Clusterfuck Nation Double Feature

Off the keyboard of James Howard Kunstler

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Published on Clusterfuck Nation August 2013


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Nowhere to Run, Nowhere to Hide

August 19, 2013

KunstlerThe Federal Reserve answers only to God, but Ben Bernanke’s must not have known that his boss was such a prankster. All of a sudden here is the interest rate of 10-year Treasury paper rising like an angry carbuncle on Ben’s pale tuchus just when he thought he could sit back and watch the mud wrestling contest between Larry Summers and Janet Yellen.

Poor Ben, sedulous student of the Great Depression, who didn’t notice that the country had changed from a nation of farmers and factory workers to a nation of pole dancers and waiters, now awaits his sublime moment of Hooverization. Like poor President Hoover, he gets to hang around the pilot house half a year after he runs the garbage barge of US finance aground on the shoals of wishful thinking and accounting fraud.

Everyone who has to pay attention to the order of things in the universe — meaning those not stewed on crank or drank, or waiting on line for a SNAP card, or leafing through the tattoo catalog, or waiting for a Kim Kardashian gangbang guest shot on Duck Dynasty, or lost in the alt reality of their cell phone — is suddenly very nervous about the order of things in this little corner of the universe. Sag Harbor is starting to live up to its name and down along the Hamptons the tide has gone out to feed a Tsunami of margin calls that soon will give the phrase “under water” a whole new life in the twisted mythology of capital. The immortal Bill Gross even sent out an SOS on Twitter at the end of the week. No wonder folks have got the heebie-jeebies.

The fear is that the central banks have finally lost control of a situation that they have only pretended to control since 2007, when the grotesque racket of mortgage re-bundling caused a psychotic break in the banking system. The prescribed therapy for that was half a decade of ZIRP and maxing out the national credit card. The ugly truth now emerging through this fog of psychosis is that the bond market probably can’t be saved, and without it all other paper markets are toast, including the stock markets and very possibly the entire fiat currency system.

In the background, of course, is the energy melodrama. How can anybody with half a brain suppose that the late turbo-industrial economy could “recover” with oil priced at $107 a barrel? Anyway, all the “recovery” memes floating around the collective media zeitgeist are based on a handful of doctored and massaged GDP numbers universally known to be false. In short, the USA can’t run the current setup on oil over $100 a barrel and has been trying to compensate for that basic fact by lending itself money. So has virtually every other advanced economy, and now they are all in trouble so there is nowhere to run, nowhere to hide — and for us, nowhere to export our financial quandaries to.

Japan is the most interesting corpse in the pathology lab. It shot its wad twenty years ago and has been self-cannibalizing ever since. It has no oil or gas of its own, and now it has a runaway nuclear meltdown that is getting only slightly less attention than its financial meltdown. I used to think that Japan had no choice except to go medieval. Now I wonder if there will be anything there in ten years but a depopulated archipelago of steaming radioactive kelp. They can’t possibly buy more US treasury paper and must desperately need to dump their accumulated holdings, and when they do they will start a financial chain reaction that will flense the pretense of value from all the world’s sovereign debt paper. It may already be happening.

If you prepare for anything, prepare for a world without financial pretense. Credibility is caught in that riptide developing off the Hamptons. When the water goes out, all you will see is ugly things wriggling in the mud, and when the water comes rushing back in again, all you will see is a spectacle of drowning bankers. The only higher ground to go to will be your local community, if you have one, and even there it will be a struggle to make sense of what has happened to the world.

August 26, 2013

How then did Ben Bernanke finally summon the fortitude to entertain tapering Federal Reserve bond purchases from $85 billion a month to, say, $84.7 billion a month come September 18th, the world may never know, but now the deed appears to be done, in his absence, by remote paranormal transmission, while the other Fed board members, with their attendant economist factotums, servelings, and catamites all beamed the message out of horsey Jackson Hole that they expected — even pined for — the vaunted return to “a normal economy.” Which left many bystanders wondering if that meant a Dow Jones industrial average at, say 3,847 around Columbus Day, the 10-year bond at 5 percent, and every pension fund in world bleeding out from a sucking chest wound — not to mention a Hindenberg-like conflagration of the US Treasury as debt payments went beyond critical.

Pardon me for saying that I don’t think these mooks of finance know what they’ve been paying for with the QE series of monkeyshines. They’ve been creating “money” for five years to offset the collapse of a no-longer-cheap-oil economy. It’s really that simple. If any of these poobahs thinks they can run a “normal economy” at $106-a-barrel then they should run out and get a realtor’s license and buy as many Arizona REO’s as the foundering banks will admit to holding on their books, and then become landlord to renters working 29 hours a week on the WalMart loading dock.

Actually, I don’t think they will have to wait that long to see the consequences of their loose, silly talk. America’s major export is now working its hoodoo in many other parts of the world as currencies become unglued and economies look down at the flimsy bamboo scaffolding that holds them up so high. America’s major export these days is economic uncertainty, specifically the question of what, exactly, will maintain the pretense that the hopelessly intertwined financial affairs of China, India, Brazil, Japan, Euroland, Russia, and everybody else, really, including ourselves, are not unraveling like some kind of cosmic sweater knitted with one needle by a cross-eyed god with the jim-jams.

A lot of people begin to suspect that there is something called “an economy” quite apart from the shenanigans and dumb shows put on by the banks and their imitators, the hedge funds. That actual economy is a very earthy thing, in so far as it is pegged to the biophysical realities of the planet — such as, can you harvest a turnip and therefore make turnip soup for dinner? After all, you won’t be making a soup out of interest rate swaps. Of course, dining on turnip soup is not as sexy as driving to work in a Tesla to a hedge fund boiler room where you get to cream off millions every week by playing Where’s Waldo with the rehypothecated accounts of the muppets who foolishly entrusted you with their own ill-gotten savings.

The nervousness out there is palpable and epochal. Not only is everyone waiting for some other shoe to drop after Labor Day; they’re waiting for it to drop on their own heads. The most visible result, I think, will be a shocking flight into precious metals, of which there is precious little to meet the kind of demand soon to overwhelm that teeny-weeny market corner of the financial universe. What else is there now? The Fed taper talk is pretty much a case of holding a gun to a puppy’s head — the puppy being the equities markets. The bond sector is a hall of mirrors. Cash is a lot less than king in several countries now, with the contagion running hot. Everything is mispriced to the upside except Gold and Silver, which are mispriced the other way, especially after the chicaneries of April and June when, depending on which story you believe, the banks ran a naked short campaign to knock the stuffing out of the metals so they could then go back in and hoover some of it up cheap in an attempt to conceal the multiple out-leasings (that is sale, or perhaps theft) of metal left by fools in their custodial charge. Or, some other sages might say, the knock-down was done to defend the honor of the evaporating US dollar (a dollar with the vapors), making it appear sturdier than it actually is. Yes, well that worked, sort of, for a few months, while Wall Street repaired to the annual East Hampton endorphin splash. I was not invited to Diddy’s party, where the pineal glands of the gathered .01 percent were audibly ringing with celestial euphoria as they swapped the reassuring pulsations of their own specialness. Those people, you can be sure, were not pining for a “normal economy.”

Long story short: we’re in for some interesting weeks ahead. Keep your hat on.

Slogger Trifecta

Off the keyboard of John Ward

Published on The Slog on August 19, 2013


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August 19, 2013 · 9:25 pm

At the End of the Day

Over the last few days, cheated preferentes depositors in the Novagalicia Bank  have been demonstrating in Spain. At this morning’s demo they rightly proclaimed themselves to be hard working, thrifty savers who had simply kept their savings there. They can no longer withdraw their life savings, because some hastily manufactured legality has told them they are creditors, not customers.

When, after twenty years hard graft, I finally in 1988 received a large cheque at 3am one morning for my shares in an ad agency I’d helped found, seven hours later I dashed down to the local Building Society and whacked the cheque in. When it cleared three days later – and only then – did I phone my first wife to say “The money’s safely banked”.

Safely. What a rare word that is these days in financial services.

Exactly who do these language-manipulating sociopaths think they are? They are bankers who took money in at minimal sight rates, making eternal profits from their customer base – and then had the gall to introduce service charges. They are blank-faced, goggle-eyed  bureaucrats in Whitehall, Brussels and Washington who approved this weasel terminology as if they might be rubber-stamping the train times to Auschwitz. And they are the multi-faced politicians who perpetually apologise for the indefensible behaviour of those whose money they so desperately need…having failed, year in year out, to keep within budgets.

Feeling safe is about having trust. The EC finally lost the trust of the lenders after the 37th dithering lie about the problem being solved. The ECB lost the trust of the bond markets when it illegally subordinated holders of Greek debt, and then went on to rape Cypriot investors for no good reason at all. Bernanke lost the trust of the American people when he carried on chucking their dollars at an intractable problem intrinsic to neoliberal economics. Parliament lost the last vestige of my trust when it said nothing against the theft of money from Cooperative Bank depositors to save its own neck. David Cameron lost the trust of millions of Britons when he continued to insist there had been nothing improper in his personal relationships with senior Newscorp officials. Congress lost the trust of the entire world when it bickered about the biggest deficit in US history. And last but not least, the Church of England lost any last vestige of trust when it began trying to profit from fracking.

Everything from love to money is based on trust and mutual respect. I no longer love my country, because it is a whore. There isn’t a single institution there I would trust. I can’t even feel that banked money is safe.

But still the apologists for this insane f**ked up fiat currency version of globalist ‘free market’ capitalism witter on, failing as ever to acknowledge that not a single investment market anywhere on the planet is free from artificial (and usually illegal) interference.

Please Britain, don’t put off your protest or jump off the cliff because they tell you to. Switch off the telly, get off the sofa, and tell the bastards where to get off.

· 7:11 am

CRASH2: China plans new gold standard for dominant Yuan

Uncle Sam goes foot-shooting, gets felled by snipers


Last week I posted about how Bernanke has run out of road in his attempt to keep everyone happy. As so often in such circumstances, he’s pleased nobody in the end: not the brokers, not the Asian creditors, and most definitely not the US consumer.

I also posted last week about the huge percentage of US bond-offloading accounted for by Chinese and Japanese dumping. And I’ve posted ad nauseam about the inability to generate spending from people who’s wages one just spent a decade eroding by 30%.

But as America shoots itself in the foot, snipers are busy targeting its head. What follows will explain how.


From Day One of QE, Ben Bernanke insisted he was showering American consumers with money. Along with millions of other sites, The Slog always maintained he did it to get dividends up, keep the Dow high, and create liquidity/solvency/new business at the banks. Some neat new charts now show us precisely why we were right and he was telling porkies.

In this one, we can see how the supply (aka printing) of money went stratospheric during and after Greenspangling and Bernankenomics, and then upcurved further after 2010:

Fredcrop1There are today almost exactly twice as many dollars in circulation than there were…..but middle America’s share of it went down 30%. So they had less money with less spending capacity. So they spent less, took out more credit – and bought cheap Asian imports. Bang! There go the toes in your right foot.

Now let’s look at what happened as that Nixonian shift off the Gold Standard inevitably turned into Uncle Ben’s buck-showering bonanza:

Fred3cropWhile the supply of Fiat paper rocketed, consumer purchasing velocity fell even faster under QE than it had been doing during the previous pauperisation of the populace. And as blue-collars are now working fewer hours for less money with little chance of further credit, most of the money never reached them….and if it did, they paid off debt rather than indulging in retail therapy. Bang! There goes your right instep. Try to keep your balance now…

There is a growing feeling around the globe (if my contacts are even remotely typical) that after all this mess has finally covered every Westerner in excrement, there will be pressure to end the era of fiat paper. Not only would this be a disaster for the US, it would be a major coup for Beijing: there is every chance that a Yuan set against a new gold standard would make it the dominant reserve currency in short order….especially as the Dollar even now is predictably drifting down in value. China, it seems, has the aim of de-linking the Yuan from the US dollar. And Asian media are increasingly of the view that they will, when the time is right, fix it to gold instead.

China continues to amass gold. In June alone, it imported 104.6 tonnes from Hong Kong. That would bring China’s gold imports from Hong Kong to 1,160 tonnes since the beginning of this year. Officially, China hat around 1,000 tonnes of the stuff. But past experience has shown the Beijing suddenly pops up one day far more of shiny metal than you thought. The real figure is estimated to be around 8,000 tonnes….and likely to pass the US total, audited at 8,113 tonnes.

Yao Yudong, major money-man on the China Bank MPC, has of late been talking about fiat paper being a disaster, and his admiration for Bretton Woods. Further, China has been doing currency swap contracts big time with other countries to bypass the Buck. It has currency swap agreements with Brazil, Russia, Iran, Australia and the UK, to name a few. This aim here is clearly to get Westerners accustomed to the idea of dealing with the Yuan, and seeing it as a new ‘Central Currency’.

Bang! That first assassin’s bullet went straight through your neck. Breathing is getting difficult.

And of course, as I posted in recent days, those interest rates that were never going to rise are, um, rising. Very fast. The American cost of borrowing just doubled. And the Chinese are far and away the biggest sellers of those T-Bonds….which must now offer higher yields.

Oh look America, you just fell over, and your lungs are filling with blood….just as the traders, brokers, and big banking dicks get back to their desks next week, only to see a topping Dow, a falling T-Bond, and a backfiring, stuttering economy. And even though you’re manipulating the gold downwards to repair those bank balance sheets, it becomes even easier for Beijing to fill its boots with that gold.

Bang! That was the rear of your cerebrum coming off. It’s over.

August 18, 2013 · 9:02 pm

At the End of the Day

Lines on the nature of being united in idiocy

I think top marks tonight must surely go to Spain, for its unique ability to get Tom Watson agreeing with David Cameron. Yes, there can be no doubt about it, as long as Spain wants Gibraltar “back”, then the Iberian peoples have the capacity to unite Britain…a set of Islands not so much great any more as disintegrating.

It’s a useful distraction for both sides of course, but none of the fuss from Senor Rajoy holds any water at all. Britain has actually ‘owned’ Gibraltar for far longer and more continuously than the Spanish ever did and – as in the case of the Falklands with Argentina – its inhabitants have no desire at all to be Spanish. But if things get very nasty, I can’t wait to see how Operation Barbarossa van Pumpy in Brussels “handles” it.

At the same time, however, one must recognise the ability of almost any event in the Middle East to have Brit and US pols united in myopia, their respective leaders drivelling on about a Special Relationship that deserves the adjective only in the context of kids who require special needs education. After the demonisation of Assad in Syria comes the glorification of the Muslim Brotherhood in Egypt. I came across some Brits down here on holiday this morning, and they clearly didn’t have the remotest notion which way was up about Egypt’s tragedy….or indeed, who was for what, and why David Cameron wants to galvanise the EU into condemning the wicked military “coup”.

A simple analysis of the Egyptian dilemma doesn’t require that many brain cells. Early in July this year, I posted to say that “What [the US] State [Department] has done is bestow respectability upon the Muslim Brotherhood without in any way changing its truly ghastly attitudes and barbaric behaviour.” Tracing the lineage of this dynasty of deranged thinking, as long ago as November 2011, The Slog suggested that “the [Egyptian] military is playing upon a real fear: Egyptian liberals are sympathetic to the military’s attempt to dominate the constitution-writing process, being rightly fearful of Muslim Brotherhood dominance”.

Now we have MB fanatics desperate to present themselves as martyrs – and the usual figures of dead demonstrators growing with every report by Western news agencies. I can only repeat what I’ve been saying for nearly three years about the ‘Arab Spring’: it is based on Anglo-Saxon ignorance about the fundamental nature of Arab liberalism and Islamist fascism.

Very few international situations are as cut and dried as our mamipulative politicians would suggest: in the end – despite the EU nonsense and the Levitt myth of globalism – every nation is out for itself most of the time. The “deposed” President Mohamed Morsi had, from Day One of his term, worked overtime to marginalise a pro-secular Military in favour of his rabidly fundamentalist associates. There is no discernible difference between what Morsi was up to, and what Recep Erdogan has been up to in Turkey – viz, purging all those elements in the political and military class who support the secular aims of the hero Kemal Ataturk, in favour of his own closet Islamist agenda.

From the very start of this dire history of needless death in the name of a religious leader who is a myth, David Cameron and the US State department have placed themselves cynically on the side of authoritarianism: Cameron because he wants trade deals with Turkey, and the US because they want the oil. Yet  again, it is all about munneeeee. And that root of many evils has placed allegedly liberal democracies on the side of a neo-Nazi, misogynist bunch of religious maniacs.

And in other dramatic news developments today, the BBC’s Newsnight anchor Jeremy Paxman has a beard. I realise that in gay circles this means he has a girlfriend to hide an aberrant sexuality, but there haven’t really ever been any doubts about Paxo when it comes to which way he swings: basically, he would I suspect like to see 95% of politicians swinging from a lamppost. So it is especially sad to see that by far the biggest brain and toughest interviewer at the BBC needs to grow facial hair to catch the fickle gnat’s-length attention of the British public for longer than a tweet.

When the David Kelly affair began the sad descent of the BBC into Government lapdog, Paxman was a steady influence in favour of telling all politicians TGF themselves. After the McApine scam, he once again urged the Governors to face this unpleasant opportunist down. When the Jimmy Savile drivel about him “grooming a whole nation” went full-on tabloid, yet again our Jeremy tried to find some evidence of a spine in the Beeb’s management tier. Having discovered that his employer is, effectively, a mollusc, it is little wonder that he now carries a care-worn, slightly bored air around with him.

To relegate Jeremy Paxman to the margins of our national broadcaster is rather like taking Robin Day’s knighthood away because he gave Thatcher what-for. I’m afraid it symptomatically defines what is wrong with Britain.

Musical Dollars

Off the keyboard of RE

Published on the Doomstead Diner on June 22, 2013

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.

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.



Tapir Talk

Off the keyboard of Steve from Virginia

Published on Economic Undertow on June 20, 2013


Discuss this article at the Epicurean Delights Smorgasbord inside the Diner

Take away moral hazard courtesy of the central bank and what do you have?

Reality bludgeoning the markets, that’s what, (Bloomberg):


Energy Commodity Futures

Commodity Units Price Change % Change Contract
Crude Oil (WTI) USD/bbl. 95.45 -2.79 -2.84% Jul 13
Crude Oil (Brent) USD/bbl. 102.88 -3.24 -3.05% Aug 13
RBOB Gasoline USd/gal. 279.98 -7.92 -2.75% Jul 13
NYMEX Natural Gas USD/MMBtu 3.88 -0.08 -2.07% Jul 13
NYMEX Heating Oil USd/gal. 288.63 -8.62 -2.90% Jul 13


Precious and Industrial Metals

Commodity Units Price Change % Change Contract
COMEX Gold USD/t oz. 1,288.80 -85.20 -6.20% Aug 13
Gold Spot USD/t oz. 1,290.24 -61.07 -4.52% N/A
COMEX Silver USD/t oz. 19.75 -1.88 -8.69% Jul 13
COMEX Copper USd/lb. 306.70 -8.45 -2.68% Sep 13
Platinum Spot USD/t oz. 1,367.68 -47.43 -3.36% N/A


Crude oil, gold, silver … are crushed. So are stocks on all the major indices around the world. Wall Street banks and players can finance their own positions needing no help from the central bank; they do require reassurance that the Fed will direct public funds — borrowed from the same banks at interest — toward them if any of their bets go wrong.


Stocks Slammed, Bond Yields Surge After Bernanke’s Taper Talk Wall Street was a sea of red Thursday morning, on the heels of Federal Reserve Chairman Ben Bernanke’s signal that the central bank’s asset purchase program will slow down as soon as late 2013.

Bernanke was sure to qualify his remarks at Wednesday’s press conference, comparing a tapering of asset purchases to taking his foot off the accelerator, but the initial market reaction indicates traders view the Fed chief’s remarks as a warning that the brakes are coming.

The selloff, which began in the U.S. Wednesday afternoon before racing around the world, produced heavy losses in every asset class. Equities took a beating .Japan’s Nikkei dropped nearly 2% and the major European indexes fell even further, while the S&P 500 began the day with losses worse than 1%, falling 18 points to 1,611 in the first hour of trading.

Commodities took a beating, as crude oil dropped almost 3% to $95.75 a barrel and gold prices plunged nearly 5.5% to less than $1,300 an ounce.

The dollar was one of the few assets in positive territory, rising about 1% the euro and even more than that versus the Japanese yen.


Notice that the dollar worth increases relative to that of other assets. Notice also that Treasury bond yields have increased, this suggests there is more to the ‘crisis du jour’ than fiddling with interest rates. There is the dawning realization that central banks have exhausted themselves, that they have little in the way of policy instruments that would effect a major decline, that there are diminished returns to their reflation efforts.

Realization = decline. The markets are like a magical airplane that stays in the air only because all the passengers believe at once that the plane can fly. As soon as the marginal passenger doubts … the airplane falls … so do the markets.

Be sure that higher interest rates are on their way. The feedback loop that effects rates is within the foreign exchange or currency markets, NOT the bond markets. The currency markets are gigantic and outside the reach of central bankers … and their nonstop efforts at manipulation. There is a sorting out- or consolidation of currencies underway, particularly the euro and the Japanese yen: these are currencies that are overpriced leaving holders with massive risks that must somehow be offloaded onto hapless third parties; pensioners, school-children, farmers in third-world countries and the middle classes everywhere.

