Hyperinflation

4 Signs of Deflation

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Published on The Economic Collapse on July 20, 2015

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4 Things That Are Happening Today That Indicate That A Deflationary Financial Collapse Is Imminent

When financial markets crash, they do not do so in a vacuum.  There are always patterns, signs and indicators that tell us that something is about to happen.  In this article, I am going to share with you four patterns that are happening right now that also happened just prior to the great financial crisis of 2008.  These four signs are very strong evidence that a deflationary financial collapse is right around the corner.  Instead of the hyperinflationary crisis that so many have warned about, what we are about to experience is a collapse in asset prices, a massive credit crunch and a brief period of absolutely crippling deflation.  The response by national governments and global central banks to this horrific financial crisis will cause tremendous inflation down the road, but that comes later.  What comes first is a crisis that will initially look a lot like 2008, but will ultimately prove to be much worse.  The following are 4 things that are happening right now that indicate that a deflationary financial collapse is imminent…

#1 Commodities Are Crashing

In mid-2008, just before the U.S. stock market crashed in the fall, commodities started crashing hard.  Well, now it is happening again.  In fact, the Bloomberg Commodity Index just hit a 13 year low, which means that it is already lower than it was at any point during the last financial crisis…

 

#2 Oil Is Crashing

On Monday, the price of oil dipped back below $50 a barrel.  This has surprised many analysts, because a lot of them thought that the price of oil would start to rebound by now.

In early 2014, the price of a barrel of oil was sitting above $100 a barrel and the future of the industry looked very bright.  Since that time, the price of oil has fallen by more than 50 percent.

There is only one other time in all of history when the price of oil has fallen by more than $50 a barrel in such a short period of time.  That was in 2008, just before the great financial crisis that erupted later that year.  In the chart posted below, you can see how similar that last oil crash was to what we are experiencing right now…

Oil Price 2015

#3 Gold Is Crashing

Most people don’t remember that the price of gold took a very serious tumble in the run up to the financial crisis of 2008.  In early 2008, the price of gold almost reached $1000 an ounce, but by October it had fallen to nearly $700 an ounce.  Of course once the stock market finally crashed it ultimately propelled gold to unprecedented heights, but what we are concerned about for this article is what happens before a crisis arrives.

Just like in 2008, the price of gold has been hit hard in recent months.  And on Monday, the price of gold absolutely got slammed.  The following comes from USA Today

The yellow metal has tumbled to a five-year low amid a combination of diminishing investor fears related to foreign headwinds in Greece and China, and stronger growth in the U.S. which is leading to a stronger dollar and coming interest rate hikes from the Federal Reserve. Investors have been dumping shares of gold-related investments as other bearish signs, such as less demand from China and the breaking of key price support levels, add up.

Earlier today, an ounce of gold fell below $1,100 an ounce to $1,080, its lowest level since February 2010. Gold peaked around $1,900 an ounce back in 2011.

For years, I have been telling people that we were going to see wild swings in the prices of gold and silver.

And to be honest, the party is just getting started.  Personally, I particularly love silver for the long-term.  But you have got to be able to handle the roller coaster ride if you are going to get into precious metals.  It is not for the faint of heart.

#4 The U.S. Dollar Index Is Surging

Before the U.S. stock market crashed in the fall of 2008, the U.S. dollar went on a very impressive run.  This is something that you can see in the chart posted below.  Now, the U.S. dollar is experiencing a similar rise.  For a while there it looked like the rally might fizzle out, but in recent days the dollar has started to skyrocket once again.  That may sound like good news to most Americans, but the truth is that a strong dollar is highly deflationary for the global financial system as a whole for a variety of reasons.  So just like in 2008, this is not the kind of chart that we should want to see…

Dollar Index 2015

If a 2008-style financial crisis was imminent, these are the kinds of things that we would expect to see happen.  And of course these are not the only signs that are pointing to big problems in our immediate future.  For example, the last time there was a major stock market crash in China, it came just before the great U.S. stock market crash in the fall of 2008.  This is something that I covered in my previous article entitled “Guess What Happened The Last Time The Chinese Stock Market Crashed Like This?

As an attorney, I was trained to follow the evidence and to only come to conclusions that were warranted by the facts.  And right now, it seems abundantly clear that things are lining up in textbook fashion for another major financial crisis.

But even though what is happening right in front of our eyes is so similar to what happened back in 2008, most people do not see it.

And the reason why they do not see it is because they do not want to see it.

Just like with most things in life, most people end up believing exactly what they want to believe.

Yes, there is a segment of the population that are actually honest truth seekers.  If you have felt drawn to this website, you are probably one of them.  But overall, most people in our society are far more concerned with making themselves happy than they are about pursuing the truth.

So even though the signs are obvious, most people will never see what is coming in advance.

I hope that does not happen to you.

Bond Market Collapse and the Banning of Cash

logopodcastOff the microphone of RE

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Aired on the Doomstead Diner on May 22, 2015

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Snippet:

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

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

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

For the rest, LISTEN TO THE RANT!!!

Full Rant Transcript available HERE

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

Kurrency Kollapse: To Print or Not To Print?

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Aired on the Doomstead Diner on March 14, 2015

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

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Snippet:

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

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

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

For the rest, LISTEN TO THE RANT!!!

Peak Customers: The Final Liquidation Sale

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Published on the Doomstead Diner on December 13, 2014

 

…and the WINNER is…The ENVELOPE Please!…



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

               HYPERINFLATION       OR              DEFLATION

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…DEFLATION!

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

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

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

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

FLASHBACK!  BLASTS FROM THE PAST…

Popping the Inflationista Bubble Theory

July 13, 2009

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

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

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

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

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

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

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

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

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

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

RE

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

Realities of Exponential Growth

Dec 26 8:59 AM

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

RE

Dollar Devaluation
Oct 14, 2009

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

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

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

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

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

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

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

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

RE

…and now BACK TO THE FUTURE!

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

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

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

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

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

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

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

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

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

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

Time for a CRAZY IVAN!

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

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

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

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

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

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

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

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

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

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

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

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

Coming Soon to a Theater Near You.

