPITE the fact the Taxpayer
is saying “NO MORE, we don’t WANT that debt!” If Da Goobermint does NOT take on
debt in the name of the Taxpayer, then all money in a Fiat/Debt Based system
disappears! Lose-Lose scenario either way.

Pretty deep into the Rabbit Hole now, with Da Fed and Da Goobermint basically
force feeding Debt into the system to try to reflate the economy. Problem being
that although they can keep adding more debt into the system ad infinitum, they
cannot get anyone to pay it back if they don’t have money or jobs. There is no
way to “Balance the Budget” at the Goobermint level, Corporate Level or
Individual Level. More money printing just results in bigger debts and more
interest payments and more defaults. So the system has to crash either way and
it amounts to the same thing, either all money disappears here or all the money
that is printed becomes worthless.

The ONLY way to Reboot is “Jubilee”, which is going to occur here in either
scenario. If nobody has money to pay off their debts, they will go BK. If the
currency is hyperinflated to worthlessness, they won’t be able to pay off their
debts with that money because nobody will take it in payment. So again they go
BK. The real PROBLEM you have when everyone goes BK is “Who owns what, and what
is it WORTH?”

Picture the Austrian Scenario, where we let all the TBTF Banks INCLUDING the
Federal Reserve to FAIL, as they should. Meanwhile, J6P who took out a $500K
loan to buy his McMansion from this system of Banking still owes $400K on it.
Who does he owe that to? The Banking system he took the loan out from no longer
EXISTS. Who should he pay his monthly Mortgage to here? What money would he
have to pay it with, since the folks who issue that money NO LONGER EXIST?

The fairly obvious answer to this problem is that Da Goobermint will become the
“Owner” of your McMansion, and to live in it you will have to pay Da Goobermint
in whatever New Money Da Goobermint issues out after the Demise of the Dollar.
However, it remains unclear as to what the distribution method will be of any
new currency, whether it will come from the Federal level or the Local level and
exactly WTF it will be based on. Many Unknown Unknowns here.

In any event, what I am trying to demonstrate is that as far as
“Hyper-Inflation” is concerned, it already occurred, beginning with the
“ownership” paradigm for Housing in the post-WWII period. This is how the supply
of Debt Money was created. Loans for houses on the retail level was the basis
for most of the expansion of the money supply through the period, and on the
wholesale level Loans for Industries from Automotive to Dot Com added still more
debt money to the system. A few mega rich folks got even richer through this
period, and a few lucky folks who caught the wave at the right time also got
mega rich. However, from around 1970 onward, about nobody has become rich
without it being at the expense of somebody else, or at the expense of the
living environment of the Earth.

The folks in charge of Creating Money will do what they will, but they cannot
Make Something From Nothing. What they will ATTEMPT to do is consolidate any
remaining resources into their own greedy little hands and leave J6P hung out to
dry. This will work for a while, and many J6Ps will go to the Great Beyond
utterly clueless about how they were SCREWED here. Eventually however, as in
Frogland already, many J6Ps will begin to REVOLT. A Small Ripple will become a
TSUNAMI. The Wave will wash over the Planet, and the Devastation will be
incalculable. It’s a matter of NUMBERS though. The Meek Shall Inherit the
Earth. Right after the Meek get VERY VERY ANGRY.

RE

 

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