The euro is effectively worthless because of associated political and management failures within the European Union. Seeing the effects of currency policy on Spain, Greece, Cyprus and others, the euro is revealed as a poisonous liability for its holders, a derivative instrument for a cruel and unaccountable non-country. In a world guided by reason, the euro would be done away with, it would be worth exactly zero, yet it is not. The euro is exchangeable on demand for petroleum, this gives the euro worth.

The Japanese yen is also worth less as it is nothing but a proxy for Japan’s now-stranded automobile waste, both in- and outside that country. The currency exchanges cannot accurately measure the worth of these two currencies; at the same time holders have little choice but to shed their positions, to do otherwise is to caught out when the markets reset. Exiting a position is the repricing mechanism, the process feeds on itself. What is underway in the various sub- and derivative markets is the outcome of large currency position unwinds and the hunt for market fools large enough to relieve the Chinese’ and others’ currency risks.

Currency markets drive the national bond markets as holders of currencies do not hold paper money in vaults but debt instruments or IOUs of sovereign governments. Bonds must be swapped or sold first to gain the currency which is then swapped for the desired dollars. Mercantile exporters such as Japan have massive, illiquid holdings of their customers’ bonds; there is consequently a shortage of currency in circulation which is why the Shanghai Interbank Overnight Rate(s) are massively volatile as is the Japanese bond market.
Tapir 1
Figure 1: Tapir or Tapirus Indicus, hard to see how this harmless, pig-like creature could do so much damage to the finance industry. As mentioned previously, conventional analysis such as Forbes’ beating on the Tapir is misplaced. The focus should be on Japan’s trade deficit, China’s real estate- and debt excesses, Europe’s failed supra-national experiment and America’s creeping totalitarianism. Market repression has been able to keep the related costs from being priced into these countries’ securities but such efforts cannot succeed forever.

Hedge fund boss Kyle Bass does a good impersonation of Nicole Foss, leaving out her bits about farming and Peak Oil. Because Bass manages billions of dollars of other peoples’ money, he is free to speak by the necessities of his business regardless of consequences … and his argument is taken seriously.

In early-21st century America, as in other periods and other places, the content of an argument doesn’t matter so much as the size of the arguer’s bank account and whether the topic can hold the hope for some free money for suckers.

All the crises are interconnected and basically all about the same thing: fuel has become scarce, it has become costly, too costly for ‘others’ to subsidize, the managers desperately try to cheat and then fail, the failure is now becoming apparent and now the speculators are stumbling toward the exits so that they might keep what they can.

Foss offers suggestions to the non-investor on how to withdraw outside the line of financial fire, to exit the Titanic before it hits the ice. Bass looks to profit by the misery of others, to rent seats in the lifeboat; the seats gained from bankers and other finance riff-raff, in reality pensioners and institutional stand-ins for ordinary citizens — widows and orphans — will be the victims suckers as they have since the beginning of time.

Bass is trapped in his own paradigm: when Japan’s calamity occurs, one of the casualties will be Bass, himself. His firm is dependent upon counterparties being willing or able to make good losing wagers, for there to be anything left of the market fools … from which to collect.

It is hard to see those counterparties staying alive with fortunes intact when they themselves must collect from their own failed counterparties. Bass runs a hedge, his hedge is dependent upon all the hedges, all others are hedged against each other; in the very real sense nobody is hedged at all. Here is the reason for the frantic effort over the past five years to prop up every single ‘systemically significant’ finance player on Planet Earth: every one is a counterparty to all the others. The casino which makes up finance is nothing other than trillions of stupid bets, every one made for their own sake, none of which was ever intended to be collected. Because this is so, there is naught but fees demanded by the brokers putting the gamblers — like Bass and his counterparties — together.

The institutional bias fails Bass, what he does not- and cannot understand. The correct strategy is Nicole’s; to stand aside as far as possible from the fracas which is enveloping the entire developed world, to not bet on particular sides because all sides will fail. Bass succeeded in 2008 by taking the opposite side of clearly stupid trades by large banks. The banks sustained losses — which were gains for Bass and his clients — because they were backstopped by the taxpayers’ ability to borrow from the very same banks. The crisis in 2008 illuminated the incestuous circularity of both the lending process and the dependence of each borrower on all the others. When the system Bass depends upon falters, there is no other (ex-planetary) system to bail Bass out!

… or any of the rest of us.

Japan depends its non-Japanese overseas trading partners to subsidize the country’s resource waste by way of its trade surplus. That is, Japan gains more from the goods it sells overseas than what the customer gains from the use of the goods. At some point the customer is exhausted by its ‘Made in Japan’ goods and cannot afford to buy any more. Put another way, Japan has borrowed as much as it possibly can against the accounts of its customers by way of foreign exchange. The customers refuse or are unable to borrow, that strands Japan, (Bloomberg):


L.A. Breaks Driving Addiction as Bike-Train Commutes GrowJames Nash

Bikes, Buses Replacing Car Addiction in L.A.

Los Angeles embodied America’s love affair with the automobile in the last century. In this one it’s trying to kick the car to the curb.

The city that put drive-thru restaurants on the map has doubled its network of bike lanes to 292 miles (470 kilometers) and expanded light rail by 26 percent in the past eight years, with another 18 miles of track coming by 2015. Bus and train ridership is on the rise, while the total number of passenger cars registered has declined in Los Angeles County — evidence more commuters are breaking their dependence.

Shrinking Allegiance

“The next 10 years will be as important to the auto industry and transportation literally as the invention of the Model T,” Scott Griffith, former chief executive officer of Zipcar and a strategic adviser to the company, said at the Bloomberg Link Next Big Thing Summit in Half Moon Bay, California, on June 17. “We’re now on the edge of all these new business models coming along and the intersection of information and the car and transportation. If you look out 10 years, I think we’re going to see a huge change, particularly in cities.”

While the new-car market has rebounded from the recession, Los Angeles County had 28,000 fewer passenger cars registered in 2012 than five years earlier, according to California Department of Motor Vehicles data. Boardings on the Los Angeles County Metropolitan Transportation Authority’s buses and trains increased 4.7 percent to 41.3 million in May 2013, compared with May 2011.


It isn’t just California, car sales are declining along with stocks and commodities. Taking away the cars punishes Japan while adding more makes matters worse as the fuel burned in the new cars is lost forever. At the same time, the economies of the world are dependent upon more car sales. This is the dilemma that is being resolved right now, to car or not to car …

that is indeed the question.

Energy, Money & Gold

Off the keyboards of the Diner Rogue Economistas

Published on the Doomstead Diner on May 27, 2013


Discuss this article at the Economics Table inside the Diner

Once again the crew of Diner Rogue Economistas has been busy whacking away at Hyperinflation-Deflation and debating how Money acquires its value and its varying roles as a Currency medium and a Store of Wealth. Can our Monetary problems be resolved by moving to Precious Metals for Money?  The usual suspects reprise their roles in this endless debate.  Feel free to drop on in the Diner and drop in your 2 cents on the subject.  On the Diner, everybody is an EXPERT! :icon_mrgreen: RE From Monsta:



Deflation is bad news for gold. Can't get around that point you can only choose to ignore it.

Monsta, let us take a look at history and see where you are in error. The last great deflation in the 1930s called the Great Depression, just about everything went down in price with the EXCEPTION of the price of GOLD. It remained constant at the dollar price of 20 thus making it rise in value relative to other things at the time. It was then confiscated from the citizenry by FDR and the price of it almost doubled to 35 dollars by government decree, as a means to increase the money base, devalue the dollar, and pump us out of the Big D

Okay I will concede the point that gold did retain its nominal value even under a deflationary environment but at the end of the day the gold investor still lost out. As you highlighted the gold they possessed got confiscated by government decree. The government bought the gold at $20 an ounce and then used that gold to recapitalise the banks by revaluing gold at $35. The investor lost out and the banks got free money by this legal government backed form of looting. This is not much different to what we see happen in Cyprus. Sure Cyprus involved fiat currency but the dynamic is the same and must be seen as such. Revaluing gold to a higher value is the same as printing fiat currency. It steals wealth from the genuine investor (in gold this is the gold bug) and transfers the wealth to banks. This brings me to the next point which I think is even more fundamental. There is no such thing asset as a risk free asset. Not even gold is risk free and can be unstable in terms of the wealth it can store for its holder. Gold maybe able to save you from hyperinflation but generally you lose out in deflation. And even if the deflation does not wipe you out (like in the case of the depression) there is always the risk of confiscation either by violent mobs or government/banks. To be sure, this is not a criticism solely directed at gold, this type of risk can apply to any asset class you pick. True some assets contain more risk than others and are therefore inferior but all assets contain some element of risk. This is an important point to grasp because it demonstrates that we can never have complete control over our fate. We can maximise the probability of helping ourselves and minimising risk but we can never eliminate it entirely. We must always apply a degree of faith on everything we do. This should not to be seen as a bad thing; it is good to have faith with yourself and it is equally important if not more so to have faith in the intentions and actions of others. It is simply important to recognise faith and see it as such. One of the big problems I see with people and society in general is the need for control, the need to eliminate all risk. It is never possible and this desire to seek control can be very damaging and corrosive to society especially if you have a libertarian disposition. It is better to recognise that anything, even gold can be fallible and just have faith that we can work things out. Off course there is a place for thought and critical thinking in all this; all I say is there no certainties in life and not even gold can over rule this unpredictability of life. To go back to the issue of gold there is another big issue and that is off scarcity. Gold is not held by many people and this is not simply the case of people having no faith in gold. Take me for example I have a modest wage and cannot dream of spending $1500 for an ounce of gold. I lack the financial means to get it. I am sure the same story can also be said for the vast majority of unemployed youth in the western world. This leaves only a small subset of the population who can afford gold and what's more this gold that is so cherished is often hoarded by gold investors. This hoarding of wealth especially if done to an excessive degree is damaging to greater society as this wealth could have been invested in more productive means such as more sustainable living arrangements. I am not so well versed in the teachings of the Bible but it is my understanding that it is not morally right to hoard excessively and if one finds themselves in the fortunate position to have more wealth than they are able to find use for it is better to give this money to people in need. Obviously you do follow due diligence when handing this money so it reaches suitable candidates but provided the candidate is of good moral character then such investments will be rewarded in the future. I don't think such things would be said if there wasn't a grain of truth. The other danger to bear in mind with hoarding is gold hoarders often end up lending that gold to other people who lack gold. This borrowing inevitably leads to the generation of interest, which again is seen in bad light (actually forbidden) by the Bible, and it is this greed to gain more through lending that gives rise to fractional reserve banking and later great financialisation which is so damaging to society as agelbert has alluded to. On a final note it is this need for credit expansion that eventually leads to the scenario where there is not be enough gold to service the debts. The traditional solution (as in the 1930s and 70s) was to switch from gold to fiat currencies to extend and pretend that the country is not insolvent. It is the element of greed and the need to have more that primarily drives people to fiat and the eventual madness you see today. As we all know the Bible considers greed a bad sin and warns us of its problems. We are witnessing the results of following an economic policy where greed is good. From Golden Oxen Many valid points Monsta, my reason for buying Gold, I became a Doomster in my late teens; was solely as a way to hedge against what I felt was an inevitable inflation. It worked out well for me, but as you point out there are many pitfalls along the way and many in the future to have to deal with, and it is not just related to Gold investments.  No investment is perfect and all are subject to risks both foreseen and unforeseen. Keep in mind that in all my postings about Gold, I have never claimed it to be the perfect investment. My claim is and continues to be that it is real honest money, not perfection, and that fiat is a fraud forced upon the public by crooked banksters and paid off politicians. That is one of the few things in this world that I feel sure of and sincere in presenting to others.

usgold quarter eagle 1910


merchandise futurama monopoly 10 dollar bill richard nixon

From Agelbert



The Dow Jones Industrial Average bears no resemblance to the first Dow average which was created more than 100 years ago.

Great article, GO.  :emthup: As for the Dow, what would it be like if American Cotton Oil* was still on it?  :icon_mrgreen: * I think Monsta, RE, you and myself are on the same page in agreeing that no asset class is risk free. From an INTRINSIC VALUE point of view, what would be the most perfect "standard" for a monetary system? It would have to be something really hard to manipulate; something defined scientifically with physics that could not be gamed. I put my thinking cap on and came up with the Kilowatt Hour Standard! Say what!? ??? Think about it; it's a measure of ENERGY. It takes energy to get goods to market as well as to produce them. An ounce of gold would be worth X number of kwhs (which would, in a renewable energy economy, include the cost of bioremediating the gold mine  :icon_sunny:). It would be really hard for Big Ag to say it took more kwhs to grow food this year but, if they could prove it, that woulld justify sellling for more kwhs a bushel. Big Oil would be under the same restraint. :evil6: How could the Fed print kwhs out of the clear blue sky? It couldn't (it would have to lie of course  :evil4:) . In order to get energy, it has to be transformed from matter, do not pass go, do not collect two hundred.  :icon_mrgreen: See, I just won the Nobel Prize in the Renewable energy economy of the future KILOWATT HOUR STANDARD.  ::)  :icon_mrgreen: NOBODY can deny that a KILOWATT HOUR (currently worth between 8 and 15 cents) does not have INTRINSIC VALUE. All living things need ENERGY to live.  ;D I welcome co-authors to my world changing economic thesis. I will be happy to have my friends from the diner share the Noble Nobel Prize with me.  :icon_mrgreen: Of course, I do expect ya'll to flesh it out a little with some high falluting erudite economics speak so we can impress the eggheads. Ya gotta snow em' with some supply and demand charts, projected increased market stability, prosperity and public confidence that the game ain't rigged as a GDP multiplication factor. Get to work!   :whip:    :laughing7: News Flash! Killowatt Hour Monetary Standard Takes the Financial World By Storm! New Era of comodity pricing based on bioremediation from mining to top soil repair costs for full energy production costs immune to speculation! Bernanke and Fed governors hiding in Argentina!  :icon_mrgreen:

From RE

I put my thinking cap on and came up with the Kilowatt Hour Standard!

  From RE This is analogous to the Food Calorie Unit I mentioned was used in Feudal Japan, with the Koku representing the amount of rice necessary to feed a person for a year.  Main difference is there are I think 1000 Energy Calories to an Food Calorie, this is just a terminology issue really, they are synonymous in terms of measuring Energy content. To run this system, each year you need to account for how much energy/food is produced and stored, and only have in circulation the amount of money that corresponds to that production.  This is the basis for a Resource Based Economy. The problem with using PMs for this is they tend to get Hoarded and taking them Out of Circulation in lean years is quite difficult if not impossible.  Even if there is less Food/Energy available, the PM holder still expects to buy the same amount of food with it.  Obviously he cannot, since it is just not THERE to buy, so the price in PMs starts to rise, causing inflation of the organic kind in this situation.  Anyone with few PMs gets priced out of the Food market and ends up starving. So you need money which Expires each year, and then only issue enough New Money which corresponds to the actual production of the society. This will maintain stable prices, and is the principle behind Demmurrage Money.  Problem here from the Hoarder's point of view is you can't Save any Money, it will expire at the end of the year.  Of course, you could be Taxed out of excess each year also if production is thin, that would be one means of regulating the total available currency each year. Demmurrage and RBE are not Ideal, but they do probably represent the best way to negotiate a transition off a Money based economy to a Gift Economy.  Toby and I whacked at this one at great length on Reverse Engineering. From Agelbert


The problem with using PMs for this is they tend to get Hoarded and taking them Out of Circulation in lean years is quite difficult if not impossible. Even if there is less Food/Energy available, the PM holder still expects to buy the same amount of food with it. Obviously he cannot, since it is just not THERE to buy, so the price in PMs starts to rise, causing inflation of the organic kind in this situation. Anyone with few PMs gets priced out of the Food market and ends up starving.

AHEM! Hoarding is merely one of many dynamic variables of human behavior involving supply and demand.  But, of course, if food is scare (lack of supply leading to more demand) the amount of gold or fertilizer or wampum you need to buy it will increase. It will still take the same number of kwhs to make said gold, fertilizer or wampum. The standard has not been altered by Fed cointerfeiting of a fiat, non-energy based currency.


So you need money which Expires each year, and then only issue enough New Money which corresponds to the actual production of the society. This will maintain stable prices, and is the principle behind Demmurrage Money. Problem here from the Hoarder's point of view is you can't Save any Money, it will expire at the end of the year. Of course, you could be Taxed out of excess each year also if production is thin, that would be one means of regulating the total available currency each year

. You're the Columbia brainiac, not me but it seems to me that energy cannot be created or destroyed, but only transformed from one form to another. Said various energy states possess different amounts of potential energy when you are talking about dropping rocks from a tower but here we are not talking about anything but what it takes to transform a seed to food or a mine ore vein to an ounce of gold. That COST in kwhs should remain fairly constant for the ore but will vary in the food, not from the required amount of energy, but in regard to supply and demand. IOW, a lack of supply would militate paying more kwhs for a bushel than those required to grow said bushel.


Demmurrage and RBE are not Ideal, but they do probably represent the best way to negotiate a transition off a Money based economy to a Gift Economy. Toby and I whacked at this one at great length on Reverse Engineering.

A Gift Economy is probably the most practical economy from the point of view of biosphere mimicry. When a ruminant grazes, it is both giving food in the form of urine and feces fertilizer to the grass while the grass is giving its own energy package. It's a lot more complicated than that but it remains a closed system where the up cycle MUST equate to the down cycle. Since entropy is a fact of life in our universe, we need the sun to keep goosing the cycle or we are all dead. We do the best we can to store the energy of the sun but we are only getting started in that area. The so-called "storage" of energy in hydrocarbons was always a one sided equation that didn't account for the "non-gift" of excess CO2 on the "defecation" side. Capitalism is naturally against an energy monetary standard because it is based on accumulation leading to price dictatorship, not maintaning a healthy balance. Capitalism is a hoarder's wet dream because it serves to INCREASE the purchasing power of his hoard by artificially eliminating enough supply to create added demand. :emthdown: This is the phenomenum that leads to bubbles where the hoarded item is suddenly flushed into the market and the price plumments. Supply and demand, from the wiles of nature is a normal and expected part of an energy monetary standard that would NOT produce booms and busts or bubbles. On the other hand, the capitalist hoarding and derivative speculation that produces ARTIFICIAL supply and demand is simply corruption, inefficiency and accelerated system entropy born of human greed. You will NEVER get a squirrel to hoard "too many" acorns to affect supply and demand among his fellows because he only gathers a lot when they are plentiful for all (oaks do NOT put out acorns in the same quantities every year and some years don't put out ANY acorns). In addition, the acorns will spoil eventually so a two or three year supply wouldn't help Scrooge McSquirrel to lord it over his nut loving friends.  :icon_mrgreen: This dynamic quality of a food product, as opposed to a metal or some other finished product like a stainless steel pot, is important because, as you said, you can't really "store" the energy because the food changes state and goes "bad" (not really, it's just going to another cycle point in the biosphere loop but, of course, we can't eat it so it's "value" in kwhs is "lost" to the market). I think that can be worked out and just as fruit in season costs less than fruit out of season, the "value" in kwhs would vary with the time of the year.  :emthup::icon_sunny:


Demurrage is the cost associated with owning or holding currency over a given period. It is sometimes referred to as a carrying cost of money. For commodity money such as gold, demurrage is the cost of storing and securing the gold. For paper currency, it takes the form of a periodic tax, such as a stamp tax, on currency holdings. Demurrage is sometimes cited as economically advantageous, usually in the context of complementary currency systems.


Demurrage and RBE are not Ideal, but they do probably represent the best way to negotiate a transition off a Money based economy to a Gift Economy. Toby and I whacked at this one at great length on Reverse Engineering.

Maybe, maybe not. Demurrage is just anothe COST. ALL costs associated with currencies, goods and services can be defined in terms of kwhs whereas fiat currencies in a greater degree and commodity based currencies in a lesser degree are subject to the distortions of hoarding (i.e. artificial supply and demand), counterfeiting and general greed based corruption. A standard based on kwhs, BTUs or joules wouuld also wipe out Soros type crooks that make money off of currency arbitrage speculation.  :emthup: :icon_mrgreen: Energy cannot be created or destroyed, but only transformed from one form to another. I say get an agreement from the SUN project members to a certain amount of kwhs instead of dollars and the amount will never have to be adjusted for inflation!  :icon_mrgreen: From Monsta666

AHEM! Hoarding is merely one of many dynamic variables of human behavior involving supply and demand.  But, of course, if food is scare (lack of supply leading to more demand) the amount of gold or fertilizer or wampum you need to buy it will increase. It will still take the same number of kwhs to make saif gold, fertilizer or wampum. The standard has not been altered by Fed cointerfeiting of a fiat, non=energy based currency.