It’s the FINAL COUNTDOWN now…

RE

Japan Goes Full Retard

logopodcastOff the microphone of RE

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Aired on the Doomstead Diner on November 2, 2014

Kuroda Sez…ENGAGE!

Discuss this Rant at the Economics Table inside the Diner

You think FSoA Debt problems are Bad?  Try TURNING JAPANESE!

http://www.surlytrader.com/wp-content/uploads/2009/11/DebtToGDP.jpg

It’s RANT TIME!

Snippet:

seppuku…The first thing you have to realize is that the Japanese are PURPOSEFULLY trying to inflate their economy. They have been mired in a 20 going on 30 year deflation, which makes it ever harder for them to service their own debt, which of course they mostly owe to themselves but try not to let that confuse you. Things have been getting exponentially worse since Fukushima and the Global Financial Crisis of 2008 before that, steadily eroding Japan’s former trade surplus, which now is basically negative since carz aren’t selling well and the Nips have to import all their energy. The idea you can cure this problem with any kind of monetary stimulus is ludicrous of course, but the alternative is for their economy to completely implode, and they are trying to put off the Day of Reckoning as long as possible here. Normally, you would expect this type of berzerk economic behavior to compeltely crash the currency on Day 1, but that isn’t going to happen here immediately, though in the medium to long term it is inevitable. Why not?…

For the rest, LISTEN TO THE RANT!!!

Deflation Doom

Off the microphone of RE

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logopodcast

Published on the Doomstead Diner on April 19, 2014

Snippet:

…What the CBs and Financial Pundits like Ambrose Evans-Pritchard are TERRIFIED by now is apparent DEFLATION through numerous of the micro economies throughout Eurotrashland. Prices are FALLING! Horrors! Even in SWEDEN prices are falling! This really gets nasty in the world of Real Estate, because falling prices put many McMansion “Owners” underwater, where they owe more than the box is worth on the market. Combine that with defaults and foreclosures (which actually are the cause of the falling prices) and banks get stuck with a lot of White Elephants they can’t sell.

To solve THAT problem, the Cbs start offering up lots of low interest money to the well connected to go buy the junk and keep the prices propped up, leading to Hedge Funds like Blackrock getting into the rental bizness, which generally is a nightmare to run….

For the rest, listen to the RANT!

RE

Punking Ourselves to Death

Off the keyboard of James Howard Kunstler

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Originally Published on Clusterfuck Nation  December 16, 2013

     The so-called Volcker Rule for policing (ha!) banking practices, approved by a huddle of federal regulating agency chiefs last week, is the latest joke that America has played on itself in what is becoming the greatest national self-punking exercise in world history.

     First of all (and there’s a lot of all), this rule comes in the form of nearly 1,000 pages of incomprehensible legalese embedded in what was already a morbidly obese Dodd-Frank Wall Street Reform (ha!) and Consumer Protection (ha!) Act of 2012 that clocked in at 2000 pages, not counting the immense rafts of mandated interpretations and adumbrations, of which the new Volcker Rule is but one. These additions were required because the Dodd-Frank Act itself did not really spell out the particulars of enforcement but rather left it to the regulatory agencies to construct the rules — which they did with “help” of lobbyist-lawyers furnished by the banks themselves. That is, the lobbyists actually wrote the rules for Dodd-Frank and everything in it, which means the banks wrote the rules. Does this strain your credulity? Well, this is the kind of nation we have become: anything goes and nothing matters. There really is no rule of law, just pretense.

     The Volker Rule was a lame gesture toward restoring the heart of the Glass-Steagall provisions of the Banking Act of 1933, which were repealed in 1999 in a cynical effort led by Wall Street uber-grifter Robert Rubin and his sidekick Larry Summers, who served serially as US Treasury Secretaries under Bill Clinton. Glass Steagall was passed in Congress following revelations of gross misconduct among bankers leading up to the stock market crash of 1929. The main thrust of Glass Steagall was to mandate the separation of commercial banking (deposit accounts + lending) from investment banking (underwriting and trading in securities). The idea was to prevent banks from using money in customer deposit accounts to gamble in stocks and other speculative instruments. This rule was designed to work hand-in-hand with the Federal Deposit Insurance Corporation (FDIC), also created in 1933, to backstop the accounts of ordinary citizens in commercial banks. The initial backstop limits were very modest: $2,500 at inception, and didn’t rise above $40,000 until 1980. Investment banks, on the other hand, were not backstopped at all under Glass-Steagall, since their activities were construed as a form of high-toned gambling.

     The Glass Steagall Act of 1933 was about 35 pages long, written in language that was precise, clear, and succinct. It worked for 66 years. Banking during those years was a pretty boring business, commercial banking especially. It operated on the 3-6-3 principle — pay 3 percent interest on deposits, lend at 6 percent, and be out on the golf course at 3 p.m. Bankers made a nice living but nothing like the obscene racketeering profits engineered by the looting operations of today. Before 1980, the finance sector of the economy was about 5 percent of all activity. Its purpose was to allocate precious capital to new productive ventures.

            As American manufacturing was surrendered to other countries, there were fewer productive ventures for capital to be directed into. What remained was real estate development (a.k.a. suburban sprawl) and finance, which was the enabler of it. Finance ballooned to 40 percent of the US economy and the American landscape got trashed. The computer revolution of the 1990s stimulated tremendous “innovation” in financial activities. Much of that innovation turned out to be new species of swindles and frauds. Now you understand the history of the so-called “housing bubble” and the crash of 2008. The US never recovered from it, and all the rescue attempts in the form of bail-outs, quantitative easing, zero interest rates, have turned into rackets aimed at papering-over this national failure to thrive. It is all ultimately linked to the larger story of industrialism and its relationship with the unique, finite, fossil fuel resources that the human race got cheaply for a few hundred years. That story is now winding down and we refuse to pay attention to the reality of it.

       The absurdity of Dodd-Frank and the Volcker Rule in the face of that is just another symptom of that tragic inattention. The baroque prolixity of these statutes must have been fun for the lawyers to construct — thousands of pages of incantatory nonsense aimed at confounding any attempt to enforce decent conduct among bankers and their supposed regulators — but it does nothing to really help us move into the next phase of history.