The issue with hoarding is that until the saved money is spent again it has left the money supply. If enough people do not spend money then the money supply will decrease significantly. This has the effect where the price of goods will fall as there is less money in circulation relative to the normal of goods available. Once this dynamic becomes established then there will be a tendency for people to save even more in the hopes that tomorrow's price will be better (cheaper) than today. This issue of excess saving then has the issue that if money is stored and not spent in sufficient amounts on direct consumption then the incentive to provide goods (such as solar panels) will be less because there is simply less money (due to a decline of today money supply). More important still a lack of money also means less investment spending so the solar panel businesses will not build on capacity or worse yet they will defer maintenance due to a lack of investment. This is a perennial issue of PM currencies but it can easily become a problem in this future money of kWh if it is not addressed. To offer an example let us suppose we have 10,000 notes of 1 kwh tokens since the economy has an output of 10,000 kWh. On year one let us say only 9,000 of those kWh tokens were spent while all the remaining 1,000 tokens were saved for a "rainy day" (I am talking about saving on the notes not the solar energy here). The economy is still producing 10,000 kWh however but only 9,000 tokens has been spent by the individual members of society. Because of this lack of demand some of the output of the economy has not been utilised and it is this lack of demand that likely means that total energy output of the economy would drop to 9000 kWh, so it meets demand and the existing money supply of the economy. This is what is likely to happen if the saved money does not enter the economy. Furthermore as we see here a decline in energy output is likely to lead to a deterioration in the state of the economy; after all it has declined by 10% in real terms. What is significant in all this however is the fact that even if the hoarders decided to spend their money again since the size of the economy has shrank then the amount of kWh they could buy with this money would be less as you would have a situation of 10,000 kwh energy tokens chasing 9,000 kWh of real energy capacity in the economy. Therefore what 1 kWh token could buy would be less than the real amount and this inflation has been caused by a REAL scarcity of an energy resource in the economy and not because of an expansion of the money supply. If you notice the actual money supply has remained constant at 10,000 tokens. This is always the issue with saving that is rarely acknowledged as saving is generally considered a virtue by society and not a vice (unlike excessive spending). Saving and hoarding creates significant problems as it decreases the purchasing power of money and generally undermines money's ability to act as a medium of exchange. It is a very tricky issue, and I would say in an ideal world you would want money to fulfil both functions of being a medium of exchange AND a store of wealth. However if you make money easy to store then it becomes saved and this makes it harder to purchase real goods as the ease of saving will cause its purchasing power to decline; this undermines your money system from acting as a good medium of exchange. In this sort of topic you must make some compromise between what you want your money to do. Is it more important that your money acts a means of acquiring goods/services or is it more important it acts as a store of wealth? If you wish to implement solutions to hoarding such as demurrage/currency resetting etc. as RE alludes then to me this suggests that people like RE are of the opinion that money should primarily function as a medium of exchange and NOT a store of wealth. I do agree that this is what the primary function of money should be (RE is free to bite me if I have misinterpreted what he is standing for).  In any case though you need to make up your mind as to what money should really do. You cannot have it all. The traditional capitalist solution to hoarding was to offer savers/hoarders an incentive in releasing this saved money and this came about by offering interest on the money they lent out from their accumulated savings. This act of lending creates even greater problems than that of hoarding as now you have a situation where you need to generate new energy tokens to meet the obligations of paying the interest payments. If enough money in circulation is generated through loans of this nature you will get the push towards a fractional reserve system and later exotic financial products which enable people to make those interest payments with greater ease but with the ultimate cost of making the eventual currency collapse more total. This issue of saving and the subsequent lending that comes from this initial savings is the reason why the Bible is so critical over the matter of saving and the ultimate folly this behaviour induces:

Quote from: Matthew 6:19–21

Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal, but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. For where your treasure is, there your heart will be also.

In addition to the Bible saying such things I do know in Islam hoarding is frowned upon because it says excessive saving leads to a decline in purchasing power. As you see there are numerous schools of thought that advocate AGAINST hoarding and I would say this stems from the knowledge of what damage savings can do to society at large especially if that money is used to lend out to less fortunate members of society which has tended to happen on a historical basis. Two facts of human nature at work here; the need for security but taken to an excessive degree and the natural greed factor that people want something from nothing (this want of something for nothing most commonly manifests itself through interest from loans).

You're the Columbia brainiac, not me but it seems to me that energy cannot be created or destroyed, but only transformed from one form to another. Said various energy states possess different amounts of potential energy when you are talking about dropping rocks from a tower but here we are not talking about anything but what it takes to transform a seed to food or a mine ore vein to an ounce of gold. That COST in kwhs should remain fairly constant for the ore but will vary in the food, not from the required amount of energy, but in regard to supply and demand. IOW, a lack of supply would militate paying more khws for a bushel than those required to grow said bushel.

The costs may remain the same but energy output in a given economy will fluctuate naturally from year to year. In one year you may have more sunlight than normal or you had a good harvest thus the total energy output of a given economy can expand or decline. If you want a money supply to represent the real wealth of an economy then you must find some mechanism were it adjusts to these yearly changes. Easiest way to do this is for the amount of tokens available in circulation to be reset or altered to reflect the true reality of the energetic output of the given economy. The total energy produced by the overall ecosystem maybe a constant but we are only accounting for the energy used in the human economy so the tokens need to reflect this total. I believe this is the real issue here and not the amount of energy it takes to perform a given task although it can be noted the amount of energy to perform certain tasks would be dependent on the quality of resources used. For example it would take less energy to transform an ore containing 10% iron into 1 ton of solid iron than transforming a 1% ore of iron into 1 ton of solid iron. This can be extended to other fields such as farming where poor quality soils would yield less energy output than a soil of superior quality. From RE

You're the Columbia brainiac, not me but it seems to me that energy cannot be created or destroyed, but only transformed from one form to another.

Energy cannot be created or destroyed, but it can be Available or Unavailable for use by Homo Sapiens in any given year or on any given day.  Easy example is on a Sunny Day your solar PV cells will produce copious power, on a Cloudy Day, not so much.  On a Windy Day, your Windmills produce lots of power, on a still air day, ZERO.  In a wet year, your fields produce a good crop, in a drought year, not so much. Etc. If the Tokens (Money) you use for Energy are to retain a Constant Value, they have to represent the actual amount of Energy available in any given year (you obviously can't change the Money Supply on a Daily Basis depending on whether it is Windy or not).  Far as Homo Sapiens is concerned, the most important part of this is the Yearly Stored Energy in the form of the Food Harvest.  In lean years to keep the Food Price constant, you have to take Money OUT of the Basement Safes of Hoarders, otherwise they will start digging into their Hoards of Gold Coins, driving up the price of food and pricing all the non-Hoarders out of the Food Market.  Obviously, the typical Wage Earner cannot Hoard a whole lot of Gold Coins, you gotta be a Wealthy Old Hoarder to do that.  So what happens here?  Golden Oxen can buy Plenty-o-food even though it will more rapidly deplete his Hoard of Gold Coins, while WHD and LD, Strapping Young Bucks will STARVE because they never got a chance to pile up a big Hoard of Gold in the Basement Safe.  This is not overall a good Survival Strategy for a Tribe, where Old Guys get plenty-o-food while the Young Guys and their Families STARVE. The Saving Paradigm is overall disruptive to commerce, because the Saved Tokens come OUT from the Basement Safe at precisely the wrong time, when there is an overall LACK of what they are supposed to represent, which in all cases is actually some form of Energy.  As I said early on here in this particular Episode of the Debate, Money=Energy, a concept GO still has difficulty grasping but is in fact the way it has always worked, just in Da Old Days prior to Industrialization, the Energy and its transmutation into Work were done through Human (Slave) and Animal Labor mostly.  Coal & Oil and their Monopolization by a few people made them Rich Beyond All Measure, far more Wealthy than any Pharoah with thousands of Hebrew Slaves ever was.  The Money they created and issued out as Debt to access the Resource they "Owned" and Monopolized is a measure of the Available Energy in the society.  Long as Available Energy kept Increasing, they could keep issuing out more Money and meet the Debt Service required to keep them Rich in Perpetuity.  As Available Energy now DECREASES, they cannot keep issuing out more Debt on it, they simply do not have it to sell.  The cheap stuff is already wandering around in the Atmosphere as molecules of CO2.  If they do keep issuing out more of it, all that occurs is it drives up the nominal price of the Energy, and they still cannot service the Debt.  End of Game. Changing the system over to Gold won't change this dynamic, it won't put anymore Cheap Oil into the ground.  All it will do is allow Old Hoarders of Gold to buy what none of the Young Folks can afford anymore, which is Food to Live on.  The only EXIT from this is for the Young Folks to LEAVE the Oil Economy and start Growing their Own Food, and when an Old Guy comes and offers them a Gold Coin for their Food, tell him to EAT HIS GOLD:icon_mrgreen: From JDWheeler42

In this sort of topic you must make some compromise between what you want your money to do. Is it more important that your money acts a means of acquiring goods/services or is it more important it acts as a store of wealth?

In the Austrian school of economics, they make the distinction between MONEY, a store of wealth, and CURRENCY, a medium of exchange, for just that reason.  MONEY should be rare, easily recognizable, easily divisible, should not deteriorate, and should be fungible, i.e. each piece identical to every other.  (Diamonds are the classic example of something that is not fungible, the value of each is wildly dependent on its own characteristics.)  Gold does therefore make excellent MONEY.  CURRENCY, on the other hand, you want to have just the right amount circulating so that prices are stable and productivity is not limited by the supply of CURRENCY.  Gold is atrocious for CURRENCY.

Ambush on Gold Street…

Off the keyboard of Steve from Virginia

Published on Economic Undertow on April 23,2012

Discuss this article at the Gold Table inside the Diner

Events emerging from the murk of crisis bring to mind Billy Batts.

Billy who?


Murder of William “Billy Batts” Bentvena, Wikipedia (Edited)


In Nicolas Pileggi’s book ‘Wiseguy’, Henry Hill describes a 1970 “welcome home” party held at a lounge called ‘The Suite’, in Queens, NY, for William “Billy Batts” Bentvena, 49, a mid-level soldier in New York’s Gambino crime family. The Suite was a mob hangout owned by Hill, an associate of Lucchese family gangster James ‘Jimmie the Gent’ Burke, who later became notorious for the December, 1978 Lufthansa Heist of $5.8 million dollars in cash-plus valuables from JFK International Airport.Bentvena had just been released from prison after serving a six-year term for drug possession. Hill states that Bentvena saw Burke enforcer Tommy DeSimone and asked him if he still shined shoes … DeSimone took this as an insult. Hill also stated that Bentvena provoked DeSimone to impress mobsters from another crime family.Shortly afterward, intoxicated Bentvena was ambushed in the bar, pistol-whipped repeatedly and stomped by DeSimone and Burke. Believing he was dead, the three placed Bentvena’s body into the trunk of Hill’s car and removed him to rural Connecticut. During the trip — with a stop at DeSimone’s mother’s house to obtain a shovel — the three men discovered Bentvena was still alive in the trunk. Hill claims, after stabbing the wounded Bentvena ‘thirty or forty times’, Burke and DeSimone finished him off by beating him with a tire iron and the shovel. The men later buried him under a dog kennel.


There are several versions of the Batts killing, which put the beating in different bars with different resting places for Batts. While he was incarcerated, Batts’ drug- and loan-sharking operations had been taken over by Burke and his crew, Burke was loathe to give them up which was his motivation for killing Batts. In 1979, DeSimone was lured to a Gambino hideout on the pretext of ‘being made’ and summarily executed — presumably by John Gotti or Thomas Agro — for the brutal killing of Bentvena and other transgressions against the Gambino hierarchy. Bentvena was a ‘made man’ — that is, an Italian by blood who had performed at least one contract killing at the orders of the organization — as such, Batts was an untouchable to common criminals such as the psychopath DeSimone.

Like Bentvena’s, DeSimone’s body was never recovered.

Another made man? … or a man unmade? Come to your own conclusions …
GLD 041313
Figure 1: (TFC Charts), In two trading days gold is whacked: “Where’s the shine box … Bernanke?” (New York Times)


“We’ve traded gold for nearly four decades and we’ve never … ever… EVER… seen anything like what we’ve witnessed in the past two trading sessions,” Dennis Gartman, a closely followed gold investor, wrote to clients on Monday.The shift in gold’s fortunes presents a moment of reckoning for many so-called gold bugs, who had expected their financial lodestar to continue moving up in response to the Federal Reserve’s effort to stimulate the economy through bond-buying programs.

The assumption among gold bugs was that the flood of new money would cause inflation, making hard assets like gold more attractive. So far, though, there have been few signs of inflation taking root even as central banks in Japan and Europe have begun their own aggressive bond-buying programs.

“Gold has had all the reason in the world to be moving higher — but it hasn’t been able to do it,” said Matt Zeman, a metals trader at Kingsview Financial. “The situation has not deteriorated the way that a lot of people thought it could.”

The recent drop in gold prices has been partly attributed to signals from powerful members of the Fed that the central bank may begin to wind down its bond-buying programs. But the list of reasons to sell gold grows longer by the day. European politicians have indicated that Cyprus may need to sell off some of its gold holdings to pay for its bank bailout, which could lead other countries to do the same.


Selling the modest gold-holdings in marginal Euro-states — or threatening to do so — would not move the futures’ market 20% over the course of four days. If forced to sell, the Cypriots would do so carefully rather than dumping gold in such a way as to crush the price … anyone making repayment demands on Cyprus would want them to obtain a high price as well. The suggestion that other countries or large holders would senselessly dump their gold … or gold derivatives in advance of such sales … just to do so … does not make sense.

The suggestion that the price-dive is a response to economic improvement in the US and elsewhere is also complete nonsense. Economic improvement removes the immediate urgency to exit perceived-as-risky long positions. During upswings prices tend to inflate, supported by organic credit expansion and willing buyers. It is hard times and panic — deflation and credit contraction — that initiates runs out of assets, not bull markets.

A real recovery might indeed result in a decline in the gold price over time … then again it might not. Gold is a hedge against systemic risk: not always and at all times. If risk diminishes gold does not become instantly worthless. In any event, hedgers and speculators would act out of self-interest and close their positions incrementally so as to minimize loss. At no point would they simply jettison positions out of any kind of market context, losing collectively millions- or billions by doing so.

Is there a deflationary panic in gold? Possibly, as gold is an asset artificially supported by credit that is now eroding. At the same time, gold is an asset that hedges against the sort of systemic monetary risk that is the form that deflation is now taking. A ‘run’ out of gold is a run out of the lifeboat back onto the Titanic.
GLD 041913
Figure 2: Is gold a deflating ‘bubble’ … or something else? (Gold Price UK, click on for big.) Gold prices are influenced by central banks which are largest holders of the metal. Prices have increased since the early 2000′s largely because of central bank purchasing just as they were flat from 1980 to 2000 due to central bank selling. There are also other large private purchasers besides the banks.

Extraction of gold has become less profitable due to rising costs. Given further declines in profitability there will be less gold on the physical marketplace. As with petroleum, supply and demand indicates support for higher price for gold relative to other goods and services: even if the nominal price of gold declines. Unlike petroleum, gold tends to be the property of the wealthy who can afford gold at any price, persons who — unlike gasoline consumers — are unaffected adversely by price increases.

There is no indication that central bankers decided over the past weekend to dump large holdings at once, although it is possible that the banks have made large forward sales in the futures markets so as to reduce the cost of their own physical purchases. They may also have leased their gold holdings and cannot now recover them and must now bail out the bullion banks or COMEX. The strategy would be to drive ‘gold bulls’ from the marketplace allowing the banks to obtain the needed gold at an affordable price. If this is so the central bankers have outwitted themselves as physical sellers are not selling at the low futures’ price or are inundated with bargain hunters who are crowding aside the banks.

Central bank fundamentals have not changed since 2009: banks are expanding their balance sheets and taking on more dubious assets as collateral … edging toward insolvency as a result. They have become the world’s credit providers of last resort. Direct purchase of gold by the banks is not to be confused with liquidity provision or bond ‘purchases’. In a world filled with dubious- and redundant abstract claims gold is not an asset, rather it is a natural resource and as such, capital.

The finance shills paint a picture of marketplaces (re)acting rationally and impartially: the ‘Invisible Hand’ at work. Look instead to the tire-iron-to-the-head beat-downs of the mafia crews … to the economic high-jackings in Spain, to the bludgeoning of Cyprus, of Greece, Ireland, … to the theft-without-end in China, the ‘Flash Crashes’ on Wall Street, the Libor manipulation, the in-your-face MF Global heist, Morgan’s ‘London Whale’, Bruno Iksil … The flash crash in gold is more of the same, another finance crime.

Where’s the shine box, Columbia University professor Jeffery Sachs, Director of the Earth Institute? (HT: Jesse’s Café Américain).

I believe we have a crisis of values that is extremely deep, because the regulations and the legal structured need reform. But I meet a lot of these people on Wall Street on a regular basis right now. I’m going to put it very bluntly. I regard the moral environment as pathological. And I’m talking about the human interactions that I have. I’ve not seen anything like this, not felt it so palpably.These people are out to make billions of dollars and nothing should stop them from that. They have no responsibility to pay taxes, they have no responsibility to their clients, they have no responsibility to people… counterparties in transactions. They are tough, greedy, aggressive, and feel absolutely out of control, in a quite literal sense. And they have gamed the system to a remarkable extent and they have a docile president, a docile White House and a docile regulatory system that absolutely can’t find its voice. It’s terrified of these companies.

If you look at the campaign contributions, which I happened to do yesterday for another purpose, the financial markets are the number one campaign contributors in the U.S. system now. We have a corrupt politics to the core, I’m afraid to say… both parties are up to their necks in this.

… But what it’s led to is this sense of impunity that is really stunning and you feel it on the individual level right now. And it’s very very unhealthy, I have waited for four years… five years now to see one figure on Wall Street speak in a moral language. And I’ve have not seen it once. And that is shocking to me. And if they won’t, I’ve waited for a judge, for our president, for somebody, and it hasn’t happened. And by the way it’s not gonna happen any time soon, it seems.


Where’s the shine-box Nigel Farage? As the rotting enterprise of industrial modernism sinks beneath the waves nothing remains but pillage … The fact that the thefts are blatant and that the establishment makes no excuses … speaks voluminously for itself:

There is no difference between how the Establishment manage their affairs and the wiseguys …

Paulie is Paul Vario, a capo in the Lucchese crime family associated with James Burke and Henry Hill. Vario controlled activities in and around JFK International Airport in the 1960s and 70s, activities included truck hijackings, cargo thefts and extortion. Vario’s crew also controlled gambling, drug trafficking, business shakedowns, loan-sharking, embezzlement and other crimes in the Brownsville-East New York area of Brooklyn and the Ozone Park/Howard Beach area of Queens.

In the clip, Vario becomes a silent partner of a restauranteur (Greece) in exchange for a favor (bailout): his crew (Troika) strips it of every worthwhile asset then burns what’s left for the insurance.


Assets are sold out the back door … “Paulie can do anything … especially run-up bills on the joint’s credit. And why not? Nobody’s going to pay for it anyway! and soon as deliveries are made in the front door, you move the stuff out the back and sell it at a discount. You take a $200 case of booze (a hotel in Athens) and sell it for a hundred. It doesn’t matter … it’s all profit!And then, finally … when there’s nothing left … he can’t borrow another buck from the bank or buy another case of booze … you bust the joint out … you light a match.”


This is how the ‘partnership’ works when expanded to the national scale, when the Troika uses Greece to pillage Cyprus and vice-versa, (John Ward):


‘On 10 December 2009, Mr Kypri [the Chairman of the Bank of Cyprus] informed the market that BoC had sold €1.7 billion of GGBS [Greek government bonds], stating that from the beginning of the year, the Bank had decreased its exposure of GGBs to €o.1 billion. On 10 December 2009 (ie, the same day), BoC began repurchasing GGBs, with a rapid increase in the Bank’s GGB portfolio to almost €2.4 billion by June 2010.’

Clearly Yiannis Kypri, he being not entirely dumb, lied to the markets in order to avoid a run-panic about buying Greek bonds. The big unknown here is WTF he bought them in the first place.


Ask Paulie!


Two separate sources have told me over the last three months that Kypri was ordered to support Greece by person or persons as yet unsubstantiated. That belief is widespread among the business community here in Athens. As he had nothing personal to gain from this insanity, I can only conclude the sources are probably right. It might have been Venizelos, might have been Lagarde, might have been Schäuble, and probably was Trichet. But whatever: as a result of this patriotic hari-kiri, BoC lost just shy of a billion euros in the lender subordination later ordered by your friend and mine, Mario Draghi.Within a short period of time after the Berlin-am-Brussels smash-and-grab raid on Nicosia, the Troika “terminated the services” of Kypri as well as the board of directors at the Bank of Cyprus, the country’s largest lender. The report cited sources who said the action is “necessary” due to the legislation approved by Cypriot lawmakers to restructure the country’s financial sector by having the Bank of Cyprus absorb the “good” assets of Laiki Popular Bank. These assets would not, however, have needed good ones without the forced purchase of Greek bonds in the first place.


The outcome of the process is the same, everywhere: survivors searching through the debris, looking for something to eat (Ward in Greece):


Today, in April 2013, everything in Greece is for sale. Two days ago a small girl – aged no more than ten I would estimate – came up to me, playing her violin in a main market thoroughfare close to the Acropolis. She wasn’t much of a violinist, but after finishing the piece, she said something to me … and of course, I didn’t understand. A man watching nearby, resigned of expression, said “She is saying she costs very little for your pleasure”.I gave the kid a small coin and asked the bloke if this was commonplace. “Not common,” he replied, “but not rare either. These bastards will reduce us to an animal state”. I wanted to ask him more, but he waved me away. I don’t blame him; imagine how I’d feel in my own country, being asked by a passing Swede if all English prepubescent kids now whored on the streets.

In a Telegraph piece posted last night from Rhodes by Harriet Alexander, she notes that a Mr. George Georgas told her, “We are like a bankrupt housewife forced to sell the silver, to save the family,” he said. “Greece has no choice.” On the island of Rhodes, the 1,850-hectare Afandou estate, on the peninsula of Prasonisi – a paradise for windsurfers – is up for grabs … and grab (as in land) is the operative word.

Antonis Samaras the Greek Prime Minister knows only too well that flogging off bits of Greece is vital in order for his country to get the lifeline monies from the Troika. These monies, of course, zoom from an escrow account straight into the copious pockets of various lending institutions anything up to 9000 miles from Athens. The Greek people – his electorate – are left manage on their own. The ‘Government’ headed by Samaras offers them less and less help while demanding more and more of their money.


It is becoming clear that the sure way to succeed in post-petroleum world is not to become an organic farmer or an artisan but to become a criminal. The opportunities are without end. By doing so one takes the side of one’s betters who are also criminals: the bankers, the ‘leadership cadres’ and ‘business managers’, the public economists and the other rationalizers. What is there to lose?

Instead of putting in cabbage, backyard chickens and goat cheese, far better to put in some machine guns, dope, ‘rigged’ gaming tables and truckloads of cigarettes; use some of the proceeds to pay off the police. Burglarize houses, steal cars and money, sell the loot in your own black market offering a share to the more powerful crooks. In a society that offers diminished opportunities … to be a slave and to give thanks for the chance to be one … criminality offers a harsh and uncertain path to self-determination and dignity … but a path, nevertheless.

Being a criminal also offers to become notorious and immortal thereby: here is fashionable determinism run to its logical conclusion, the unnatural war of all against all, with the Pyrrhic winner taking everything that remains … of the pile of corpses … of a world that has been destroyed.

The Future of Money

Off the keyboard of RE

Published April-May, 2010 on Reverse Engineering

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.


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.


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: And there are two posts on MMT at my blog:
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.

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

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.


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: 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

Gold Crash + Oil Crash = Recession

Off the keyboard of Michael Snyder

Published on Economic Collapse on  April 17, 2013

Discuss this article at the Economics Table inside the Diner

History Tells Us That A Gold Crash + An Oil Crash = Guaranteed RecessionIs the United States about to experience another major economic downturn?  Unfortunately, the pattern that is emerging right now is exactly the kind of pattern that you would expect to see just before a major stock market crash and a deep recession.  History tells us that when the price of gold crashes, a recession almost always follows.  History also tells us that when the price of oil crashes, a recession almost always follows.  When both of those things happen, a significant economic downturn is virtually guaranteed.  Just remember what happened back in 2008.  Gold and oil both started falling rapidly in July, and in the fall we experienced the worst financial crisis that the U.S. had seen since the days of the Great Depression.  Well, a similar pattern seems to be happening again.  The price of gold has already crashed, and the price of a barrel of WTI crude oil has dropped to $86.37 as I write this.  If the price of oil dips below $80 a barrel and stays there, that will be a major red flag.  Meanwhile, we have just seen volatility return to the financial markets in a big way.  When volatility starts to spike, that is usually a clear sign that stocks are about to go down substantially.  So buckle your seatbelts – it looks like things are about to get very, very interesting.

Posted below is a chart that shows what has happened to the price of gold since the late 1960s.  As you will notice, whenever the price of gold rises dramatically and then crashes, a recession usually follows.  It happened in 1980, it happened in 2008, and it is happening again…

The Price Of Gold

A similar pattern emerges when we look at the price of oil.  During each of the last three recessions we have seen a rapid rise in the price of oil followed by a rapid decline in the price of oil…

The Price Of Oil

That is why what is starting to happen to the price of oil is so alarming.  On Wednesday, Reuters ran a story with the following headline: “Crude Routed Anew on Relentless Demand Worries“.  The price of oil has not “crashed” yet, but it is definitely starting to slip.

As you can see from the chart above, the price of oil has tested the $80 level a couple of times in the past few years.  If we get below that resistance and stay there, that will be a clear sign that trouble is ahead.

However, there is always the possibility that the recent “crash” in the price of gold might be a false signal because there is a tremendous amount of evidence emerging that it was an orchestrated event.  An absolutely outstanding article by Chris Martenson explained how the big banks had been setting up this “crash” for months…

In February, Credit Suisse ‘predicted’ that the gold market had peaked, SocGen said the end of the gold era was upon us, and recently Goldman Sachs told everyone to short the metal.

While that’s somewhat interesting, you should first know that the largest bullion banks had amassed huge short positions in precious metals by January.

The CFTC rather coyly refers to the bullion banks simply as ‘large traders,’ but everyone knows that these are the bullion banks.  What we are seeing in that chart is that out of a range of commodities, the precious metals were the most heavily shorted, by far.

So the timeline here is easy to follow.  The bullion banks:

  1. Amass a huge short position early in the game
  2. Begin telling everyone to go short (wink, wink) to get things moving along in the right direction by sowing doubt in the minds of the longs
  3. Begin testing the late night markets for depth by initiating mini raids (that also serve to let experienced traders know that there’s an elephant or two in the room)
  4. Wait for the right moment and then open the floodgates to dump such an overwhelming amount of paper gold and silver into the market that lower prices are the only possible result
  5. Close their positions for massive gains and then act as if they had made a really prescient market call
  6. Await their big bonus checks and wash, rinse, repeat at a later date

While I am almost 100% certain that any decent investigation by the CFTC would reveal that market manipulating ‘dumping’ was happening, I am equally certain that no such investigation will occur.  That’s because the point of such a maneuver by the bullion banks is designed to transfer as much wealth from ‘out there’ and towards the center, and the CFTC is there to protect the center’s ‘right’ to do exactly that.

You can read the rest of that article right here.

There are also rumors that George Soros was involved in driving down the price of gold.  The following is an excerpt from a recent article by “The Reformed Broker” Joshua Brown

And over the last week or so, the one rumor I keep hearing from different hedge fund people is that George Soros is currently massively short gold and that he’s making an absolute killing.

Once again, I have no way of knowing if this is true or false.

But enough people are saying it that I thought it worthwhile to at least mention.

And to me, it would make perfect sense:

1. Soros is a macro investor, this is THE macro trade of the year so far (okay, maybe Japan 1, short gold 2)

2. Soros is well-known for numerous market aphorisms and neologisms, one of my faves being “When I see a bubble, I invest.”  He was heavily long gold for a time and had done well while simultaneously referring to it publicly as a speculative bubble.

3. He recently reported that he had pretty much exited the trade in gold back in February. In his Q4 filing a few weeks ago, we found out that he had sold down his GLD position by about 55% as of the end of 2012 and had just 600,000 shares remaining. That was the “smartest guy in the room” locking in a profit after a 12 year bull market.

4. Soros also hired away one of the most talented technical analysts out there, John Roque, upon the collapse of Roque’s previous employer, broker-dealer WJB Capital. No one has heard from the formerly media-available Roque since but we can only assume that – as a technician – the very obvious breakdown of gold’s long-term trend was at least discussed. And how else does one trade gold if not by using technicals (supply/demand) – what else is there? Cash flow? Book value?

5. Lastly, the last public interview given by George Soros was to the South China Morning Post on April 4th. He does not mention any trading he’s doing in gold but he does reveal his thoughts on it having been “destroyed as a safe haven”

It is also important to keep in mind that this “crash” in the price of “paper gold” had absolutely nothing to do with the demand for physical gold and silver in the real world.  In fact, precious metals retailers have been reporting that they have been selling an “astounding volume” of gold and silver this week.

But that isn’t keeping many in the mainstream media from “dancing on the grave” of gold and silver.

For example, New York Times journalist Paul Krugman seems absolutely ecstatic that gold has crashed.  He seems to think that this “crash” is vindication for everything that he has been saying the past couple of years.

In an article entitled “EVERYONE Should Be Thrilled By The Gold Crash“, Business Insider declared that all of us should be really glad that gold has crashed because according to them it is a sign that the economy is getting better and that faith in the financial system has been restored.

Dan Fitzpatrick, the president of, recently told CNBC that people are “flying out of gold” and “getting into equities”…

“There have been so many reasons, and there remain so many reasons to be in gold,” Fitzpatrick said, noting currency debasement and the fear of inflation. “But the chart is telling you that none of that is happening. Because of that, you’re going to see people just flying out of gold. There’s just no reason to be in it.Traders are scaling out of gold and getting into equities.”

Personally, I feel so sorry for those that are putting their money in the stock market right now.  They are getting in just in time for the crash.

As CNBC recently noted, a very ominous “head and shoulders pattern” for the S&P 500 is emerging right now…

A scary head-and-shoulders pattern could be building in the S&P 500, and this negative chart formation would be created if the market stalls just above current levels.

“It’s developing and it’s developing fast,” said Scott Redler of on Wednesday morning.

Even worse, volatility has returned to Wall Street in a huge way.  This is usually a sign that a significant downturn is on the way…

Call options buying recently hit a three-year high for the CBOE’s Volatility Index, a popular measure of market fear that usually moves in the opposite direction of the Standard & Poor’s 500 stock index.

A call buy, which gives the owner the option to purchase the security at a certain price, implies a belief that the VIX is likely to go higher, which usually is an ominous sign for stocks.

“We saw a huge spike in call buying on the VIX, the most in a while,” said Ryan Detrick, senior analyst at Schaeffer’s Investment Research. “That’s not what you want to hear (because it usually happens) right before a big pullback.”

The last time call options activity hit this level, on Jan. 13, 2010, it preceded a 9 percent stock market drop that happened over just four weeks, triggered in large part by worries over the ongoing European debt crisis.

And according to Richard Russell, the “smart money” has already been very busy dumping consumer stocks…

What do billionaires Warren Buffet, John Paulson, and George Soros know that you and I don’t know? I don’t have the answer, but I do know what these billionaires are doing. They, all three, are selling consumer-oriented stocks. Buffett has been a cheerleader for US stocks all along.

But in the latest filing, Buffett has been drastically cutting back on his exposure to consumer stocks. Berkshire sold roughly 19 million shares of Johnson and Johnson. Berkshire has reduced his overall stake in consumer product stocks by 21%, including Kraft and Procter and Gamble. He has also cleared out his entire position in Intel. He has sold 10,000 shares of GM and 597,000 shares of IBM.

Fellow billionaire John Paulson dumped 14 million shares of JP Morgan and dumped his entire position in Family Dollar and consumer goods maker Sara Lee. To wrap up the trio of billionaires, George Soros sold nearly all his bank stocks including JP Morgan, Citigroup and Goldman Sachs. So I don’t know exactly what the billionaires are thinking, but I do see what they’re doing — they are avoiding consumer stocks and building up cash.

… the billionaires are thinking that consumption is heading down and that America’s consumers are close to going on strike.

So what are all of those billionaires preparing for?

What do they know that we don’t know?

I don’t know about you, but when I start putting all of the pieces that I have just discussed together, it paints a rather ominous picture for the months ahead.

At some point, there will be another major stock market crash.  When it happens, we will likely see even worse chaos than we saw back in 2008.  Major financial institutions will fail, the credit markets will freeze up, economic activity will grind to a standstill and millions of Americans will lose their jobs.

I sincerely hope that we still have at least a few more months before that happens.  But right now things are moving very rapidly and it is becoming increasingly clear that time is running out.

Time Is Running Out

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.



Gold, Greed & Global Collapse

Off the keyboard of John Ward

Published on The Slog on April 13, 2013

Discuss this article at the Economics Table inside the Diner

GOLD, GREED & GLOBAL COLLAPSE: who benefitted most from yesterday’s spectacular fall


What you see above isn’t just the tale of a horrendous day for gold – it fell $88, or just over 4%, in a day – it is the record of a fall that steepened the minute New York opened, twice tried (and failed) to rally, and yet managed to do all this on a day when the vast majority of fundamentals should’ve been pushing the price up, not down.

The one exception to this was the Troika demand on Thursday that Cyprus sell its gold to help pay off debt. I have two observations to make about that: one, why do that to Cyprus now and not to anyone else before? And two, on paper it didn’t look like the sort of volume to start a gold freefall.

This is a murky business, so we need to consider it from all sensible angles.

The fundamentals

The US is degrading and diluting its currency, the UK’s austerity strategy is falling apart, the EU economy is flatlining, and Russia is massively overdependent on energy sales in a world where the outlook for energy consumption is awful: indeed, only the coldest european Spring for decades has enabled it to maintain any kind of momentum.

China’s slowdown now looks inevitable given the atrocious consumption outlook outside its borders, and US economic nerves tightened yesterday when the IMF cut its growth forecast for the year from 2% to 1.7%, alongside official figures confirming a 0.4% slump in retail sales in March – the biggest fall since last July. Factory output in the EU declined, and the north-south imbalance worsened as Slovenia edged towards the centre of the debt radar. Italy’s output fell by a disastrous 8%, and Portugal’s constitutional Court has rejected the Troika’s bailout plan. 41% of Germans no longer believe their banked money is safe.

The myth of Obama’s ‘recovery’ long ridiculed here is now clearly seen for the lie it was. The Cyprus ‘bailin’ has caused massive leakage of capital from the eurozone. The Troika’s Athens talks are acrimonious and stalled.

Every last indicator last week suggested a turning tide for gold as a hedge against currency devaluation, and as an asset which – even if it fell in value medium term – would be better than worthless paper. But that wasn’t the market mood, and it wasn’t what happened. To call that strange is like referring to the Krakatoa eruption as a small bang: worldwide gold demand in 2012 was another record high of $236.4 billion in the World Gold Council’s latest report. This was up 6% in value terms in the fourth quarter to $66.2 billion – the highest fourth quarter ever and real volume demand in the fourth quarter of 2012 was up 4% to 1,195.9 tonnes.

So who were the suspects behind what, I’m fairly sure this morning, was a massive fix?

The manipulation clues

The central banks bought gold at a rate ahead of market growth last year – which means their share of it grew.

Central bank buying for 2012 rose by 17% over 2011 to some 534.6 tonnes – the highest level since 1964. Central bank purchases stood at 145 tonnes in the fourth quarter – up 9% from the comparable period in 2011. Central banks have now been net purchasers of gold for eight consecutive quarters. This despite the non-stop stream of CB spin about there being no money-printing or inflation to get concerned about. Fancy that.

Did anything else make sense of this strategic decision by the Draghulas? Spookily enough it did. Last year, Basel III moved the goalposts on gold’s risk score, moving gold from tier 3 to quasi tier 1 status. Gold thus became “zero percent risk-weighted” in terms of credit risk – a whopping upgrade for the shiny metal. But to buy lots of it (and thus reduce risk-panic among investors) one needs the price to go down.

And guess what? Despite that massive Central Bank buying splurge since late 2010, gold has hovered and wobbled, been weak in its challenging of top prices – and persistent in challenging lows. Or put another way, the exact opposite of what the first rule of Supply and Demand dictates. My oh my.

The Guardian this morning ran a truly daft piece saying that ‘gold fell to its lowest level in more than 18 months on Friday night amid fears that sales of the precious metal forced on Cyprus by its desperate financial plight would lead to wholesale dumping by hard-pressed countries in the coming months’. Pardon me Gruauniad, but “Bollocks”. The sum total of Cypriot selling required is €400m tops. That is a flea-bite on the ankle of the gold sector.

More pertinent, perhaps, is that the Cyprus sale (1) enabled the CBs to buy still more of it, and (2) provides an excuse for the price fall that naifs might accept at face value.

Other potential culprits are also implicated. During January 2013, the COMEX gold futures platform pushed expectations for the price up by 8.3%. One wonders who pushed it in that direction, and why. What’s more, over the last 90 days without any announcement, stocks of gold held at Comex warehouses plunged by the largest figure ever on record. JP Morgan Chase’s reported gold stockpile dropped by over 1.2 million ouncesa staggering $1.8 billion dollars worth of physical gold in just 120 days. The owners involved took their metal offsite, and it’s no longer stored in Comex warehouses…did they do so from a lack of trust? Or did they know something we didn’t?

Then there’s the chance that the Fed itself was trying to reduce its cost of returning gold:  Germany’s Bundesbank recently announced it would be moving a major portion of its reserves from the US and all of its reserves from France back to Frankfurt. Nearly half of Germany’s gold reserves are held in a vault at the Federal Reserve Bank of New York. Nice way to reduce loss of face on safe assets if you work for Washington.

Is there a bottom line here?

There is, but I don’t think one can see the exact nature of it just yet. What seems to me clear, however, is that this was a fix….and Cyprus was a cover story for it, not the reason why.

On balance, it feels to me like some leaking, some massaging, and some reduction in the cost of global looting. But whatever: next week is indeed going to be interesting.


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.


The Golden Blind Spot

Off the keyboard of Monsta666

Discuss this article at the Economics Table inside the Diner

It is often said by people who support gold backed currencies that the chief weakness of fiat currencies is it encourages governments and central banks to issue excess amounts of money/credit. While this fact is true it would be a mistake to think this is the main reason why currency devaluation occurs. This is because the issues of overleveraging are primarily problems that stem from the private sector as most money generated in the economy comes from COMMERICAL banking and NOT central banking. In fact depending on sources or the countries in question the amount of money/loans generated as a result of fractional reserve system can be 97% or perhaps even higher if one includes other complex financial instruments such as derivatives in the total money supply.

This excessive money creation can lead to catastrophic results to the national currency if no measures are taken to limit this over expenditure. This over expenditure is present in all monetary systems both fiat and gold based currencies because each system operates with a fractional reserve system. The fiat currency maybe marginally worse because the central banks can encourage even more overleveraging as none of the new money issued by the central bank is bound by gold reserve requirements. This component of money creation only constitutes a small part of total money creation however despite assertions you may hear from Ben Bernanke.

Still, despite this relative small amount of money generated through QE or simple naked money printing this form of money creation can lead to some significant results. As this new money is issued it will enter the commercial banks and due to the process of fractional reserve banking this money can be multiplied creating further inflation in either the real economy or various asset classes such as houses or stocks. In fact this process is called the money multiplier effect in Monetary economics and this is one reason why this practice is promoted by Keynesian economists who wish the governments to issue some money as this printed money will be multiplied by banks by loaning this money out to its customers. Problem is, in this current recession many banks instead of lending have hoarded this money since there are no real returns on investments that can be made from these loans. Instead most of that money is gambled in the biggest casino in the world which is the stock/bond market and since there is quite a lot of excess money floating around this excess cash has the tendency of generating bubbles with overvaluations in stocks such as Facepalm.

But let us go back to the topic at hand which is the issue of currency devaluation. This process has occurred many times in the past even during the eras when countries followed the gold standard which we should note: is a point often forgotten by many people advocating a return to the gold standard. It should be remembered that the US suffered numerous financial crises in the 19th century when it did follow the gold standard, the most notable being the 1873-1879 Long Depression. Indeed this depression was known as the Great Depression until this event was supplanted by the Great Depression of the 1930s. All of which occurred during an era when all the major currencies of the world followed the gold standard.

The causes of this Long Depression are – like the great depression of the 1930s – are still debated among economists but the general problems would appear to share striking similarities. Like the 1930s depression the Long Depression came at a time shortly after a major war, increasing globalisation and most important of all excessive credit creation by the commercial banks. In the case of the Long Depression this was the American Civil War while the Great Depression had World War 1. Such wars meant that the central governments issued an excessive amount of credit to fund the war effort and this excessive spending came despite the fact the gold standard places heavy penalties on countries that do not practice fiscal restraint. This scenario of excessive credit creation coming through war would then spur further credit creation once the main commercial banks got hold off this money. In fact the money created by those banks would be a multiple of the amount of money the government printed. In any case, these wars times should be noted for the fact it is one of the few instances where governments are prepared to risk mortally damaging their currency by money creation. We need to remember they are creating money on two levels: one by direct money printing or QE and then the subsequent process of this money being multiplied by the commercial banks. This behaviour of excessive spending under this circumstance can apply to whatever monetary system is applied be it gold or fiat based currency system. This excess spending and subsequent credit expansion by commercial banks also result in the formation of various bubbles.

To say the Long Depression was caused by excessive war spending would not tell the whole story however. To not mention the next point would be to neglect raising another commonality between the two eras. That is, the immediate period after the civil war was a boom period for the US economy (which again is repeated in the roaring 1920s). This boom in both cases occurred because of an expansion in the money supply. In the case of the 1860s this money expansion came about due to the government and major private companies investing heavily in railroads. Much of those railroads were financed by loans, bonds and subsidies which in many cases were backed by the US government. These cheap loans created overinvestment in the industry and eventually lead to a bubble forming (or overcapacity). As it became clear many of these rail companies could never pay back their loans this caused many banks to fail which eventually culminated with the failure of the major banks of Jay Cooke and Henry Clews which brought the financial sector to its knees. The resulting recession would last six years and growth was below normal until after the 1890s.