 

***

James Howard Kunstler is the author of many books including (non-fiction) The Geography of Nowhere, The City in Mind: Notes on the Urban Condition, Home from Nowhere, The Long Emergency, and Too Much Magic: Wishful Thinking, Technology and the Fate of the Nation. His novels include World Made By Hand, The Witch of Hebron, Maggie Darling — A Modern Romance, The Halloween Ball, an Embarrassment of Riches, and many others. He has published three novellas with Water Street Press: Manhattan Gothic, A Christmas Orphan, and The Flight of Mehetabel.

 

Two Forces and Three Bears

Off the keyboard of James Howard Kunstler

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Originally Published on Clusterfuck Nation  October 28, 2013
Escher_Implosion_spiral_toroid

 

 

     In these climax years of industrial technocratic society, two opposing forces shape the destiny of government: the desperate effort to control everything versus the decline of the ability to carry out that effort. The result will be the loss of legitimacy and the collapse of government from the highest levels, moving downward until the real power to make anything work re-sets at a feasible and appropriate level — probably very local. This dynamic is seen very clearly in three spectacles du jour: the “national security” (spying) mess, government-sponsored accounting fraud in finance, and the ObamaCare rollout.

     As history develops, people do things for the simple reason that it seems like a good idea at the time. Computer tech made it possible for bureaucrats and military apparatchiks to invade the privacy of everybody, but in the end it only had the effect of embarrassing the perpetrators and eroding a big chunk of the US government’s legitimacy. The attempt at maximum control will eventually lead to maximum resistance and, quite possibly, some sort of political revolution, perhaps starting with the death of the two dominant political parties. When political disruption finally occurs, it will manifest quickly, as criticality thresholds are breached. It has the potential of taking this society in very undesirable directions including civil war, theocracy, and war against other peoples.

     The diminishing returns of computer technology applied to intelligence gathering are that it produces more mountains of data than any team of professionals can make sense of, and it prompts said professionals to make mischief with the information that is easiest to sort out: the financial records of ordinary citizens. Nothing will create political resistance more surely than messing with people’s money. The NSA apparatus is now a self-reinforcing monster that will strive for ever more control ineffectively, creating a debris path of ever more embarrassment and resentment. A lone true patriot like Snowden does more to oppose this monster than all the “freedom” and “liberty” spouting, flag-lapel-pin-wearing cowards in either political party.

     The pervasive accounting fraud in the attempt to prop up an unsound banking system is even closer to criticality. A society that produces tradable goods needs sound money which functions as 1) a medium of exchange, 2) a store of value 3) a unit of account for establishing prices. The combined accounting frauds in Federal Reserve policy, private banking and securities markets, and government fiscal management is destroying all these functions. The more abstracted finance gets from real productive activity, the more fragile the system becomes. We are doing nothing now except adding more complexity and abstraction to it, causing the system to become more detached from reality. In effect, we’re opting to forego an economy based on goods in favor of one based on empty promises and paper swindles. The potential and probable consequent destruction of nominal wealth would be an event that advanced technocratic society likely will not recover from — in the sense that today’s standard of living could be preserved for billions of people worldwide. That destruction would herald a new dark age, this time without any prospect of recovery via the exploitation of natural resources, which will have been depleted.

     The ObamaCare piece of the picture is a mere pathetic soap opera compared to the first two quandaries. The 2000-page law did nothing to address the core tragedy of medicine in America — namely, that it has evolved into a hideous hostage racket. You go to a hospital with a terrifying illness and you are susceptible to fleecing by the so-called “care-givers” for the promise that you may get to live. No prices for treatment are never discussed. They are presumed to be astronomical — but who cares if you end up dead, and if you do get to live, you’ll figure that out later. If you hold an insurance policy, these charges will be subject to a fake negotiation between grifting insurance companies and grifting hospitals, physicians, and drug companies. The price “settlements” are only slightly less a joke than the actual charges, and are obfuscated in documents designed to bewilder even well-educated policy-holders.

     Even if you are insured, the charges may bankrupt you. A typical one-day charge for “room and board” in a non-specialized hospital in-patient bed runs $23,000 at my local hospital. For what? Half a dozen blood-pressure checks and three bad meals? You can be sure that ever-fewer families will be able to fork over $12,000-a-year for basic coverage. The ObamaCare legislation and its laughable rollout of a useless website is just a punctuation mark at the end of the soap opera script. The result eventually will be the complete implosion of the medical racket and a return to a very primitive clinic system, with payment in chickens or cords of stove-wood. The smaller number of surviving humans will surely enjoy better health, and greater piece of mind, when this monster racket expires of inertia, bad faith, and deceit.

    These efforts to manage runaway hyper-complexity with more complexity are guaranteed to fail. Our prime task at this moment in history is managing contraction, and the means for doing that would be simplifying, not adding layers of complication larded with fraud, pretense, and mendacity.

 

 

***

James Howard Kunstler is the author of many books including (non-fiction) The Geography of Nowhere, The City in Mind: Notes on the Urban Condition, Home from Nowhere, The Long Emergency, and Too Much Magic: Wishful Thinking, Technology and the Fate of the Nation. His novels include World Made By Hand, The Witch of Hebron, Maggie Darling — A Modern Romance, The Halloween Ball, an Embarrassment of Riches, and many others. He has published three novellas with Water Street Press: Manhattan Gothic, A Christmas Orphan, and The Flight of Mehetabel.

Trying to Stay Sane in an Insane World- At World’s End

Off the keyboard of Jim Quinn

Published on The Burning Platform on September 10, 2013

Cuckoos_Nest

Discuss this article at the Geopolitics Table inside the Diner

In the first three parts (Part 1, Part 2, Part 3) of this disheartening look back at a century of central banking, income taxing, military warring, energy depleting and political corrupting, I made a case for why we are in the midst of a financial, commercial, political, social and cultural collapse. In this final installment I’ll give my best estimate as to what happens next and it has a 100% probability of being wrong. There are so many variables involved that it is impossible to predict the exact path to our world’s end. Many people don’t want to hear about the intractable issues or the true reasons for our predicament. They want easy button solutions. They want someone or something to fix their problems. They pray for a technological miracle to save them from decades of irrational myopic decisions. As the domino-like collapse worsens, the feeble minded populace becomes more susceptible to the false promises of tyrants and psychopaths. There are a myriad of thugs, criminals, and autocrats in positions of power who are willing to exploit any means necessary to retain their wealth, power and control. The revelations of governmental malfeasance, un-Constitutional mass espionage of all citizens, and expansion of the Orwellian welfare/warfare surveillance state, from patriots like Julian Assange, Bradley Manning and Edward Snowden has proven beyond a doubt the corrupt establishment are zealously anxious to discard and stomp on the U.S. Constitution in their desire for authoritarian control over our society.

Anyone who denies we are in the midst of an ongoing Crisis that will lead to a collapse of the system as we know it is either a card carrying member of the corrupt establishment, dependent upon the oligarchs for their living, or just one of the willfully ignorant ostriches who choose to put their heads in the sand and hum the Star Spangled Banner as they choose obliviousness to awareness. Thinking is hard. Feeling and believing a storyline is easy.

 

A moral society must be inhabited by an informed, educated, aware populace and   governed by honorable leaders who oversee based upon the nation’s founding principles of liberty, freedom and limited government of, by and for the people. A moral society requires trust, honor, property rights, simple just laws, and the freedom to succeed or fail on your own merits. There is one major problem in creating a true moral society where liberty, freedom, trust, honor and free markets are cherished – human beings. We are a deeply flawed species who are prone to falling prey to the depravities of lust, gluttony, greed, sloth, wrath, envy and pride. Men have always been captivated by the false idols of dominion, power and wealth. The foibles of human nature haven’t changed over the course of history. This is why we have 80 to 100 year cycles driven by the same human strengths and shortcomings revealed throughout recorded history.

Empires rise and fall due to the humanness of their leaders and citizens. The great American Empire is no different. It was created a mere 224 years ago by courageous patriots who risked their wealth and their lives to create a Republic founded upon the principles of freedom, liberty, and the pursuit of happiness; took a dreadful wrong turn in 1913 with the creation of a privately held central bank to control its currency and introduction of an income tax; devolved into an empire after World War II, setting it on a course towards bankruptcy; sealed its fate in 1971 by unleashing power hungry psychopathic elitists to manipulate the monetary and fiscal policies of the nation to enrich themselves; and has now entered the final frenzied phase of pillaging, currency debasement, war mongering, and ransacking of civil liberties. Despite the frantic efforts of the financial elite, their politician puppets, and their media propaganda outlets, collapse of this aristocracy of the moneyed is a mathematical certainty. Faith in the system is rapidly diminishing, as the issuance of debt to create the appearance of growth has reached the point of diminishing returns.

 

Increase in Real GDP per Dollar of Incremental Debt

“At the root of America’s economic crisis lies a moral crisis: the decline of civic virtue among America’s political and economic elite. A society of markets, laws, and elections is not enough if the rich and powerful fail to behave with respect, honesty, and compassion toward the rest of society and toward the world.”Jeffrey Sachs

Five Stages of Collapse

The day of reckoning for a century of putting our faith in the wrong people with wrong ideas and evil intentions is upon us. Dmitry Orlov provides a blueprint for the collapse in his book The Five Stages of Collapse – Survivors’ Toolkit:

Stage 1: Financial Collapse. Faith in “business as usual” is lost. The future is no longer assumed to resemble the past in any way that allows risk to be assessed and financial assets to be guaranteed. Financial institutions become insolvent; savings wiped out and access to capital is lost.

Stage 2: Commercial Collapse. Faith that “the market shall provide” is lost. Money is devalued and/or becomes scarce, commodities are hoarded, import and retail chains break down and widespread shortages of survival necessities become the norm.

Stage 3: Political Collapse. Faith that “the government will take care of you” is lost. As official attempts to mitigate widespread loss of access to commercial sources of survival necessities fail to make a difference, the political establishment loses legitimacy and relevance.

Stage 4: Social Collapse. Faith that “your people will take care of you” is lost, as social institutions, be they charities or other groups that rush to fill the power vacuum, run out of resources or fail through internal conflict.

Stage 5: Cultural Collapse. Faith in the goodness of humanity is lost. People lose their capacity for “kindness, generosity, consideration, affection, honesty, hospitality, compassion, charity.” Families disband and compete as individuals for scarce resources. The new motto becomes “May you die today so that I can die tomorrow.”

The collapse is occurring in fits and starts. The stages of collapse do not necessarily have to occur in order.  You can recognize various elements of the first three stages in the United States today. Stage 1 commenced in September 2008 when this Crisis period was catalyzed by the disintegration of the worldwide financial system caused by Wall Street intentionally creating the largest control fraud in world history, with easy money provided by Greenspan/Bernanke, fraudulent mortgage products, fake appraisals, bribing rating agencies to provide AAA ratings to derivatives filled with feces, and having their puppets in the media and political arena provide the propaganda to herd the sheep into the slaughterhouse.

The American people neglected their civic duty to elect leaders who would tell them the truth and represent current and future generations equally. They have neglected the increasing lawlessness of Wall Street, K Street and the corporate suite. The American people have lived in denial about their responsibility for their own financial well-being, willingly delegating it to a government of math challenged politicians who promised trillions more than they could ever deliver. The American people have delayed tackling the dire issues confronting our nation, including: $200 trillion of unfunded liabilities, the military industrial complex creating wars across the globe, militarization of our local police forces, domestic spying on every citizen, allowing mega-corporations and the financial elite to turn our nation from savings based production to debt based consumption, and allowing corporations, the military industrial complex, Wall Street, and shadowy billionaires to pick and control our elected officials. The civic fabric of the country is being torn at the points of extreme vulnerability.