Again this period of recession and sluggish growth shares a similar similarity to the Great Depression. So why bring up the point of the Long Depression and Great Depression? I think the point to take from all these events is that despite being on the gold standard (in the case of the 1870s the gold and silver standard) banks and corporations found ways of overleveraging the monetary system and the main method was by employing the system of fractional reserve banking. When those loans could not be paid back it resulted in large scale defaults which almost caused the destruction of the financial system. Now it can be argued that since a fiat currency encourages more spending (as currency is no longer bound by reserves of gold) then the magnitude of the problem will be that much greater so the level of defaults required to bring the system into balance would be greater but then the argument becomes one of a matter of degree.

The main issue I see with the gold standard – despite assertions to the contrary – is it is not immune to reckless spending. Reckless spending can come through poor lending practices and these practices have a particular tendency of loosening during WAR TIMES and BOOM TIMES. In the case of war the risk of financial collapse is acceptable to fight the war while in the case of boom times the perception of risk becomes distorted so market participants take out excessive loans thinking the risk of failure is lower than reality. This human behaviour must be accounted for when suggestions of moving to a gold standard system are ushered.

If one wants to assure there is no risk of financial mismanagement then one needs to get at the root of the problem and that is one of leverage. Every major currency in existence today follows a debt based fiat currency system with many of the commercial banks operating with a fractional reserve system. This system of fractional reserve banking is not well understood by most members of the public but most of the loans/money generated through the system comes about through here. This point is important as it is the leveraging that ultimately causes the instability in the monetary system NOT whether the currency is backed by gold or promises (as is the case in fiat).

To gain a good idea how a fractional reserve works it is best to find out how the system started in the first place. That way we can learn it simply and not be baffled and confused with all the mumbo jumbo that some smarty pants will put in front of us to confuse us. All these terms and convoluted descriptions are just smoke and mirrors to make the public feel intimidated and not ask further questions about the fraud being committed right in front of their eyes. Notice how no one actually teaches how monetary systems actually operate in school? Anyways, I digress and let us focus on the topic at hand.

The fractional reserve system originally came about when early bankers would help store pieces of gold bullion for various customers. To make transfers more convenient the early banks would issue notes which allowed the customer to redeem their gold. This meant people did not have to travel back and forth with gold bars which was a major drag (literally) not to mention quite dangerous. After sometime however the banks realised that customers would only trade these notes instead of exchanging gold directly. In fact those notes became a form of ad-hoc currency and it became apparent that the more notes that were issued the more money would be generated which meant more profit to the banks. So the banks began the path to the dark side by issuing more notes than they held in gold reserves. Thus it was the beginning of the fractional reserve banking and as the name implies, the banks only hold a fraction of the total deposits in reserves.

Once the banks had found that most people did not take out money or gold from their deposits creating excessive notes posed no real risk of them being found out or going bankrupt. However this practice did lead to the issuing of more money which while fraudulent benefited the upper class massively as it allowed them greater means to spend, invest – and most important – lend money to various major public projects. It should be remembered that most major public projects cannot pay for themselves and such projects can only be financed through debt. To see more information on this matter please refer to the three part Large Public Work series.

These extra loans also had the effect of extracting more wealth from its subjects via interest payments from the extra loans generated from this operation. As a result even though this form of fraud became known to the government it was not outlawed. Instead laws were made to limit the amount of risk such practices posed to the overall financial system. From this point onward the financial system developed extra complexity but on a fundamental level they all operate on the same premise. To many this is really a legalised system of fraud and one wonders how the general population would behave if it learnt the truth of the matter and how money really works. It is this fact why all banks are vulnerable to a bank runs because if people run to the banks in mass to collect their deposits the bank would soon become bankrupt due to lack of reserves.

In light of these facts if one wishes for stability then one needs to confront the fractional reserve system. If a person does wishes for total stability then the reserves must equal 100% of the currency available. Any leverage will create some instability and the more leveraged it becomes the greater the resulting instability. It should be noted however that the fractional reserve system – despite its obvious flaws and shortcomings – has one big advantage. This method of generating excess cash has a great effect in delivering growth for the general economy which was a great BOON to an ever expanding industrial economy. In fact if one looks at the term capitalism the main objective of this system is to acquire capital. This can be through actual assets or cash and since fractional reserve banking delivers on this objective one can see why it is so prevalent in modern economic systems. However as noted by many others this growth cannot go on indefinitely and in a contracting economy excessive credit creation can quickly become a bane to society. In fact one can easily say a fractional reserve system would not be fit for purpose for an economy that is continually contracting. In fact it would be catastrophic.

Still, one should not forget that this system must be removed if one wishes for future stability. What needs to be understood however is if one does wish for complete stability with full fractional reserve banking then one must confront several problems most of which are considerable; by moving from a fractional based reserve system to a fully backed reserved system it would mean a large percentage of the total money supply be removed or large amounts of new capital must be acquired. To take the former option of money/credit destruction would mean a massive almost total deflationary event.  In other words, all current assets would lose nearly all their value. In addition since all existing loans will still remain the same in nominal terms then a massive deflationary event will mean the value of those outstanding loans would rise massively in real terms leading to large scale defaults which would create further havoc on an already overstrained system. These defaults, which are likely to be considerable, if not total, would reduce the money supply further still. In short this solution could not provide an acceptable method of returning to a fully backed reserve system.

The other option highlighted in the paragraph above is to increase the amount of capital or reserves in the system. The easiest way of achieving this feat would be through some means of issuing non-debt based money which would basically amount to a form of debt jubilee. This process of money generation would however, if left unrestrained, lead to massive inflation as a large amount of money would be spent on non-essential purchases. Even if laws were put in place to force consumers to pay back all existing debts before the money could be used for other activities it would result in a large scale deflation event as a lot of the existing debt based money is wiped from the system. This solution however would not result in larger scale defaults mentioned earlier as those debts would be expunged from the system.  It should be noted that such a move would directly harm the banks as they would lose nearly all their assets and as such they could be forced into bankruptcy. Furthermore the other biggest losers would be the financial elite who hold most of the world assets. Since these people and organisations have the most influence in this current system it seems fanciful they would implement a plan that damages their interests the most. This solution has numerous proponents most notably economist Steve Keen (see 19:00 of the video).

For this solution to have a lasting effect however it would need to put a full reserve banking system in place after the debt jubilee is issued otherwise the system will fall into the same problems of excessive debt.

If such a system of full reserve banking were developed it would then lead to another problem which is a lack of growth of debt that is required for modern banking to operate. Without debt accumulation it is hard to see how banks could generate sufficient profits to remain viable. If banks do not possess the ability to create money through loans then the only income they could derive would be from service charges from holding deposits. The other possibility would be to use those existing deposits for lending to businesses and corporations who would then pay the banks with interest through means of expansion. However such a system could not operate unless there is an expansion of the money supply by a central bank or by the banking sectors growing at the expense of other industries. In any case such a system would sacrifice much growth and could still face some potential dangers in currency devaluation.

It would seem that while a transition to a more sound system is favourable it cannot realistically occur until there is a large-scale reduction in the existing money supply, loss of capital by some other means or large scale debt jubilees of which the outcome is unlikely to come and even if implemented will lead to large scale bankruptcies and possible supply-chain contagion as result of this.

One also needs to consider the possibility of a society that can be happy with a non-growth economy which would be basically be enforced by applying a full reserve banking system. This question needs to be considered under the light of growing populations and the three desires of greed, power and competitive nature of man. What are the chances some expansionary monetary system will be devised to cater to such basic desires and realities facing man in the future?

The Running Game

Off the Keyboard of Steve from Virginia

Published originally on Economic Undertow on September 6th, 2012


– Unknown cinematographer ‘Titanic Scene’ (Paramount/20th Century Fox)


The ‘question du jour’ is — and has been for awhile — ‘when’?

‘When’ is the dam going to burst? ‘When’ will the coyote hanging in mid-air fall? ‘When’ is the decrepit status quo going to collapse?

‘When’ is so … yesterday! Coyotes have been dropping for five years. The process has been satisfactorily papered over to a large extent. Managers have learned a lot about crisis management since 1929 and 1973 and 1987. When there are difficulties the managers know to run out the shills. The public — and markets — are credulous. They want to believe. Nobody wants a Greater Depression and will do whatever is possible to avoid one.

There was no television in 1929. There was no Internet in 1973 or ’87. With modern media there are unlimited distractions that can be offered at near zero-cost. In order to divine reality one has to look for irretrievable actions on the part of managers themselves: you have to follow the running feet.

Here is some distraction right here:


Building the Next China

Stephen S. Roach (Caixin)

Concerns about the country’s economic situation are overblown and ignore a significant fact: urbanization will be the next engine of growth.

But the hype of the pessimists overlooks one of the most important drivers of China’s modernization: the greatest urbanization story the world has ever seen. In 2011, the urban share of the Chinese population surpassed 50 percent for the first time, reaching 51.3 percent, compared to less than 20 percent in 1980. Moreover, according to projections by the Organization for Economic Cooperation and Development, China’s already burgeoning urban population should expand by more than 300 million by 2030 – an increment almost equal to the current population of the United States. With rural-to-urban migration averaging 15 to 20 million people per year, today’s so-called ghost cities quickly become tomorrow’s thriving metropolitan areas.

Shanghai Pudong is the classic example of how an “empty” urban construction project in the late 1990′s quickly became a fully occupied urban center, with a population today of roughly 5.5 million. A study by international management consulting firm McKinsey & Co. estimates that by 2025 China will have more than 220 cities with populations in excess of one million, versus 125 in 2010, and that 23 mega cities will have a population of at least five million.

China cannot afford to wait and build its new cities until after newly migrated citizens have arrived. Instead, investment and construction must be aligned with the future influx of urban dwellers. The “ghost city” critique misses this point entirely.


See? Everything is going to be fine! Why? Because Roach says so! He’s a high-powered financier shill with fingers on the pulse. He makes the, “They aren’t making any more land,” argument. With more people and the limited amounts of build-able land certainly demand/prices/economies have nowhere to go but up, right?

Problem is nobody is making more people with money. The money trend is going in the wrong direction: the reality direction as James Howard Kunstler would put it. More people are going broke faster. What remains of money vanishes from circulation, lines of credit are cut off, putative apartment buyers are denied mortgages because they simply don’t earn enough to make the payments. The tens of millions of empty apartments that Steve Roach celebrates are mostly owned by a modest group of Chinese speculators with access to no-questions-asked, low-cost credit. These speculators are stranded, waiting for the horde of Chinese consumers who are never going to arrive. As in the West, the cost of credit … has become too high for individual buyers to afford.

The speculators are victims of their own greed. In order to sell and capture gains they must find buyers who are more successfully greedy than they are (or the government has to bail them out).

The 300 millions that Roach and the Chinese speculators are counting on are near-penniless rural peasants and sweatshop workers. Already these workers complain that urban housing is unaffordable. This worker-demand never really mattered, instead it was the supply of credit from overseas looking for yield. China has been at the end of a massive capital pipeline from the US and elsewhere. The Chinese narrative of perpetual real estate growth and ever-increasing prices is the same as the free-money narrative in America, UK, Dubai, Spain, Ireland and elsewhere. Credit flowed into real estate in all these countries at the same time. Meanwhile, economies were cutting workers’ earnings: something has to give.

There is more to economies than assuming can openers, they are sub-components of culture. What economies manage are cultural goods, not ‘things’ but surrogates for things. What makes China China are the cultural fetishes that represent Chinese ‘modernity’ with an accompanying narrative of American-style material progress.

What American commercial artists, television producers and advertising managers devise, the unimaginative Chinese instantly covet. Their defining idea of America is post-Dean Martin-Joey Bishop-Liberace-Bugsy Siegel Las Vegas: the entire country is turned into a cheesy version of The Strip. The ‘Old China’ that passed the test of centuries is swept away as rapidly and completely as possible. It is replaced with forests of vacant, brutalist 60 story concrete towers, freeways, rail networks, shipping terminals, shopping centers, airports and the rest of Sprawl-America automobile detritus. All of this rests uneasily alongside gigantic, Earth-destroying/polluting industrial complexes … collateral needed to propel the whole mess forward.

The China narrative has been offered as the improbable Horatio Alger communist-rags to riches story: gritty (fanatically xenophobic) workers compete with the rest of the world to make its shoes, pants, salad shooters, lawn furniture, oil tankers, catalytic crackers, CNC machines, automobiles, nuclear reactors, poison dog food and other consumer ‘durables’. According to the narrative, Chinese are ambitious, hard-working, enduring, risk-taking hyper-capitalists. The Chinese planned economy is well-managed. The Chinese don’t make foolish policy errors as do Americans or Europeans, they aren’t lily-livered softies, they crush anyone and anything who stands in the way of progress. They do whatever is necessary to become rich as fast as possible.

This is the establishment’s narrative, one of non-stop ‘sustainable growth’ … Despite hiccups, growth is assured to begin … tomorrow!

Tomorrow: if you have to ask how much it costs you cannot afford it, (BBC):


China city party chief ‘fled with money’

A Chinese report says billions of dollars have been stolen by corrupt officials in recent years

A former top official of a city in northeast China has fled the country – reportedly with millions of dollars, Chinese reports say.

Wang Guoqiang, who was party secretary of Fengcheng city in Liaoning province, left for the United States in April with his wife, the People’s Daily said.

Local officials said Mr Wang, who was being investigated for corruption, had been removed from his post, it said.

Several reports cited 200m yuan ($31.5m; £20m) as the amount taken.

The local officials did not elaborate on allegations that he had embezzled and transferred the funds to the US, where his family is believed to be.

A report released by China’s central bank last year said more than $120bn (£74bn) had been stolen by corrupt officials who fled overseas, mainly to the US.

Between 16,000 and 18,000 officials and employees of state-owned companies left China with the funds from the mid-1990s up until 2008, the report said.


Officials and other prominents taking wads of cash and going to another country is irreversible. Rather than happy multitudes goose-stepping toward prosperity and their very own high-rise apartments, the rats are fleeing from the sinking Chinese ship as fast they can.

Bruce Krasting asks:


If the Treasurer for the city of Las Vegas (Pop. 580,000) stole $30Mn of tax payer money and fled to Canada or Australia, the US FBI would have the Aussies and Canucks hunt them down and have them extradited back home. Why aren’t the Chinese doing the same thing? 

The authorities enacted a ban immediately to report on the case, and blocked Wang’s name in search engines. However, in blogs, the news spread faster than censors could delete it.


What matters is the sanctity of the narrative, who cares about the money? Under everyone’s noses, China is morphing from a capitalist paragon into (another) nose-diving coyote.

It’s not just the thievery and corruption, it is the business ‘slowdown’. Steel makers, ship builders, property developers, banks and finance guarantee companies and manufacturers are corpses floating down the river. It really is different this time: none of these enterprises are ‘coming back’.

China + modernity = business collapse is not the dynamic the bosses had in mind when the made the jump to the America Way. As such, the Chinese arrived at the party just as the last line of cocaine was being snorted: the US narrative has fallen apart, so has the hyper-snobbish stiff-little-finger bourgeois narratives of Americanized Europe and Japan. Perhaps the Chinese should have examined the old whore’s fake boobs and pustulent genitalia more carefully before deciding to jump in bed with her.



Join Up!

James Howard Kunstler

Meet the new third party in national politics: Reality.

Reality is the only party with an agenda consistent with what is actually happening in the world.


Heh heh … reality IS what’s happening in the world.


Reality doesn’t need to drum up dollar donations from anyone. Reality doesn’t have to pander to any interest group or subscribe to any inane belief system. Reality doesn’t even need your vote. Reality will be the winner of the 2012 election no matter what the ballot returns appear to say about the bids of Barack Obama and Mitt Romney to lead the executive branch of the government. In the vicious vacuum that national party politics has become, the Republicans and Democrats are already dead. They choked to death on the toxic fumes of their own excreta. They are empty, hollow institutions animated only by the parasites that feed on and squirm over the residue of decomposing tissue within the dissolving membranes of their legitimacy. Think of the fabled Koch brothers as botfly larvae and the Securities Industry and Financial Markets Association PAC (SIFMA PAC) as a mass of writhing maggots.


The Reality Party is something that can be gotten behind here at Economic Undertow. Where does one go with all this? Managers race out the door with whatever loot than can be stuffed into suitcases. Here is the Euro-style reality, by way of Mark Grant:


The central bank of Spain just released the net capital outflow numbers and they are disastrous. During the month of June alone $70.90 billion left the Spanish banks and in July it was worse at $92.88 billion which is 4.7% of total bank deposits in Spain. For the first seven months of the year the outflow adds up to $368.80 billion or 17.7% of the total bank deposits of Spain and the trajectory of the outflow is increasing dramatically. Reality is reality and Spain is experiencing a full-fledged run on its banks whether anyone in Europe wants to admit it or not.


Just like China only more so …


Between December of 2011 and the end of March 2012 the Spanish banks bought $109 billion of the Spanish sovereign debt. Much of this was facilitated by the ECB who lowered and lowered again the collateral rules and handed the money to the Spanish banks in such a size that bad things, very bad things will result if Spain hits the wall and defaults. Then since March, as forced by their own inadequate capital positions, the trend has reversed and the Spanish banks have sold $21.3 billion of Spanish sovereign debt with $11.7 billion in July alone as capital flees from the Spanish banks and the actuality of the balance sheets overcomes the “dynamic provisioning” that helped to cause the fantasy. The friendly “suggestions” by national governments in Europe are also getting a push back from European buyers. BNP recently imposed a $12.5 billion debt limit by country and many other banks in Europe are following suit. BNP has reduced their sovereign debt holdings by 35% since June 2011. In July, the aggregate of sovereign debt reduction for all of the French banks was $8.7 billion as they took advantage of the ECB speculation to lower their holdings.


When the central bank is insolvent because it makes leveraged/unsecured loans or appears to do so — there is no lender of last resort. No lender of last resort and there is no guarantor for deposits. If all institutions are insolvent the currency which represents these things is worthless.

Capital flow is from bank account => account at another bank => account in another country => account in another currency => out of currency into durable good/asset. Unsurprisingly, the gold price is increasing during a period of credit deflation.



Figure 1: Keep in mind there are also bank runs out of Greece, Italy, Portugal and Ireland. funds flow from Europe into Switzerland, the flow itself jeopardizes the viability of the Swiss franc as it becomes a proxy for the increasingly worthless euro … the reason to prop up the euro at some stable rate of exchange is to facilitate removing funds from one country to another.


Spanish Bank Runs and Struggling Deutsche Bank:

There is a fully fledge bank run ongoing in Spain that is not being adequately reported in the mainstream news media. In June $70 billion dollars left their system. In July it was $92 billion which is 4.7% of total banking deposits. This means that from January to July of this year $368 billion or 17.7% of total banking deposits has fled Spanish institutions. Previously this money was heading for Switzerland and Germany but with the truth filtering out concerning the weakness of German and Swiss banks alternative destinations are now being chosen. The emerging weakness of Deutsche Bank is a particular worry for the ECB and the situation is being exacerbated by a sharply contracting German economy. As reported in Spiegel today:

“Euro Crisis Starts to Bite. German Export Orders Fell Sharply in August.

Exports are a major pillar of the German economy, but now the sector is starting to feel the impact of the euro crisis and the global economic slowdown. German export orders fell in August by the highest rate in more than three years, the Markit financial information company announced Monday after conducting a survey of 500 industrial firms.

“Survey respondents commented on a general slowdown in global demand and particular weakness in new business inflows from Southern Europe,” the institute said. The firms hardest hit by declines are manufacturers of machinery and other investment goods as well as producers of intermediate goods such as chemicals.

In the first half of 2012, German exports had still grown thanks to demand from Japan, the United States and Russia. But it was already evident then that exports to crisis-hit countries were falling sharply, and that trend is now continuing.

Markit economist Tim Moore said the German industrial sector is going through its worst quarter — the three months to the end of September — in more than three years.

“The new orders figures are especially disappointing, with export work dropping at the fastest pace since April 2009 amid an ongoing deterioration in global demand,” he said in a statement.”


ECB Boss Mario Draghi is trapped. He needs to keep propping that euro even as doing so is fatal. Direct bond-buying by the bank will accelerate bank runs and there will be nothing to be done to stop them.

Building/not building more concrete towers in China is fatal. Germany selling/not selling more automobiles in Europe is fatal. Adding more carbon/not adding carbon to the atmosphere is fatal. As for the Americans, the running game has been underway since the crisis began. The smart money is long gone from speculative markets, all that remains is the dumb money milling around waiting for tomorrow to arrive.

Comes that happy day, there are runs out of currencies. The Chinese thieves, the Spanish depositors and the rest are voting with their feet. The game is over and they are taking their balls home. All of them. It’s every man for himself and devil take the hindmost.


All That Glitters

Post your comments here.