“At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where, during the Unraveling, America will have neglected, denied, or delayed needed action. Anger at “mistakes we made” will translate into calls for action, regardless of the heightened public risk. It is unlikely that the catalyst will worsen into a full-fledged catastrophe, since the nation will probably find a way to avert the initial danger and stabilize the situation for a while. Yet even if dire consequences are temporarily averted, America will have entered the Fourth Turning.”  – The Fourth Turning – Strauss & Howe – 1997

Our Brave New World controllers (bankers, politicians, corporate titans, media moguls, shadowy billionaires) were able to avert a full-fledged catastrophe in the fall of 2008 and spring of 2009 which would have put an end to their reign of destruction. To accept the rightful consequences of their foul actions was intolerable to these obscenely wealthy, despicable men. Their loathsome and vile solutions to a crisis they created have done nothing to relieve the pain and suffering of the average person, while further enriching them, as they continue to gorge on the dying carcass of a once thriving nation. Despite overwhelming public outrage, Congress did as they were instructed by their Wall Street masters and handed over $700 billion of taxpayer funds into Wall Street vaults, under the false threat of systematic collapse. The $800 billion of pork stimulus was injected directly into the veins of corporate campaign contributors. The $3 billion Cash for Clunkers scheme resulted in pumping taxpayer dollars into the government owned union car companies, while driving up the prices of used cars and hurting lower income folks.

Ben Bernanke has peddled the false paradigm of quantitative easing (code for printing money and airlifting it to Wall Street) as benefitting Main Street. Nothing could be further from the truth. He bought $1.3 trillion of toxic mortgage backed securities from his Wall Street owners. He has pumped a total of $2.8 trillion into the hands of Wall Street since September 2008, and is singlehandedly generating $5 billion of risk free profits for these deadbeats by paying them .25% on their reserves. Drug dealer Ben continues to pump $2.8 billion per day into the veins of Wall Street addicts and any hint of tapering the heroin causes the addicts to flail about. Ben should be so proud. He should hang a Mission Accomplished banner whenever he gives a speech. Bank profits reached an all-time record in the 2nd quarter, at $42.2 billion, with 80% of those profits going to the 2% Too Big To Trust Wall Street Mega-Goliath Banks. It’s enough to make a soon to retire, and take a Wall Street job, central banker smile.

“The money rate can, indeed, be kept artificially low only by continuous new injections of currency or bank credit in place of real savings. This can create the illusion of more capital just as the addition of water can create the illusion of more milk. But it is a policy of continuous inflation. It is obviously a process involving cumulative danger. The money rate will rise and a crisis will develop if the inflation is reversed, or merely brought to a halt, or even continued at a diminished rate. Cheap money policies, in short, eventually bring about far more violent oscillations in business  than those they are designed to remedy or prevent.” Henry Hazlitt – 1946

Any serious minded person knew Wall Street had too much power, too much control, and too much influence in 2008 when they crashed our economic system. When something is too big to fail because it will create systematic collapse, you make it smaller. Instead we have allowed our sociopathic rulers to allow these parasitic institutions to get even larger. Just 12 mega-banks control 70% of all the banking assets in the country, with 90% controlled by the top 86 banks. There are approximately 8,000 financial institutions in this country. Wall Street will be congratulating themselves with record compensation of $127 billion and record bonuses of $23 billion for a job well done. It is dangerous work making journal entries relieving loan loss reserves, committing foreclosure fraud, marking your assets to unicorn, making deposits at the Fed, and counting on the Bernanke Put to keep stocks rising. During a supposed recovery from 2009 to 2011, average real income per household grew pitifully by 1.7%, but all the gains accrued to Bernanke’s minions. Top 1% incomes grew by 11.2% while bottom 99% incomes shrunk by 0.4%. Therefore, the top 1% captured 121% of the income gains in the first two years of the recovery. This warped trend has only accelerated since 2011.

The median household income has fallen by $2,400 to $52,100 since the government proclaimed the end of the recession in 2009. Real wages for real people continue to fall. A record 23.1 million households (20% of all households) are receiving food stamps. After four years of “recovery” propaganda, we are left with 2.2 million less people employed (5 million less full time jobs) and 22 million more people on SNAP and SSDI. A record 90.5 million working age Americans are not working, with labor participation at a 35 year low. Ben’s money has not trickled down, but his inflation has fallen like a load of bricks on the heads of the middle class. Bernanke’s QE to infinity constitutes a transfer of purchasing power away from the middle class to the bankers, mega-corporations and .1%. This Cantillon effect means that newly created money is neither distributed evenly nor simultaneously among the population. Some users of money profit from rising prices, and others suffer from them. This results in a transfer of wealth (a hidden tax) from later receivers to earlier receivers of new money. This is why the largest banks and largest corporations are generating the highest profits in history, while the average person sinks further into debt as their real income declines and real living expenses (energy, food, clothing, healthcare, tuition) rise.

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Ben works for your owners. Real GDP (using the fake government inflation adjustment) since July 2009 is up by a wretched 5.6%. Revenue growth of the biggest corporations in the world is up by a pathetic 12%. One might wonder how corporate profits could be at record levels with such doleful economic performance. One needs to look no further than Ben’s balance sheet, which has increased by 174%. There appears to be a slight correlation between Ben’s money printing and the 162% increase in the S&P 500 index. With the top 1% owning 42.1% of all financial assets (top .1% own most of this) and the bottom 80% owning only 4.7% of all financial assets, one can clearly see who benefits from QE to infinity.

The key take away from what the ruling class has done since 2008 is they have only temporarily delayed the endgame. Their self-serving exploits have guaranteed that round two of the financial collapse will be epic in proportion and intensity. This Fourth Turning Crisis is ongoing. The linear thinkers who control the levers of power keep promising a return to normalcy and resumption of growth. This is an impossibility – mathematically & socially. Fourth Turnings do not end without the existing social order being swept away in a tsunami of turmoil, violence, suffering and war. Orlov’s stages of collapse will likely occur during the remaining fifteen years of this Crisis. We are deep into Stage 1 as our national Detroitification progresses towards bankruptcy, with an added impetus from our trillion dollar wars of choice in the Middle East. Commercial collapse has begun, as faith in the fantasy of free market capitalism is waning. The race to the bottom with currency debasement around the globe is reaching a tipping point, and the true eternal currencies of gold and silver are being hoarded and shipped from the West to the Far East.

Monetary Base (billions of USD)

When the financial collapse reaches its crescendo, the just in time supply chain, that keeps cheese doodles and cheese whiz on your grocery store shelves, Chinese produced iGadgets in your local Wal-Mart Supercenter, and gasoline flowing out of gas station hoses into your leased Cadillac Escalade, will break down rapidly. The strain of $110 oil is already evident. The fireworks will really get going when ATM machines run dry and the EBT cards stop functioning. Within a week riots and panic will engulf the country.

“At some point we are bound to hear, from across two oceans, the shocking words “Your money is no good here.” Fast forward to a week later: banks are closed, ATMs are out of cash, supermarket shelves are bare and gas stations are starting to run out of fuel. And then something happens: the government announces they have formed a crisis task force, and will nationalize, recapitalize and reopen banks, restoring confidence. The banks reopen, under heavy guard, and thousands of people get arrested for attempting to withdraw their savings. Banks close, riots begin. Next, the government decides that, to jump-start commerce, it will honor deposit guarantees and simply hand out cash. They print and arrange for the cash to be handed out. Now everyone has plenty of cash, but there is still no food in the supermarkets or gasoline at the gas stations because by now the international supply chains have broken down and the delivery pipelines are empty.”  Dmitry Orlov – The Five Stages of Collapse

We are witnessing the beginning stages of political collapse. The government and its leaders are being discredited on a daily basis. The mismanagement of fiscal policy, foreign policy and domestic policy, along with the revelations of the NSA conducting mass surveillance against all Americans has led critical thinking Americans to question the legitimacy of the politicians running the show on behalf of the bankers, corporations and arms dealers. The Gestapo like tactics used by the government in Boston was an early warning sign of what is to come. Government entitlement promises will vaporize, as they did in Detroit, with pension promises worth only ten cents on the dollar. Total social and cultural collapse could resemble the chaotic civil war scenarios playing out in Libya and Syria. The best case scenario would be for a collapse similar to the Soviet Union’s relatively peaceful disintegration into impotent republics. I don’t believe we’ll be this fortunate. The most powerful military empire in world history will not fade away. It will go out in a blaze of glory with a currency collapse, hyper-inflation, and war on a grand scale.

“History offers even more sobering warnings: Armed confrontation usually occurs around the climax of Crisis. If there is confrontation, it is likely to lead to war. This could be any kind of war – class war, sectional war, war against global anarchists or terrorists, or superpower war. If there is war, it is likely to culminate in total war, fought until the losing side has been rendered nil – its will broken, territory taken, and leaders captured.”The Fourth Turning – Strauss & Howe – 1997

In Whom Do You Trust?

“Use of money concentrates trust in a single central authority – the central bank – and, over extended periods of time, central banks always tend to misbehave. Eventually the “print” button on the central banker’s emergency console becomes stuck in the depressed position, flooding the world with worthless notes. People trust that money will remain a store of value, and once the trust is violated a gigantic black hole appears at the very center of society, sucking in peoples’ savings and aspirations along with their sense of self-worth. When those who have become psychologically dependent on money as a yardstick, to be applied to everything and everyone, suddenly find themselves in a world where money means nothing, it is as if they have gone blind; they see shapes but can no longer resolve them into objects. The result is anomie – a sense of unreality – accompanied by deep depression. Money is an addiction – substance-less and unreal, and sets itself up for a severe and lengthy withdrawal.” Dmitry Orlov – The Five Stages of Collapse

Our modern world revolves around wealth, the appearance of wealth, the false creation of wealth through the issuance of debt, and trust in the bankers and politicians pulling the levers behind the curtain. The entire world economic system is dependent on trusting central bankers whose only response to any crisis is to create more debt. The death knell is ringing loud and clear, but people around the globe are desperately clinging to their normalcy biases and praying to the gods of cognitive dissonance. It seems the only things that matter to our controllers are stock market levels, the continued flow of debt to the plebs, continued doling out of hush money to those on the dole, and of course an endless supply of brown skinned enemies to attack. With every country in the world attempting to the same solution of debasing their currencies, we are rapidly approaching the tipping point. India is the canary in the coal mine.

Government, Household, Financial & Non-Financial Debt (% of GDP)

An exponential growth model built upon cheap plentiful energy and debt creation has its limits, and we’ve reached them. With the depletion of inexpensive, easily accessible energy resources, higher prices will continue to slow world economies. Demographics in the developed world are slowing the global economy as millions approach their old age with little savings due to over consuming during their peak earnings years. Bernanke has already quadrupled his balance sheet with no meaningful benefit to the economy or the financial well-being of the average middle class American. Financial manipulation that creates nothing has masked the rot consuming our economic system. The game has been rigged in favor of the owners, but even a rigged game eventually comes to an end. Americans and Europeans can no longer maintain a façade of wealth by buying knickknacks from China with money they don’t have. The US and Europe are finding that their credit is no longer good in the exporting Far East countries. This is a perilous development, as the West has depended upon foreigners to accommodate its never ending expansion of credit. Without that continual expansion of debt, the Ponzi scheme comes crashing down. As China, Japan and the rest of Asia have balked at buying U.S. Treasuries with negative real yields, the only recourse for Ben has been to monetize the debt through QE and inflation. The doubling of ten year Treasury rates in a matter of three months due to just talk of possibly slowing QE should send shivers down your spine.

We are supposedly five years past the great crisis. Magazine covers proclaimed Bernanke a hero. If we are well past the crisis, why are the extreme emergency measures still in effect? If the economy is growing and jobs are being created, why do we need $85 billion of government debt to be monetized each and every month? Why are the EU, Japan, and China printing even faster than the Fed? The answer is simple. If the debt was not being monetized, it would have to be purchased out in the free market. Purchasers would require an interest rate far above the 2.9% being paid today. The debt levels in the U.S., Europe and Japan are so large that a rise in interest rates of just a few points would explode budget deficits and lead to a worldwide financial collapse. This is why Bernanke and the rest of his central banker brethren are trapped by their own ideology of bubble production. Just the slowing of debt creation will lead to collapse. Bernanke needs a Syrian crisis to postpone the taper talk. Those in control need an endless number of real or false flag crises to provide cover for their printing presses to keep rolling.