Doomstead Diner Forum pages often feature discussion about the merits of gold and other precious metals. It is hard to not be attracted to its utility as a way of preserving value, in age where the Masters of the Universe have debased the world’s currencies  beyond recognition. So who wouldn’t be attracted to gold? Bastion of value in an age of fiat plunderers, object of desire for both princes and beautiful women, even James Bond was bedazzled. I confess my own confusion on this subject. In the effort to lift the veil from my eyes, I have done some internet investigation, and remain as bollixed as when I began.


IN “Manufacturing Money,” RE asserts with the surety of an Old Testament prophet that “you CANNOT MAKE SOMETHING FROM NOTHING.” Bold, and in caps, at that. To set up his essay, he cites a quote from Steve from Virginia:

‘Money printing’ is inaccurate and false: central banks cannot create new money, they are balance sheet constrained. They cannot lend without collateral. They cannot lend above the ‘face price’ of the collateral, which is almost always another loan. What central banks do is shuffle the custody of loans between agents, moving up or down the yield curve in the process.


Perhaps I am mistaken, and may well be, but it seems that the global game of Three Card Monte that the central bankers are playing is “rehypothicating” capital such that the collateral appears viable? Or in other words, creating the appearance of something from nothing? All of which serves to keep the giant balloon of debt at least partially inflated. You might consider it “hologram capital–” visible to an observer from a fixed position, but as insubstantial as a hologram when you try to touch it.


The various computations attempting to cite the amount of debt tend to run out of zeroes, and quickly reach numbers that beggar understanding. It is hard enough to wrap the mind around the concept of a billion anything; the idea of quintillions of anything enters the realms of mystery, and is not meaningful in any practical way. With so much money in play, how does a peasant lock away some value?


In a word, gold, or precious metals. At least to some of our friends here.


Disclosure: I hold no PMs. I confess personally to being baffled by the precious metals argument. If your bet is that the rule of law will continue pretty much along the lines of what we know now, and that FSA agents won’t kick your door down to confiscate your boodle, then PMs are probably a good idea. But what if the grid goes down, the phones stop working, and the rule of law devolves to that which you can enforce personally? It seems to me that, in a TEOTWATKI situation, the best hedge against privation would be to be long potatoes. The value of PMs as a  hedge against inflation seems to be directly to related to one’s ability to protect  them from somebody who, say, had a store of lead. The other words, come TEOTWATKI, how would you protect it? Mad Max-style wandering warlords might well be less eager to make off with your cellar of potatoes, say, than your cache of gold.

Apparently the United States was on a gold standard for most of his existence. And led to a true gold standard in 1900 with the passage of the Gold Standard Act. That  standard apparently came to an end in 1933 when FDR outlawed private gold ownership except for the purposes of jewelry. The Bretton Woods agreement created a system of fixed exchange rates where governments could sell their gold to the US treasury of the price of $35 an ounce. That avatar of Satan, Richard Nixon, decoupled the dollar from gold in 1971. Gone was any link between the major world currencies and precious metals and since that time the gold standard has fallen away.


So we are left with fiat.. Fiat money is defined as money that is intrinsically useless; used only as a medium of exchange. And as all of us of experience, a medium of exchange that becomes less and less valuable with the passing of time and inflation. A gold standard, on the other hand, keeps a government from printing too much money and keeps the supply of money relatively stable. Absent a gold standard, we have seen the Federal Reserve enact policies which have stretched the growth of the money supply past recognition or rescue.


A gold standard has fans here:

Quote from: Mark N on July 04, 2012, 09:49:25 PM <>

If I thought that ANY economic model was good idea, I would say a gold standard would be fine. I feel however the agricultural revolution was a tragic mistake; exponential population growth followed leading to constant war and ecological destruction. So I can only get behind a system that uses no more than we need and never more than mother earth can yield sustainably. All other roads lead to hell despite any medium of exchange.


I do feel Ron Paul is one of the only honest politicians and liberty a sweet dream. Humanity however has entered the valley of the shadow and liberty is just a dream; 7 billion people living the American dream would kill the planet in no time flat.


Uh… all that glitters, etc.


Since the teaching of history has apparently been made a Class 1 misdemeanor in most states, we tend to forget the “free silver” debates of the last century and the depredations of the Gilded Age.


In 1896, the “Cross of Gold” speech was delivered by William Jennings Bryant at the Democratic National Convention in 1896. Bryan supported bimetallism or “free silver”, which he believed would bring the nation prosperity. He decried the gold standard, concluding the speech, “you shall not crucify mankind upon a cross of gold”.

Democrats wanted easier money, the plutocrats wanted “sound money.” As always, the plutocrats won. As Dems were disaffected with Pres. Cleveland’s stance v. gold, they made Bryan their candidate, largely as a result of this impassioned speech. Bryan lost the election to McKinley. The US adopted the gold standard in 1900.


IN an article appearing in the March Harper’s, Thomas Frank observes some very telling points about the wave of historical revisionism sweeping the land, particularly on the part of Teahadis, who wish to rewrite history to assert that FDR’s New Deal, and by extension most of the 20th century, was a mistake:  “What we remember most vividly about [Hoover’s Treasury Secretary] Andrew Mellon is a remark attributed to him by Herbert Hoover, in the third volume of the ex-president’s memoirs. Once the Depression got rolling in 1929, Hoover recalls, his economic team divided into two factions: First was the “leave it alone liquidationists” headed by Secretary of the Treasury Mellon, who felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula:


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


Mellon insisted that, when the people get a snootful of  inflation, the only way to get it out of their blood is to let it collapse. He held that even a panic was not altogether a bad thing. He said: “It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.”

He often used the expression, “There is a mighty lot of real estate lying around the United States which does not know who owns it,” referring to excessive mortgages.

Let us be clear about Mellon’s position. He was suggesting that the government do nothing to halt unemployment, foreclosures, stock-market disasters, or the ongoing collapse of the nation’s agriculture. Let the Depression do its thing, argued Mellon. Let it bring ruination willy-nilly, scrubbing the landscape clean of debt, immorality, and European-style hedonism. And also let us be clear about Mellon’s economic position: having amassed enormous fortunes in banking, coal, steel and oil, he was immune to financial consequence. Frank again: “For a person of less exalted station to pine so openly for an economic apocalypse would have been almost unthinkable. Mellon’s were strictly the sentiments of someone who would never himself be liquidated.”


These sound like the positions of the Republican House majority and their candidate for POTUS. It seems pretty clear that, in the event of currency destruction either through hyperinflation or hyper-deflation, anyone sitting on a pile of PMs would emerge from the resulting wreckage financially OK. Whether they could keep them remains another story. And what the landscape might look like after one emerges from one’s bunker, or vault, is a third.


Nowadays, Mr. Paul and all of the other Austrians who prowl the earth at night talk about the “unsustainable debt,” and austerity being the answer. As if the taxpayers who had billions transferred to the TBTF banks are somehow responsible for the disease for which austerity is the medicine. In their pronunciamentos you can hear the ghost of Andrew Mellon rasping, looking for fresh blood. People from Athens to Andalusia are less than enthralled with the prospects of having to liquidate themselves and the meager savings amassed over a lifetime of labor to pay for the banksters’ bonuses. Unlike us here, they rouse themselves from their torpor and get out in the streets.


Why common people in the FSA can be so enthusiastic about the prospects of their impending ruin is amazing, a triumph of the existing system of state control of propaganda. Rather than insisting on a pension of their own, workers today are convinced to attack their neighbors’… it continues to amaze me.


So it’s pretty clear to me that a gold standard = austerity for the 99 per cent.


Yet my friend Golden Oxen asserts thus:

“Surly, The greatest creation of wealth and a strong majority middle class happened in the USA from it’s inception to the severance of the dollar from all links to gold in 1970.

It all happened while we were on some sort of gold silver bi metal standard. Most prospered and inflation was low to non existent.”


So who knows which path would be better for peasants like me?

In the same article, Frank describes an exchange between Grover Norquist and a Spanish newspaper in which Norquist averred that the reason the political equation in America was changing was that people who remembered the Depression were dying off. “The age cohort that is most Democratic and most pro-statist,” declared Norquist, “are those people who turned twenty-one years of age between 1932 and 1952—Great Depression, New Deal, World War II, Social Security, the draft—all that stuff. That age cohort is now between the ages of seventy and ninety years old, and every year 2 million of them die.” The commonly held views of that group, he continued, were “very un-‘American.’ Very unusual for America.”


As appalling as it seems to me, perhaps an entire generation of fresh scrubbed libertarians fresh off the bus, dressed in identical blue blazers and chinos, recruited to distribute free hot dogs for the “Lift The Ban” pro-mining types at public hearings (geared to gin up support for lifting Virginia’s ban on uranium mining), represent a new cohort in a fact-free electorate untroubled by mere historical detail. Maybe the New Deal and its various reforms—a boring and predictable financial establishment, a home, a secure retirement, a middle class life—were an exception to the dog-eat-dog rules of American history, instead of the middle-class norm they once seemed to represent. That they are today under such withering attack by a new generation of fully-propagandized “average people,” themselves caught up in a orgy of anxiety and hard-times righteousness–and able to ignore the 60 year low on tax receipts from corporations and the most wealthy–  is perhaps the surpassing irony of the age.


We are become Alan Greenspan’s “precariat.”

George Santayana once said, in a quote often butchered but here restored to proper context, “Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.”


We retain nothing. But I am holding on to my potatoes.


Capital Controls

Discuss this Post at the Economics Table inside the Diner


Simon Black’s “Sovereign Man” Blog gives me tomaine poisoning anytime I go over there to Dine, so mostly I avoid it. However, one of his posts appeared a couple of days ago on Zero Hedge on the topic of Capital Controls, which with the current insolvency of about all nations and banks are likely to be implemented in force in many places quite soon.

Simon lists a few forms of Capital Cotrols you can expect to see coming down the pipe here

– Setting a fixed amount for bank withdrawals, or suspending them altogether
– Forcing citizens or banks to hold government debt
– Curtailing or suspending international bank transfers
– Curtailing or suspending foreign exchange transactions
– Criminalizing the purchase and ownership of precious metals
– Fixing an official exchange rate and criminalizing market-based transactions

Why do countries drop down CCs? Basically because when a monetary system is crashing and banks are going insolvent in a given country, anybody who HAS any money is trying to GTFO of Dodge and take their money with them on the way out the door.

Who does this generally apply to? Not J6P who has little saving to take out of the country anyhow. It’s the wealthy who make this run for the fire exit. Shipping Magnates in Greece, Real Estate Developers in Spain, yadda yadda.

Simon characterizes CCs as the one of the worst forms of Goobermint Theft imaginable:

Establishing capital controls is one of the worst forms of theft that a government can impose. It traps people’s hard earned savings and their future income within a nation’s borders.

Simon is trying to make this sound like a Common Man’s Problem, but it’s not, it’s a Simon problem. See, Simon likes to run around the world extracting what wealth he can everywhere he goes, and he wants to be able to keep all the money regardless of WTF happens in any given country he is running a Biz in.

These days, Simon is no doubt quite worried about Assets and Bank accounts he has over in Eurotrashland, though one suspects most of the Bank Accounts are in Switzerland where they are slightly safer than they are in say BNP Paribas.

He ALSO is investing much of his hard earned Cash in Chile, where he just “picked up” an 1100 Acre farm, no doubt for pennies on the dollar from some poor farmer behind on his mortgage.

Besides this, Simon recommends having money in a foreign bank account, having PMs in a secure jurisdiction and have a place to GO overseas with your loot when things swirl down the toilet in your neighborhood.

The problems with Simon’s advice should be obvious now. Exactly which Foreign Bank would you pick to safely deposit your money? In Europe for example, when those banks go Belly Up, the LAST Depositors who might see any of their money are the foreigners. Far as Gold goes, Simon himself mentions that one of the typical forms of Capital Controls is the confiscation of PMs, so I am not sure how having them protects you all that much once the Nation States are in such dire straights they have to try to keep anything worth anything insed their borders. Far as having a place to GO is concerned for the average Pigman, where do you PICK? Simon seems to think Cheeeelay is a great spot, where he is neighbors with Speedy Gonzalo Lira. Exactly why these guys think the Chilean Goobermint is so much more trustworthy and dependable than the FSofA one or any of the Eurotrash ones is beyond me. How many times has that Goobermint turned over in the last 40 years?

What about for J6P though? Are Capital Controls really that bad for him?

Not really, because he isn’t leaving the country anyhow, and preventing Pigmen from leaving with their wealth is good for him. Since he has no Gold in the basement safe, its no skin off his nose if Gold is confiscated from Pigmen. You also prevent foreigners from taking wealth out of assets they “own” in a country, like say farmland. If the Chinese say bought up all of Iowa, without Capital Controls they could just take “their” corn and ship it over to China.

Who does the Wealth of a Nation really belong to? Does it belong to individuals who sieved out wealth over the years from a Nation into their own Bank Accounts, or does it belong to all the people of the nation from whom the Wealth was sieved to begin with? The wealth came from THEIR labor and the resources of the land THEY live on. Why should some foreigner be able to remove this wealth with no control on it by the Nation?

Of course, it remains quite unclear just how much “wealth” is left anywhere under the conditions of extreme overshoot, and equally unclear where a Pigman should go to escape the oncoming Capital Controls likely to spring up everywhere.

The carefree life of Simon Black jetting around the world First Class, holding multiple passports and not paying Taxes in ANY jusrisdiction is coming to a close here, but Simon doesn’t want to see this end. He really doesn’t want to farm the 1100 Acres he bought in Chile, and if he HAS to move there permanently he likely hopes Da Chilean Goobermint will recognize his Title and will allow him to run his Estate as a Feudal Kingdom, hiring poor Chilean Peasants to plow HIS land.

The Capital Controls are coming, and every Pigman website from Zero Hedge to the Daily Capitalist will complain about them and tell you how horrible they are. They sure are horrible…for PIGMEN! They can’t go and jump ship with all the MONEY when the Titanic goes down.



It starts: the government’s plan to steal your money
Simon Black on June 12, 2012

June 12, 2012
New York City

There are consequences to being flat broke.

There are consequences to investing any level of confidence in a financial system underpinned by debt and the creation of paper currency.

There are consequences for ignoring reality and pretending that everything is normal.

This is one of them: European officials yesterday flat out admitted that they were discussing rolling out a series of harsh capital controls across the continent, including bank withdrawal limits and closing down Europe’s borderless Schengen area.

Some of these measures have already been implemented sporadically; customers of Italian bank BNI, for example, were all frozen out of their accounts starting May 31st upon the recommendation and approval of Italy’s bank regulator. No ATM withdrawls, no bill payments, nothing. Just locked out overnight.

In Greece, the government has taken to simply pulling funds directly out of its citizens’ bank accounts; anyone suspected of being a tax cheat (with a very loose interpretation in the sole discretion of the government) is being releived of their funds without so much as administrative notification.

It’s no wonder why, according to the Greek daily paper Kathimerini, over $125 million per day is fleeing the Greek banking system.

European political leaders aim to put a tourniquet on this wound in the worst possible way.

So what are capital controls?

Simply, capital controls are policies which restrict the free flow of capital into, out of, through, and within a nation’s borders. They can take a variety of forms, including:

– Setting a fixed amount for bank withdrawals, or suspending them altogether
– Forcing citizens or banks to hold government debt
– Curtailing or suspending international bank transfers
– Curtailing or suspending foreign exchange transactions
– Criminalizing the purchase and ownership of precious metals
– Fixing an official exchange rate and criminalizing market-based transactions

Establishing capital controls is one of the worst forms of theft that a government can impose. It traps people’s hard earned savings and their future income within a nation’s borders.

This trapped pool of capital allows the government to transfer wealth from the people to their own coffers through excessive taxation or rampant inflation… both of which soon follow.

The thing about capital controls is that they’re like airine baggage fees; ultimately, all governments want to do it, they’re just waiting on the first guy to impose them so that they can shrug their shoulders, stick it to the people, and blame ‘industry standards’.

Moreover, capital controls were a normal part of the global economic landscape for most of the 20th century, right up to the 1970s. It’s been a long time coming for governments to return to that model.

Since the inception of this letter, it has been a constant theme for us to talk about the increasing threat of capital controls. Your money, your savings, your livelihood are all under attack by insolvent governments, and it’s critical to take steps to reduce your exposure.

When European financial leaders all openly admit that they’re making plans to establish continent-wide capital controls, it really begs the question– what additional warning sign does one need?

The dominos have already started falling. Iceland. Ireland. Greece. Spain. Portugal. Italy. Cyprus. Soon even France and the rest of Europe. And it will come to the United States as well. There are over 15 trillion reasons why.

So what are the most critical steps to take now?

1) Buy precious metals and store in a secure jurisdiction.

Holding gold and silver overseas is a great way to (a) ensure your savings is protected against inflation, and (b) ensure that your precious metals cannot be confiscated in the event that gold ownership is criminalized in your home country.

I strongly recommend Singapore, Hong Kong, and Abu Dhabi as three potential safe jurisdictions for your gold and silver.

2) Open a foreign bank account.

For funds that need to be maintained within the financial system (as opposed to precious metals), make sure you have a safe home for your money abroad in a safe, well-capitalized bank.

3) Have a place to go overseas

Economic turmoil brought on by governments stealing people’s savings generally goes not bode well for social stability. If things get hairy, you’ll want to have a place to wait it out. And you don’t want to be deciding on the location while you’re packing your bags.

As an example, I’ve picked up an 1100-acre farm in central Chile that won’t skip a beat when the financial system implodes. The sovereign debt bubble does not affect whether or not my trees will bear fruit or my vegetables will grow.

Grand Unified Theory of Collapse: GUTOC

Discuss this article inside the Diner

Mark wrote:

I think a key point from what Steve said there was the debts could be canceled and you would have to borrow to infinity anyway to keep industrial civilization as we know it running. Triggering the global derivative markets would probably lead to such a reset of debt would it not? Or they would just end derivatives? Many liberal techno fantasy folks I know trumpet that solution but it seems it would destroy the supposed assets of the too big to fail banks.

In theory you could cancel out the derivatives market, but this would crash the biggest of the TBTF banks. It would be massively deflationary, leaving only “real” assets on their books, but those assets are also all impaired. Loan books that are not paying off, Collateralized Debt Obligations (CDOs) with no worthwhile collateral backing them up, etc.

Besides bringing down the main Global Banking system, same players control global trade of all kinds, and once they are outta biz you don’t have a coherent means to keep this up, not on anywhere near current scale anyhow. Who will issue Letters of Credit, based in what currency? Gold? Pfffft. Even if Saudis accept Gold for Oil, anybody running an industrial economy will bankrupt themselves of that Gold using it to keep buying Oil for a while. Once the Saudis HAVE all the Gold, then what do you buy their Oil with?

So you are left with the fundamental problem that once this monetary system crashes, rebooting a new one based on any worthwhile assets is pretty tough. You can say the Land is the Asset, but for land to be an asset it actually has to be productive in some way. A McMansion is not a productive asset of course. Farms can be productive assets, but current Industrial Ag is not, it requires too much input of fossil fuel energy to be net productive.

A Perfectly run Permaculture Farm could be considered Productive, but basing a monetary system on that is quite the challenge unless you Nationalize this. See, if each individual person runs their own Private Property Farm, its not a State Asset at all. You can barter your produce with others, but there is no Money involved here in this. Only once the State taxes your produce and creates a currency of some sort from that taxation can you have money flowing around the economy.

Anyhow, even if you do drop down to this level (which is basically the Feudal system), you have massively deflated Industrialization out of Biz as unaffordable, you have very little functioning Money around of any kind (and what there is probably is very local), and you are left with Feudally Run (by local Warlords no doubt) permaculture Farms which probably do not produce enough to handle the current local population’s needs. So lots of people go to the Great Beyond here in this process of contraction.

So of course our Global Masters are doing every last thing they can think of to keep the system propped up, because when (not if) the Global Banking system collapses it doesn’t mean just a Monetary Reset here. It means the real onset of Civilization Collapse and an Die Off in population of unprecedented proportions in all of Recorded History.

The Solution which will be undertaken to this problem is not a Monetary one, it is WAR. When you no longer can afford to BUY the resource you need, you STEAL it. So through War the attempt is already underway to steal the Oil remaining from the MENA countries to keep propping up the economies of the core Industrial Economies of Germany, China and the FSofA. The Ruskies mostly have their own Oil and aren’t directly involved, but their problem is they can’t afford their OWN oil. They have been contracting down since the collapse of the Soviet Union, population stats way down here over the last 20 years with more to go.

Its the War issue which makes the local collapse here in the FSofA so unpredictable. A Military State such as Rome can persist for quite a while through conquest and theft. However, the fact we are in the end going to go Mano-a-Mano or Nuke-a-Nuke with the Chinese for the last of the remaining Oil means in all probability the Big Ass Military will not last so long as it did in the Roman Collapse, which actually took Centuries to complete. In this case it probably doesn’t last 5 years, and in fact could be over in a matter of minutes. Generaly speaking though, I think MAD will prevail and if Nukes are used, they will be mostly tactical ones, not ICBM MIRV equipped City Killers.

To conclude here in this digest of GUTOC, the sequence of events is pretty clear even if the Timeline for them still remains a bit murky. Overall my predictions have been very accurate in terms of sequence since I got started on this, I predicted the Nation State BKs coming down the pipe in 2008 after Lehman collapsed. The length of time TPTB have been able to extend this out continues to astound me, along with the endless creativity in accounting and the endless gullibility/acceptance of eating shit by the general public as well. This will not last in perpetuity though, up at the Top it is coming apart at the seams now and fracture is imminent. War looms on the Horizon.


The Concepts of Money and Capital: The Debate Continues




Below follows an exchange that davefairtex and I are pursuing in The Concepts of Money and Capital thread on TAE.  The debate centers on concepts of Value as it translates to Money and Assets.


Discuss this ongoing debate at the Economics Table of the Diner


In some sense, both sides in this debate are talking about a denouement caused by widespread defaults on unpayable debts.

Reading over some FOFOA posts, it does appear that he acknowledges that defaults lead to deflation.  But his claim is that the CBs won’t allow that deflation to stand for very long – moments, minutes, hours, or days, and that they’ll quickly react by exchanging money for all the defaulted assets.

Folks here seem to think that the CB won’t be allowed to do this; the Fed will be prevented from wholesale replacement of bank credit with base money.

Likewise, FOFOA also points out that there is a overabundance of dollars in circulation outside the US especially on CB balance sheets, and a collapse of confidence in the dollar would lead to a hyperinflationary rush out of the many forms of the buck into “real things”, of which gold is favored because it is something that’s had long historical significance as a store of value, and it stores better in vaults than Rembrants or barrels of oil.

Each party tries to put forth evidence to support their concept – newly popular “end the fed” campaigns, reading the tea leaves on various Bernanke speeches trying to assess his willingness to print, fading trade surpluses and falling purchases of treasurys by China, and so on.

But at the end of the day, it all boils down to guessing what the Fed (and/or the ECB) will actually be able to do when the debt default crisis arrives.  And that seems to ride on one thing: do the banks still have enough political power to make this happen the way they did in 2008?  If they do, then we could well have a confidence collapse in the currency.  If not, then we get a deflationary depression.  No doubt the Fed would try to thread the needle and print just enough to restore the system, but not so much so as to cause a collapse of confidence.

So which is it?  Its an interesting question, and not one I have the answer to.  And perhaps the answer changes over time.  Perhaps the answer is “no” today, but maybe “yes” next week, depending on how events unfold in the world – Greece, Spain, Italy, Japan, etc.  If Greek society ends up exploding on TV after a debt default, the Fed and indeed the ECB might well get permission to do practically anything…


Re: FPC: The Concepts of Money and Capital 23 hours, 30 minutes ago #3184

davefairtex wrote:

In some sense, both sides in this debate are talking about a denouement caused by widespread defaults on unpayable debts.

Reading over some FOFOA posts, it does appear that he acknowledges that defaults lead to deflation.  But his claim is that the CBs won’t allow that deflation to stand for very long – moments, minutes, hours, or days, and that they’ll quickly react by exchanging money for all the defaulted assets.

Folks here seem to think that the CB won’t be allowed to do this; the Fed will be prevented from wholesale replacement of bank credit with base money.

What the CBs DO, how they react and what is Politically Possible for them to do at any given time varies, but it is still just a part of the equation.

The CBs can provide virtually endless liquidity and also buy assets at par value, regardless of what the actual worth of said asset is.  What they cannot do at this point is force the retail banks to make any of the money they create available to the real economy.

If the TBTF Banks who are the recipients of the new Cash for Trash don’t then go ahead and make NEW LOANS into the retail economy, the new Sea of TP just sloshes around in their reserves and/or is “invested” in IPOs like Facepalm where it burns up rapidly.  A few new Billionaries are made, but otherwise much more is accumulated on the liability side of this balance sheet.

At some point in the future, the postulate here is that the Trillions created here are going to exit Bankster Reserves and Sovereign holdings and simply flood the market with Dollars.  Except, waht will they BUY with these Dollars?  More Facepalms?  More Copper they can’t sell because new Mcmansions aren’t being built fast enough and don;t need wiring and plumbing?  More Gold that will just sit like a big Paperweight in the Basement Safe of the PBoC?

What the CBs cannot do is make the Dollars CIRCULATE in any meaningful fashion. Dumping them makes no sense if there is nothing really worthwhile to BUY anymore if you are Prepped Up.  How many more Copper Mines do the Chinese NEED to buy anyhow?  They can’t unload the Coper they have stacked up in the Warehouse ALREADY!

Euros are another story entirely.  In this case, the Eurotrash already see the Writing on the Wall, the currency is collapsing and they will RUN, but not into Gold for the most part.  They will RUN to the Dollar.  Why?  Because the Dollar is the Currency of the Big Ass Military.  The SAFEST guy to bet on here is the guy with the Biggest Gun.


Re: FPC: The Concepts of Money and Capital 15 hours, 35 minutes ago #3187

RE –

Perhaps the CBs will monetize sovereign debt, which will be deficit-spent directly into the economy by the government via social security, medicare, medicaid, defense spending, AFDC, SNAP, and the like.

As long as the banks don’t end up going under and presenting FDIC with a massive resolution bill, cash for trash is a success.

Limping along collecting your salary & bonus beats the hell out of a deflationary depression – especially if you’re a banker with a big house in the hamptons.


Re: FPC: The Concepts of Money and Capital 14 hours, 32 minutes ago #3189

davefairtex wrote:

RE –
Perhaps the CBs will monetize sovereign debt, which will be deficit-spent directly into the economy by the government via social security, medicare, medicaid, defense spending, AFDC, SNAP, and the like.As long as the banks don’t end up going under and presenting FDIC with a massive resolution bill, cash for trash is a success.Limping along collecting your salary & bonus beats the hell out of a deflationary depression – especially if you’re a banker with a big house in the hamptons.

Perhaps they will continue to monetize Sovereign Debt and continue to dribble out money in the form of various social welfare systems like Social Security and the SNAP Cards, but they are not pouring out GUSHERS of money this way to J6P.
If you take what is happenning in Greece as a Model, Pensions are being cut and Wages are being Cut and Goobermint Jobs are being eliminated.  So you are not seeing Funny Money moved into the Main Street Economy this way there at this time.

I have said many times before that as soon as Da Goobermint starts pushing money out directly to the population, either by Make Work WPA projects or by expanded Social Welfare payments, THEN you WILL get serious inflation, though still probably not HI until all faith is lost in the currency.

At the moment here in the FSofA, public jobs are being cut while the SNAP card program expands.  A portion of the population is being forced into a more meager existence this way.  It’s stil not a Tidal Wave though here yet, it’s a more gradual process.

There is no indication at the Top that a massive WPA will be undertaken or that massive Free Money such as a National Subsistence Wage will be issued out.  J6P is being gradually Squeezed out here in the deflation, and will continue to be squeezed until a breaking point is reached and there is a Revolt.

An HI can only happen here if the flood of liquidity hits the real economy, and this can’t come from J6P, he generally speaking has no savings to unload.  It can only come from the notional dollars held by the Chinese and others overseas, but they cannot dump them without screwing their own pooch.

The status quo of a Boiling Frog is what TPTB hope to continue with.  Unfortunately, people are not Frogs and there will come a social breaking point.  Greece is at it.  So will we be soon enough.
Coming Soon to a Theatre Near You.


Re: FPC: The Concepts of Money and Capital 12 hours, 11 minutes ago #3191

RE –
I don’t take what’s happening in Greece as a model.  Greece cannot monetize its own debt, and the US can – and did up until last year.  State & Local jobs are being cut here, but Federal jobs are expanding.  I’d guess net-net it has resulted in job cuts overall, but our monetized deficit spending (10% of GDP each year) has kept the economy above stall speed to date.HI happens when a flood of money hits the real economy, just as you say.  There are lots of ways for that to happen – including government dropping actual cash via jobs programs.  Whether you think those ways are likely, or unlikely, depends on your own personal assessment.At FOFOA they note there is a wall of USD-denominated bonds sitting offshore on reserve at a bunch of central banks.  The number of claims on real wealth vastly outweighs the actual real wealth out there – that’s what I learn from reading Stoneleigh.

So my follow-on to that is, if the US Fed stops deflation from happening by buying up all the trash and pretending there’s nothing wrong, all it takes for HI to take effect is for some subset of paper wealth holders to decide they want to convert their claims into real wealth before its too late, and then the game is up.

Once again, what triggers this move out of paper wealth?  What triggers a bank run?  Same sort of question – its some straw breaking the back of the camel of confidence.  The potential for it is there.  The only question is, do the banks (and the Fed, their servant) have the political ability to monetize in order to stave off deflation when push comes to shove?  If not, we get a deflationary depression.  If they can monetize, then we get moderate inflation (through government deficit spending) until a trigger event is reached and a wall of money hits the real economy.

I believe that the more unrest we seen in europe and the more “austerity” turns into a highly-visible death trap, the more support there will be for Fed money printing as our way out.  Whether that’s enough – I don’t know.  I think it could go either way.

Re: FPC: The Concepts of Money and Capital 10 hours, 39 minutes ago #3192

davefairtex wrote:

So my follow-on to that is, if the US Fed stops deflation from happening by buying up all the trash and pretending there’s nothing wrong, all it takes for HI to take effect is for some subset of paper wealth holders to decide they want to convert their claims into real wealth before its too late, and then the game is up.

See there is the rub here.  CONVERTING paper claims into “Real Wealth”.

At the small scale, you can see how this can be done, sorta.  For instance, I “own” many USTs.  I could liquidate them and buy with the proceeds a decent part of Alaska at current valuations on the land here. However, this purchase is more a liability for me than an asset if I made that trade. I cannot control such a large swath of Real Estate, and I sure would not want to pay the Taxes on it since I only would be using a tiny part of it for myself.

On a much larger scale, the Chinese face much the same problem.  They COULD in theory liquidate their holding of USTs not just to buy a piece of Alaska, but the whole fucking STATE.  REAL WEALTH there, right?  Except problem is, what would they DO with Alaska once they bought it?  They can’t organize up and run their own patch of the earth in China all that well, do they really need a Headache of ANOTHER patch of land to run here?

I’ll make the analogy to a small Biz I worked for a few years back.  The Biz I worked for had one location, run sorta well, and they bought up a competing Biz run in another part of town.  Problem was, it stretched all the anagement out too much, and trying to keep the Sattelite running was a money loser.  Closed up the shop after a couple of years.
Everybody is working on a BAD paradigm here, and further EXPANSION of a bad pardigm does not make it better, it makes it WORSE.

There is NOTHING the Chinese can spend their dollars on here now, they canot even buy Alaska without incurring more liability, and Alaska is a relatively GOOD purchase here all considered.  Certainly better than Facepalm anyhow.
A flood of dollars has to come form somewhere from somebody who wants to try to liqudiate those dollars for something ELSE they think is a worthwhile purchase.  On the GRAND scale here, not even fucking ALASKA is a great deal.  Liquidity Lock Up.  Nothing worthwhile to buy or sell.  That is the problem.


Re: FPC: The Concepts of Money and Capital 8 hours ago #3193

RE –
Hmm, ok that’s convincing.  You’re probably right about the Chinese, and likely the Japanese as well.  Its tough to place a trillion dollars somewhere useful and at the same time relatively low risk.But I’m not so sure about the actions of a bunch of rich people.  They are seemingly better placed to individually make semi-smart decisions on buying stuff.  They have big stashes of treasuries (like you do) and are wondering where they might put them.  I wonder that about my small pile of bank deposits!We are allegedly seeing this in London.  Rich Greeks (and perhaps rich other europeans) are taking paper and using it to buy real estate in London.  It seems absurd on the surface, but from what I hear, its happening.

I respect what you say when you claim that there’s nothing out there to buy.  But try this thought experiment.  If I told you that your pile of treasuries would be chopped in actual value by 75% through a default, would you still say “I can’t find anything to buy?”  Maybe buying medium-sized chunks of Alaska might look more attractive than a 75% loss.

Would a panic out of bonds usher in a “freegold” world?  Who knows.  I’m a bit suspicious of claims that something (other than a property of basic physics) is guaranteed to happen.  It just reminds me too much of Marx’s assurance that the state would simply wither away.   But gold would likely benefit from a flight from paper, likely driven first by default and then by the monetization response – among other things.

Again, if the Fed (and ECB) aren’t allowed to buy up all that bad debt, we get deflationary depression.  If they do have enough political capital to both monetize and buy up bad debt, there’s enough excess claims to real wealth floating around out there to really cause a whole bunch of price inflation if even a fraction of it decides it is better off in “real stuff.”  Even Alaska properties, Florida condos, little gold bars, or Picasso paintings.

Re: FPC: The Concepts of Money and Capital 0 minutes ago #3199

davefairtex wrote:

RE –
Hmm, ok that’s convincing.  You’re probably right about the Chinese, and likely the Japanese as well.  Its tough to place a trillion dollars somewhere useful and at the same time relatively low risk.But I’m not so sure about the actions of a bunch of rich people.  They are seemingly better placed to individually make semi-smart decisions on buying stuff.  They have big stashes of treasuries (like you do) and are wondering where they might put them.  I wonder that about my small pile of bank deposits!We are allegedly seeing this in London.  Rich Greeks (and perhaps rich other europeans) are taking paper and using it to buy real estate in London.  It seems absurd on the surface, but from what I hear, its happening.

I respect what you say when you claim that there’s nothing out there to buy.  But try this thought experiment.  If I told you that your pile of treasuries would be chopped in actual value by 75% through a default, would you still say “I can’t find anything to buy?”  Maybe buying medium-sized chunks of Alaska might look more attractive than a 75% loss.

Would a panic out of bonds usher in a “freegold” world?  Who knows.  I’m a bit suspicious of claims that something (other than a property of basic physics) is guaranteed to happen.  It just reminds me too much of Marx’s assurance that the state would simply wither away.   But gold would likely benefit from a flight from paper, likely driven first by default and then by the monetization response – among other things.

Again, if the Fed (and ECB) aren’t allowed to buy up all that bad debt, we get deflationary depression.  If they do have enough political capital to both monetize and buy up bad debt, there’s enough excess claims to real wealth floating around out there to really cause a whole bunch of price inflation if even a fraction of it decides it is better off in “real stuff.”  Even Alaska properties, Florida condos, little gold bars, or Picasso paintings.

There are other problems the Chinese have besides the actual worth of whatever they might buy is concerned.  If they try to dump treasuries, the value of those treasuries will drop faster than they can find buyers for them.  Only Da Fed could buy them by printing, and why would they do that?  Force the Chinese to hold them to maturity at low to nonexistent interest rates instead.

Far as non-Sovereign holders of this debt is concerned, like me the question is what is a better bet here?  The Greeks buying London flats is the Real Estate equivalent of buying Facepalm Stock.  That RE has nowhere to go but down, WAY DOWN.
To a lesser extent, the same is true for Alaska RE.  I don’t know which will devalue quicker, USTs or a Farm in Palmer.  You know, there is a very decent likelihood in about 4 years when the Pipeline has to shut down for lack of enough Oil to pump through it that the entire economy of Alaska will completely TANK, and 99% of the population will move out.  Why BUY the farm if that is the case?  I could simply walk in and squat it, along with numerous properties up here ALREADY vacant.
I really do not have anything worthwhile to BUY anymore other than Food really and Gas for the Bugout Machines while it remains available.  Some folks keep Day Trading around their assets trying to make a Killing here or there, certainly shorting Faceplant is a decent way to make some Toilet Paper these days.  I don’t bother with that though because it really doesn’t matter.  In the end, just about all these “assets” are going to drop to near ZERO in value, and holding onto Real Property is going to take your own Army.  Farms and just about everything else will likely be Nationalized under either a Fascist or Communist regime.

Up at the top, games are being played with comparative currency devaluations, I wrote about that over on the Diner.  Overall, the Dollar is the best looking Dog in the Kennel for the next couple of years anyhow I think.  Somewhere along the line we may reach a Tipping Point and hit a Sudden Stop event, or the Boiling Frog effect may continue through to the end of my lifespan, but either way there still really is not anything worthwhile for me to buy, I am as Prepped as anybody reasonably can be IMHO.  You cannot truly “own” anything you cannot carry with you or anything you cannot Protect and Defend.  You cannot count on the “Law” to protect you, as evidenced by today’s article from Surly on the Diner.

It remains to  be seen what the Big Boys do as far as shifting assets go to try to protect and defend their own “Wealth” is concerned.  I am reasonably certain though at this point that the final Battlefield for this will not be on the Economic Front.  War is coming now, to be sure.  Whether this will be an International War or Civil Wars on a Global Scale occuring simultaneously I do not know for sure, but one way or the other, a lot of BLOOD will be spilled to try to wash away this debt, that truly can never be repaid at all.  Mother Earth herself has been scarred badly, and we all will pay the price for that.



The Dollar-Oil Nexus

Commentary below from Steve from Virginia from the Economic Undertow and RE  of the Doomstead Diner on the Dollar-Oil Nexus thread posted on The Automatic Earth by Ashvin Pandurangi.

Re: FPC: The Dollar-Oil Nexus 4 hours, 48 minutes ago #3186

After being confronted with that critique, a few of the Freegold people implied that they agreed with most of what Keen/Minsky have to say, but thought the debt deflation theory was incomplete, in terms of how central authorities can make sure the Mother of All Deflations never really takes off.

First of all, Fisher implies the (offhand) reflation strategy without going further. Leijonhufvud doesn’t offer any strategies at all! (Why should he?) However, (Free)gold folks’ awareness of nuanced (sensible) economic arguments never seems to emerge from their arguments. It seems to me that the monetary gold arguments were all made — and settled — by Wicksell and Bagehot a hundred and ten or so years ago.

Part of the problem is the absence of conventional ‘solutions’. Our dilemma lies within the inter-temporal balance sheet beyond the reach of monetary policy.

Almost no (as in zero) conventional economist makes reference to energy or resource inputs. Herman Daly equates money capital with resources (and Charlie Hall and Robert Costanza) but equilibrium economics is built around unlimited substitution. This is a dead end.

A conceptual problem is that we are at the beginning of post-industrialism. Nobody can figure out what ‘Post Industrial Society’ is going to look like or how it will function. Some think virtual reality (Kurzweil), others think ‘hunter-gatherer’ (J. Hansen) and still others a steam-punk version of modern Detroit (Greer). Human extinction is not out of the question: how does modern industrial economics factor all of these different possibilities and others beside?

Brand X economist: “Don’t blame me!”

In this context, the gold-money argument presumes a specific post-modern industrial economic society that functions/trades a specific way … a society that has conveniently forgotten Bagehot (and have never bothered to look up Wicksell). This is argument in a vacuum: not a real argument at all.

What does come next? Hard to say but the constant will be ‘less.

Re: FPC: The Dollar-Oil Nexus 1 hour, 28 minutes ago #3188

steve from virginia wrote:

In this context, the gold-money argument presumes a specific post-modern industrial economic society that functions/trades a specific way … a society that has conveniently forgotten Bagehot (and have never bothered to look up Wicksell). This is argument in a vacuum: not a real argument at all.
What does come next? Hard to say but the constant will be ‘less’.

Well stated Steve.

Overall, it is a conceptual problem.  The tendency is to accept axiomatically that even though the Fiat will crash, Homo Sapiens will continue to hold the same things valued and pursue “trade” in more or less the same manner.
This may however be one of those Roads that is a One Way Street, or even a Dead End One Way Street.

On the assumption (hope) it is not DEOWS, where will we go from here?  What happens once we reach the end of this road?
It’s all speculation, because insofar as we know (unless Atlantis really had an industrial culture before) we are breaking new ground here.  Nobody knows what a Post-Industrial world will look like.  Though of course there is no shortage of speculative Imagery out there from Mad Max to the Children of Men.

Personally, I think there will be a “Scavenger” period during which the flotsam and jetsam of the Age of Oil gets repurposed to keep stuff like the Railroads still operational for a while.  I don’t see a great future for money during this period, though if Goobermints of some sort hold together you may have some for a while.  You definitely cannot have functioning “Money” without functioning Goobermint.  After that it’s just barter, even Gold Coins are just Barter Items.  To make them “Money”, you need a Stamped Value placed on them so they are always worth the same thing inside a given trading system.

Money requires a SHARED AGREEMENT system between all in the society on the relative values of things.  When that breaks down, when some people no longer value a McMansion at all and others place preposterous Numerical Values on them, you have Mark to Make Believe  which no longer makes any sense at all.  That really is the problem here now, relative valuations based on the monetary system are not reflecting reality.  In fact, McMansions are WORTHLESS, and so are the Carz.  Helicopter Ben cannot MAKE a McMansion worth anything, he can only print Bills.  Even if he gave you a Billion of those Bills, there still would be no reason to trade them for the McMansion.

Our Value System is changing, MUST change because the Oil which powered this value system just isn’t there in quantity enough to keep the engine running, not on a Global basis anyhow.  Now we have to figure out how to value everything we still do have in the ABSENCE of Oil.  That is quite a challenge.