There are a couple analogies that apply to our impending doom. The country is like a 224 year old oak tree that has been slowly rotting on the inside due to the insidious diseases of hubris, apathy, selfishness, dependence, delusion, and debasement. The old oak gives an outward appearance of health and stability. Winter has arrived and gale force winds are in the forecast. One gust of wind and the mighty aged oak will topple and come crashing to earth. I think an even more fitting analogy is the sandpile with grains of sand being added day after day. Seven out of ten Americans receive more in government benefits than they pay in taxes. Goliath corporations and the uber-wealthy use the tax code and legislation to syphon hundreds of billions from the national treasury every year. We spend $1 trillion per year on past, current and future wars of choice. Annual interest on the debt we’ve racked up in the last few decades already approaches $400 billion per year. The entire Federal budget totaled $400 billion in 1977. The sandpile grows ever higher, while its instability expands exponentially. One seemingly innocuous grain of sand will ultimately cause the pile to collapse catastrophically. Will it be an unintended consequence of a missile launch into Syria? Will it be a spike in oil prices? Will it be the collapse of one of the EU PIIGS? Will it be an assassination of a political figure or banker? No one knows. But that innocuous grain of sand will trigger the collapse of the entire pile.

Worried people are looking for solutions. They often get angry at me because they don’t think I provide answers to the issues I raise about our corrupt failing system. They want easy answers to intractable problems. Sadly, I’ve come to the conclusion that our system and majority of citizens are too corrupted to change our course through the ballot box or instituting policies along the lines of those proposed by Ron Paul and many other thoughtful liberty minded people. We are experiencing the downside of a representative democracy.  Once a person is democratically elected a gulf is created between the electors and the person they elected, as the representative becomes corrupted and bought by moneyed interests. Elected officials become a class unto themselves. The political class grows to be puppets that resemble human beings but are nothing but cogs in a vast corporate run machine, pawns in an enormous game of chess played by powerful vindictive immoral men.

There are no cures for our disease. It’s terminal. Anyone telling you they have the answers is either lying or trying to sell you something. More people and organizations are on the take than are playing by the rules. The producers are being overrun by the parasites. The barbarians are at the gate. An implosion of societal trust is underway. The next stage of this crisis, which I believe will materialize within the next twelve months will try the souls of the weary.

“As the Crisis catalyzes, these fears will rush to the surface, jagged and exposed. Distrustful of some things, individuals will feel that their survival requires them to distrust more things. This behavior could cascade into a sudden downward spiral, an implosion of societal trust. This might result in a Great Devaluation, a severe drop in the market price of most financial and real assets. This devaluation could be a short but horrific panic, a free-falling price in a market with no buyers. Or it could be a series of downward ratchets linked to political events that sequentially knock the supports out from under the residual popular trust in the system. As assets devalue, trust will further disintegrate, which will cause assets to devalue further, and so on.”The Fourth Turning – Strauss & Howe – 1997

As a nation we have squandered our inheritance, born of the blood of patriots. A freedom loving, liberty minded, self-responsible, courageous people have allowed ourselves to fall prey to selfishness, apathy, complacency and dependency. Once we allowed our human appetites of greed, power seeking, and control to override the moral responsibility for our own lives and the lives of future unborn generations, collapse was inevitable. The danger now is what happens after the unavoidable collapse. Will the millions of dependency zombies beg for a strong dictator to protect them, provide for them and lead them into further bondage? Or will the spark of liberty and freedom reignite, allowing citizens to throw off the shackles of banker and corporate control? I believe most of the people in this country are good hearted. We are merely pawns in this game of Risk being played by those seeking power, wealth and world domination. We are all trapped in our own forms of normalcy bias. Have I cashed out my retirement funds, sold my suburban house and built a doomstead in the mountains? No I haven’t. Do I second guess myself sometimes? Yes I do. But even the aware have families to support, jobs to go to, bills to pay, laundry to do, lawns to mow, and lives to live. I can’t live in constant fear of what might happen. We only get 80 or so years on this earth, if we’re lucky. The best we can do is leave a positive legacy for our children and their children. A drastic change to our way of life is coming, but most of us are trapped in a cage of our own making.

Each living generation will need to do their part during this Crisis if we are to survive the coming storm. Since no one knows the nature of how the next fifteen years will unfold, it would be wise to at least make basic preparations for food, water, heat and protection. This is easier for some than others, but you don’t have to star on Doomsday Preppers in order to stock up on items that can be purchased at Wal-Mart today, but won’t be available when the global supply chain breaks down. Make sure you have neighbors and family you can rely upon. A small community of like-minded people with varied skills is more likely to succeed in our brave old world than rugged individualists. With no financial means to maintain our globalized world, living locally will take on a new meaning. After much turmoil, chaos, violence, and likely mass casualties the best outcome would be for the Great American Empire to break into regional republics, incapable of waging global war, led by law abiding moral liberty minded individuals, and willing to trade freely and honestly with their fellow republics. Daily life would revert back to a simpler Amish like time. Would that be so bad?

This Fourth Turning could end with a whimper or a bang. There are enough nuclear arms to obliterate the world ten times over. There are enough hubristic egomaniacal psychopathic men in power, that the use of those weapons has a high likelihood of happening. It will be up to the people to not allow this horrific result. I love my country and despise my government. The Declaration of Independence clearly states that when a long train of abuses and usurpations lead toward despotism, it is our right and duty to throw off that government and provide new guards of liberty. My family comes first with my country a close second. I will fight with whatever means necessary to protect my family and do what I can to influence the future course of our country. Time is running out. Will we have the courage, fortitude and wisdom to make the right decisions over the next fifteen years? Will we choose glory or destruction? The fate of our nation hangs in the balance. Are you prepared? Are you ready to fight for your family and your rights?

The Fourth Turning could spare modernity but mark the end of our nation. It could close the book on the political constitution, popular culture, and moral standing that the word America has come to signify. The nation has endured for three saecula; Rome lasted twelve, the Soviet Union only one. Fourth Turnings are critical thresholds for national survival. Each of the last three American Crises produced moments of extreme danger: In the Revolution, the very birth of the republic hung by a thread in more than one battle. In the Civil War, the union barely survived a four-year slaughter that in its own time was regarded as the most lethal war in history. In World War II, the nation destroyed an enemy of democracy that for a time was winning; had the enemy won, America might have itself been destroyed. In all likelihood, the next Crisis will present the nation with a threat and a consequence on a similar scale.The Fourth Turning – Strauss & Howe – 1997

 

 IT’S OUR CHOICE.