Hyperinflation vs Deflation: Rebutting FOFOA

Discuss this article at the Economics Table of the Diner 


One of the first Economic/Monetary threads begun when we openned the Doomstead Diner for Bizness a few months ago was a Hyperinflation vs Deflation thread.  As often as this debate has been engaged in all across the internet, it still remains one of the most vehemently argued topics from both sides, and no clear “Winner” in this has emerged as of yet.

The arguments surrounding HI & DF crossover into arguments about the worth of Precious Metals and their possible value in resolving the monetary crisis we have confronting us now.  Particularly lively arguments come off the keyboard of a Blogger who goes by the Nom de Plume of FOFOA, or “Friend of a Friend of Another”.  Apparently, all Austrian School Gold Bugs are very Friendly people, at least with each other. LOL.

Anyhow, I got into discussing the HI vs DF questions with Ashvin Pandurangi of The Automatic Earth a while after trolling and plugging the new DD Blog and Forum on TAE. Ashvin has now decided to resurrect his analysis of FOFOA’s “Freegold” Theory, and is also soliciting other critiques, so I’ll pitch in my 2 Gold Eagles on this subject now.  I’ve been over the fallacies in the thought process of what conventional economists of both the Austrian and Keynesian variety come up with many times already, but I haven’t really addressed specifically the work of FOFOA.  So I will do that here and now.

Like Ashvin, I will also make my disclaimer.  I don’t profess a complete knowledge of WTF the Freegold advocates are talking about, and frankly I have a whole lot of issues as far as wading through the stilted prose style FOFOA writes.  I am just going to look at some underlying assumptions made in this most recent justification for Freegold and for a likely Hyperinflation of the Dollar in the near term, though FOFOA refuses to make any real timeline predictions.

Let us begin here first with a major fallacy underpinning FOFOA’s entire Worldview as far as Money is concerned:

The answer is the concept of money. This is the ability, unique to humans, to use numbers, mental constructs, to relatively value the goods and services of barter in a way that enables economic activity and commerce. It is the enabler of economic activity and commerce. It is a primeval instinct.

Emphasis there is mine of course.  Primeval?  It seems FOFOA believes that Homo Sapiens dropped down out of the trees with the innate ability to create and use money, and the subtext is that it goes back in ALL cultures into the great myst of Prehistory.  He is cock sure that money in some form is an essential ingredient to the primeval Homo Sapiens mindset, but this is so untrue as to be completely laughable.  It’s pretty clear that money only evolved around the time Agriculture did, and that is only around maybe 10,000 years old.  This does not qualify as “Primeval” by any stretch of the imagination.  There is a good 60,000 years here between the time Toba erupted and the beginnings of Ag and Money, and Homo Sapiens appears to have been quite successful through that whole period.

Moreover, its not some mythical Xanadu or Utopia in which large cultures flourished without the use of money, really only once the Europeans arrived on the West Coast of the Amerikas was any Money introduced to a very large culture of First Nations people who used a Potlatch or “Gift” Economy.  FOFOA sweeps all that stuff under the rug, because it doesn’t fit the construct he wants to make regarding Money, and then more specifically Gold as Money.

Here you get into a real problem with the “Primeval” argument, since metal working, even in Gold and Silver which is a bit easier than Iron working is a VERY late coming technology here overall, and again doesn’t fit the description of “Primeval”.

Now, FOFOA does get some of the early history right in the use of PMs in barter, but he never does cover the Coinage issue here.  Metals in early tech worked very well to form difficult to counterfeit Tokens to represent stored wealth in a Warehouse.  Because of their scarcity, a token could be made with an ascribed VALUE to it representing a certain amount of grain held in a warehouse.  The Coin doesn’t have INTRINSIC value, the value gets Stamped on the coin by Da Goobermint.

Using Gold and Silver worked OK for a while, but suffered problems all along the way.  First off, Hoarding is a problem, Savers will hoard the metals and take them out of circulation.  This runs you into Money Supply problems for commerce purposes.  Worse still, in periods of famine either nature caused or induced by Human Greed, the actual amount of Food or other necessities can decrease, and then when saved Gold comes back out to buy now scarce items, there isn’t enough of the stuff to go round  to redeem with the Gold.  So the Gold value isn’t really Steady, its only relatively steady during periods of surplus.

The next problem is Increasing Population size.  If the amount of Gold is relatively fixed, but the Population is growing rapidly, in each generation there is less Gold to go round per capita than the last generation.  Today, with 7B people on the Earth, there is less than 1 ounce of the stuff for each person walking the Earth at any given time.  If Gold is the ONLY money around, then as the population grows larger the Gold becomes increasingly more scarce and valuable, so its value is NOT steady.  Its ALWAYS going to increase in value in this situation.  Increased productivity can keep prices more or less stable, but at the point at which real productivity does not match the population increase, a fixed quantity money supply will skyrocket upward in value.  It doesn’t work the same way as fiat, but it is still not truly a stable form of currency when you have a fixed supply working against a population that is growing rapidly.

We still have not worked our way into the biggest problem with PMs though, which is that of consolidation over millenia.  FOFOA himself describes the “Big Players”, long term consolidators of the Gold resource who have sequestered away MOST of the Gold ever mined up here.

Modern bullion banking is a carryover from this past. When Nixon abruptly took the dollar off the gold standard in 1971, the billions of ounces in private ownership didn’t just disappear. They weren’t cast into the streets in disgust. And these giants with 100,000 ounces or more didn’t take those tonnes home to the basement. No, they stayed right there in the bank vaults and literally JUMPED in value.

FOFOA goes on to register his complaints with the Gold ETF market (“Paper Gold”), and the fact that there is fractional lending of this through the Bullion banks just as there is Fractional Lending of Fiat (and no doubt a good deal of Rehypothecation going on with that asset as well!)

MANY claimants to this Gold now, but who REALLY gts to claim it in the end?  Generally speaking it is whoever owns the Keys to the Bank Vault.  The LAST person in the line responsible for making exchanges keeps the Asset, like MF Global whisking away depositors accounts into their own account, which then gets shifted to JP Morgan accounts.  How does Gold as a currency backer stop this from happening?  It doesn’t, and in fact probably makes it easier to accomplish.

Anyhow, with so much of what is admittedly already a pretty limited supply of Gold for 7B people on the Earth already sequestered, its pretty clear that only a very small subset of that population has sufficiently high claim and control to actually take possession of it at some point.  The amount leftover from this for people to actually do some commerce with is exceedingly small, far less than the sub 1 oz in theory available to each person based on what has been mined throughout history.  How do you De-consolidate Gold already Owned and Sequestered away by powerful people and families and then use it once again as a currency medium?  You can’t do it, and so you are left with the creation of Notes or Digibits created to represent Gold, but not Gold which ever is really available for most people to redeem.

In reality, the best arguments for how money works come from the world of Thermodynamics and Heat Flow across gradients.  In order for any Work to be done Heat has to flow from a Hot reserve to a Cold one.

PMs in their Consolidation phase measured the amount of work being done as the PMs were mined and collected up.  The energy was used to reverse the Entropy process of dispersal and consolidate the piles of metal.  During this time, the metals flowed through the economy and could be used as money.  They represented the work being done.  However, all along the way there was a lot of waste Heat expended, and you are not going to get the same amount of work done by taking the piles of Gold and sending them back the other way.

This brings us to FOFOA’s arguments regarding what “Capital” is.

I’m not going to go into great detail on the concept of capital, other than to give you a mental exercise. Because the term “capital” can be quite confusing in our modern paper/electronic world, I want you to imagine a much simpler human civilization. Imagine an ancient Greek city. All the buildings made of stone and mud, the horse carts and agricultural tools, the linens and skins worn as clothing, the knowledge base passed down through generations; all these creations of man’s intellect were the capital of the time.

Now imagine the destruction of capital. Imagine an earthquake or volcano that destroys the fruits of many generations. Or a plague or war, perhaps, that destroys the knowledge base. That’s the loss of real wealth you are imagining. And it is this cycle of capital creation and destruction that tells the story of mankind throughout many civilizations.

The modern analogy to FOFOA’s Stone and Mud Huts and Horse Carts in the Ancient World are today’s McMansions and Carz.  In his version of Capital destruction it takes an Earthquake or Volcano to destroy this “Capital”, but he doesn’t address the fact that Capital of this kind can become worthless even if it is still standing.  The McMansions and the Carz are losing Value because the Energy is no longer there to use them.  The “Capital” that was expended to build said infrastructure was the Oil burned, which now exists only as molecules of CO2 in the atmosphere.  What “Capital Destruction” has been going on for the Age of Oil came in the form of the burning of that Oil.  The OIL was the Capital here, not the stuff that was built with it.

Finally, WRT arguments about Hyperinflation and the relative worth of Gold in a monetary system collapse such as the one we are undergoing now is concerned, most of the perceived value of the Industrial Era has been “accounted” for by using the Dollar as a measure of the relative worth of goods and services through the era.  In order to try and keep nominal values from collapsing even though the real value of assets is decreasing, more dollar liquidity is being pushed into the center of the system at the TBTF Bank level.  However, said liquidity is not escaping into the real economy as of yet, and until there are some signficant Policy shifts, it is not likely to escape either, except into the pockets of a few well connected thieves.

Shifting onto Gold at this point in the Game would be outrageously Deflationary, which I think the Austrians overall view as a Good Thing as the Credit Cycle gets a Reboot that way, but in practical terms it would pretty much halt all trade since most of the Gold in the world is sequestered in the vaults of only a few people and Sovereign holdings, to which there is also likely Private Claim on.  Such a shift to Gold WOULD of course be Hyperinflationary for the Dollar, so for Gold Bugs that is a self-fulfilling prophesy.  In essence, the constant propaganda being written by Gold Bug websites for people to take their Dollars and convert to Gold is meant to increase the perceived value of Gold and in turn force a hyperinflation of the Dollar.  This is proving a bit harder to accomplish IRL than in the mind of the Gold Bug.

Because the Fiat structure is so large and complex, the value system of all assets including the PMs are being subjected to tidal forces as it implodes on itself, resultant from the fact the Capital underpinnning of Oil is becoming more scarce. Oil however isn’t disappearing overnight, and the overall game is being balanced out some by Demand Destruction.  The Dollar’s preemminence as World Reserve Currency isn’t yet being challenged effectively, despite Chinese claims that Renminby will soon be the World Reserve Currency, or Gold Bugs claims that it will soon be Gold.  This is not to say the Dollar will not eventually collapse in its value, it most certainly will.  However, many more parts of the peripheral economies and other currencies will get hit on here first, and during that period the Dollar is likely to remain perceived as the Safest Haven in a War Zone.

In the deleveraging that must occur by any economic argument, all asset classes are going to come under pressure, that includes Gold and it includes Oil too.  The CBs may work in concert to try and maintain nominal values, but this will simply turn their own balance sheets into TOAST as well. The Market in turn will react to that, and eventually you do get your currency collapse of the Dollar as well.  Whether Gold is turned to as an alternate Currency Medium in this phase remains an Open Question.  I do not think so based on my thermodynamic arguments or in sheer practicality terms, but I wouldn’t rule it out.

Far as FOFOA, FOA and A are concerend, they are all just shills for a very old concept of money, and who all also likely have skin in the game for making their prophesies come true.  Anyone who does hold a lot of Gold in the Basement safe clearly would be ecstatic if it rocketed up in value to $10K/oz or more.  I will be very surprised if that occurs, I think the whole trading system would collapse if PMs took on those kind of valuations, but only time will tell on that one.  In the medium term here though, an HI of the Dollar seems unlikely to begin inside the next couple of years anyhow.  The Euro definitely has to collapse first, and that will take some time yet to play out.



Hyperinflation vs Deflation….continued

More from inside the Diner on the Hyperinflation/Inflation/Deflation Question.  Click here to read the full debate ETERNALLY  in progress.

Ashvin Pandurangi of TAE wrote:

I recommend everyone here to take a look at FOFOA’s latest (behemoth of a) post – Hyperinflation or Deflation?

The most interesting thing for me is that I agree with 99% of what he writes in that post, and I think he provides A LOT of genuine insights (such as the importance of comparing marginal [i]flow[/i] of dollars in the “physical plane” – US public deficit vs. trade deficit), but I still strongly disagree with his theoretical foundations, general worldview (including his very benign view of the monetary system – i.e. no malicious intent) and many of his conclusions.

However, I DO agree that dollar HI is a) very likely in the medium to long-term (let’s say 8-20 years) and b) much more likely than a prolonged period of regular old inflation. With regards to a), FOFOA doesn’t think that sort of timing is very important, but I most certainly do.

Anyway, it is a great post, even though it is very difficult to get through in one sitting.

I read through some of this eruption of prose from the keyboard of FOFOA, and will finish eventually but after skimming what I didn’t read in detail, the main problem here is the fact FOFOA refuses to make any kind of timing bet, which is rather critical in all of this.

Even deflationistas like myself will grant that the denoument of currency collapse can come in the form of a hyperinflation. I maintain however that an HI cannot be supported until and unless Da Goobermint or the Banks which control it start handing out free money to the end consumers. The “Free Money” could comein the form of Goobermint “Make Work” projects like the WPA or a straight Dole, or from the Banksters it could come in the form of massive new loans made to EVERYBODY, from corporations to municipal Goobermints to keep paying their workers.

At the moment, neither of these outcomes is on the horizon for the FSofA, and for 99% of the people out there, Dollars are a SCARCE commodity and hard to come by. HTF can you get an HI out of something so scarce? If you take the definition of an HI as 6% monthly inflation, you’ll double prices in about a year. If that occurs with gas here now, gas sales will PLUMMET because people don’t have the money to buy gas even at current prices.

Contrast this with the situation in Greece if/when they reissue Drachma. The Greeks will issue this TP to pay all their pensioners and Civil Service workers to keep them employed. Any beginning devaluation against the Euro of say 50% will rapidly further devalue. There is no tie to actual productivity in a Drachma reissue. There is no tie to Drachma and Oil to run the economy. The Drachma is meaningless.

The Dollar remains meaningful as long as its tie to Oil remains in place, and as long as dollars are scarce in the real econmy. Though I did not read all the way through FOFOA’s post, I don’t see where he ties together the proxy status of the Dollar as representative of a given quantity of Oil. Long as Saudi’s will take Dollars for Oil and the dollars are scarce to end consumers of said oil, you just can’t support an HI in the Dollar.

The MOMENT the Saudis will NOT take dollars for Oil is the moment it can HI. Then they become as worthless as New Drachma. Everybody who has any Dollars in the Bank of Sealy will try to dump them all at the same time, and whatever is left on the shelves of Walmart will FLY off those shelves at rapidly increasing prices. Then you’ll get your HI until all the warehouses and distribution centers are cleared of goods. Of course, Da Goobermint will likely step in here with Ration Coupons and so forth to stop that scenario from occurring.

At the moment though, there is little danger the Saudis will stop taking Dollars for Oil, because the House of Saud has a Gun duct taped to the side of its collective Sheik Heads. The Gun is the Big Ass Military,and without it the House of Saud is TOAST. The Sheiks will be LITERALLY eaten alive by the population surrounding them. This is the POLITICAL side of the equation that FOFOA never seems to deal with, all his arguments are economic ones.

In any event, for most people it is the TIMING that is most critical here. That the currency will collapse at some point is inevitable, but when do you divest and what do you do in the meantime? My “solution” here is to reamin as liquid as possible so I can divest rapidly for hard goods when the final collapse comes. To be able to do that, I forgo investments that in the interim might provide an increasing pile of funny money if I choose correctly.

Finally, on the Gold issue, the deal with Gold is that even assuming it holds some value that Fiat does not, by the time you work your way down to trading in Gold, there will just be nothing around worth buying for it. The whole JIT system will collapse, all trade with China will collapse, there just will not be anything to buy once Gold is all there is anyone “trusts” anymore. No Letters of Credit, no Bankster will be trusted for anything. You can’t move a Global Economy shipping Gold Bars from one place to another, its even probably impossible to do it moving piles of Gold from one holding cell to another in the Basement Safe of the NY Fed.

Meanwhile, until Da Goobermint starts handing out Free Money to J6P the way it does to the TBTF Banksters, I don’t think we will see HI in the Dollar. For sure, it has to wait until after both the Euro and Yen collapse also. Not on the immediate horizon, IMHO.


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I wonder how much these coins have been debased? [...]

Precious tip of the day.....Buy silver NOW  She [...]

Scientists have unlocked the power of gold atoms b [...]

Quote from: azozeo on August 14, 2019, 10:41:33 AM [...]

Quote from: Eddie on May 16, 2020, 10:30:30 AMQuot [...]

Quote from: RE on May 16, 2020, 08:20:06 AMQuote f [...]

Quote from: RE on May 16, 2020, 08:20:06 AMQuote f [...]

Quote from: Surly1 on May 16, 2020, 08:10:27 AMAnd [...]

Quote from: RE on May 16, 2020, 05:20:48 AMWhat?  [...]

Alternate Perspectives

  • Two Ice Floes
  • Jumping Jack Flash
  • From Filmers to Farmers

The Coming War With China Re-posted from   (Have you noticed that (suddenly) Ch [...]

Papers Please! By Cognitive Dissonance     For those who may not know, Mrs. Cog and I live in the mo [...]

Lies, Damn Lies and Coronavirus Statistics By Cognitive Dissonance     “Never believe anything in po [...]

The Decline and Fall of Civil Society Chapter One By Cognitive Dissonance     From my perspective at [...]

Missing In Action By Cognitive Dissonance     As a very young pup, whenever I was overdue and not ho [...]

Event Update For 2020-06-03 [...]

Event Update For 2020-06-02 [...]

Event Update For 2020-06-01 [...]

2020 - MAY - Spotlight StoriesCategory: Variety Pack2020-05-01 - New way of measuring ice melt in Antarctica and Greenland sounds [...]

With fusion energy perpetually 20 years away we now also perpetually have [fill in the blank] years [...]

My mea culpa for having inadvertently neglected FF2F for so long, and an update on the upcoming post [...]

NYC plans to undertake the swindle of the civilisation by suing the companies that have enabled it t [...]

Daily Doom Photo



  • Peak Surfer
  • SUN
  • Transition Voice

The Great Pause Week 10: President Jill Stein"President Stein asked what preparations were warranted at this time. The CDC Director said tha [...]

The Great Pause Week 9: México's Seppuku"The survival of life on earth depends on México’s dark fossil sunlight never seeing the light [...]

"We are one large solar flare, one errant asteroid, one mutant gene, or one nuclear winter away [...]

The Great Pause Week 7: Coping with a Nuclear Infection"Emergency preparedness plans are already inadequate, but the prospect of a mandatory mass evac [...]

The Great Pause Week 6: The Green Child"There passed long stretches of beautiful waterfront acreage with hanging Spanish moss, decayin [...]

The folks at Windward have been doing great work at living sustainably for many years now.  Part of [...]

 The Daily SUN☼ Building a Better Tomorrow by Sustaining Universal Needs April 3, 2017 Powering Down [...]

Off the keyboard of Bob Montgomery Follow us on Twitter @doomstead666 Friend us on Facebook Publishe [...]

Visit SUN on Facebook Here [...]

What extinction crisis? Believe it or not, there are still climate science deniers out there. And th [...]

My new book, Abolish Oil Now, will talk about why the climate movement has failed and what we can do [...]

A new climate protest movement out of the UK has taken Europe by storm and made governments sit down [...]

The success of Apollo 11 flipped the American public from skeptics to fans. The climate movement nee [...]

Today's movement to abolish fossil fuels can learn from two different paths that the British an [...]

Top Commentariats

  • Our Finite World
  • Economic Undertow [...]

In reply to JMS. nothing really matters: nothing really [...]

In reply to Covidinamonthorayearoradecade. not W Carlos, but a joyous version: [...]

In reply to Tim Groves. And now that I think about it again, you may be right. The path from the hea [...]

In reply to Malcopian. "Back then you couldn’t play chords on the machine – they had to be labo [...]

Same here! Greetings to all, and thank you Steve. [...]

Really glad to hear from you. Can't wait for the post. [...]

In reply to ellenanderson. Sorry I haven't been writing lately, there is a lot/nothing going on [...]

Hi sp gp Sorry didn't mean to be harsh. I myself go through waves of bitterness and anger (I lo [...]

RE Economics

Going Cashless

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Simplifying the Final Countdown

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Bond Market Collapse and the Banning of Cash

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Do Central Bankers Recognize there is NO GROWTH?

Discuss this article @ the ECONOMICS TABLE inside the...

Singularity of the Dollar

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Kurrency Kollapse: To Print or Not To Print?

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

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Merry Doomy Christmas

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Peak Customers: The Final Liquidation Sale

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Collapse Fiction

Useful Links

Technical Journals

Odisha is multi-hazard-prone state in the eastern part of India. Among the various disasters, the fr [...]

In the context of global climate change, it is increasingly important for architects to understand t [...]

Rapid urbanization and associated land-use changes in cities cause an increase in the demand for ele [...]

Water deficit is high and precipitation varies spatio-temporally in arid areas. This study was condu [...]

Trees are considered to be effective for the mitigation of urban overheating, and the cooling capaci [...]