Podcast- Nicole Foss (Stoneleigh) of The Automatic Earth on Currency Issues: Part 1

Off the microphones of Nicole Foss, RE & Monsta

Follow us on Twitter @doomstead666
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Aired on the Doomstead Diner on August 28, 2013

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Discuss at the Podcast Table inside the Diner

How will the monetary system implode on itself?  Will Inflation, Hyper-Inflation or Deflation rule the day as the system seizes up?  What will occur with Asset Values and Derivatives?  Who has the strongest claims to underlying wealth remaining in the system?  Can Gold & Silver substitute for a failing Fiat Monetary System?  How will the Just In Time Shipping paradigm react to dislocations in the Credit Markets?  Will Financial Contagion overtake the Supply Chains?

These and other questions are discussed in the latest Diner Podcast with Nicole Foss, Stoneleigh of The Automatic Earth.  Nicole is a former Editor of The Oil Drum Canada, and was a Research Fellow at the Oxford Institute for Energy Studies, where she specialized in nuclear safety in Eastern Europe and the Former Soviet Union, and conducted research into electricity policy at the EU level.

The second part of the Podcast with Nicole will focus on Energy Issues, and will be available for listening on the Diner next week.  In this podcast, Nuclear Energy will be discussed as well as Renewable Energy issues.

In addition, in the next few weeks, the Diner will begin Vidcasts featuring multiple Bloggers, Researchers and Authors discussing and debating the various topics of Collapse Dynamics.  The first of these Vidcasts will be focused on the upcoming Occupy Monsanto demonstrations scheduled for September 17, 2013.  However, if the War in Syria escalates over the next couple of weeks, this may provide additional discussion material.

I discuss the Upcoming Diner Vidcasts in the next Episode of I Spy Doom.  You get a nice little tour of the Last Great Frontier of Alaska from the Passenger Seat of my Ford Explorer SUV in this one also.  LOL.

RE

That Was The Week That Was In Doom June 30, 2013

From the Keyboard of Surly1

Originally published on the Doomstead Diner on June 30, 2013

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Discuss this article here in the Diner Forum.

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Reality is for people who can’t face drugs.~ Laurence Peter

“Imagine a society that subjects people to conditions that make them terribly unhappy then gives them the drugs to take away their unhappiness. . .  In effect antidepressants are a means of modifying an individual’s internal state in such a way as to enable him to tolerate social conditions that he would otherwise find intolerable.”  ― Theodore Kaczynski

With every news cycle we  move into times more absurd and cruel then we could possibly imagine. The daily headlines have outstripped the creativity of satirists and humorists. The mainstream media lies, and reminiscent of the Soviet Union of bygone days, only comedians are able to tell the truth.  Brain-eating amoebas! Plot to execute Occupy leaders abetted by FBI!  This week we learned that an activist faces 13 years in prison for wielding sidewalk chalk, banksters caught dead to rights colluding in fraud face nothing,  we connect the dots on species extinction, and we are shocked… shocked to learn that the last people that the NSA wants to surveil are terrorists.  The president of Ecuador tweaks the New World Order,  Phyllis Schafly rises from her crypt, and Fukushima continues to tick away, glowing in the dark with malevolent certainty. There is a reason the proverb has it, “many a truth is told in jest.”  So, barkeep, for my friends here antidepressants all around with a Prestone chaser. Belly up to the Diner bar for yet another round.

 

 

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California Man Faces 13 Years In Prison For Offending Bank of America With Kiddie Chalk

Yes friends, in the wake of last week’s whistleblower story about Bank of America comes this story about the wheels of justice. And no, we are not making this up. Daily Kos reports:

Jeff Olson, the 40-year-old man who is being prosecuted for scrawling anti-megabank messages on sidewalks in water-soluble chalk last year now faces a 13-year jail sentence. A judge has barred his attorney from mentioning freedom of speech during trial.According to the San Diego Reader, which reported on Tuesday that a judge had opted to prevent Olson’s attorney from “mentioning the First Amendment, free speech, free expression, public forum, expressive conduct, or political speech during the trial,” Olson must now stand trial for on 13 counts of vandalism.

In addition to possibly spending years in jail, Olson will also be held liable for fines of up to $13,000 over the anti-big-bank slogans that were left using washable children’s chalk on a sidewalk outside of three San Diego, California branches of Bank of America, the massive conglomerate that received $45 billion in interest-free loans from the US government in 2008-2009 in a bid to keep it solvent after bad bets went south.

The Reader reports that Olson’s hearing had gone as poorly as his attorney might have expected, with Judge Howard Shore, who is presiding over the case, granting Deputy City Attorney Paige Hazard’s motion to prohibit attorney Tom Tosdal from mentioning the United States’ fundamental First Amendment rights.

You read that correctly. By order of the judge,  the defendant’s attorney may not mention that pesky free-speech-first-amendment thingy during the trial. Seriously. Can you say, “mistrial?”

The backstory was thus: apparently, Darell Freeman, Bank of America’s Vice President for Global Corporate Security, confronted Olsen and a friend as they were protesting in front of a B of A branch.

A former police officer, Freeman accused Olson and Daniels of “running a business outside of the bank,” evidently in reference to the National Bank Transfer Day activities, which was a consumer activism initiative that sought to promote Americans to switch from commercial banks, like Bank of America, to not-for-profit credit unions.

At the time, Bank of America’s debit card fees were among one of the triggers that led Occupy Wall Street members to promote the transfer day.

“It was just an empty threat,” says Olson of Freeman’s accusations. “He was trying to scare me away. To be honest, it did at first.”

Former cop Freeman repeatedly pressured the San Diego police to attack Olson’s chalk-based activism with the same legal force used to prosecute violent gang members. And, this being the America we no longer recognize from our youth, he got want he wanted.

More experiments in the laboratory of democracy.

 

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Bankers Caught On Tape, Joking About Bailout, And How They’d Never Pay It Back

Earlier this week, a story moved that went to prove everything you thought about the behavior of bankers but were unable to produce a smoking gun.

The Irish Independent, a Dublin-based newspaper, has uncovered tapes of an internal phone conversation from September 2008 between two executives at Anglo Irish Bank during its bailout deal and they sound pretty scandalous.  The Irish Independent points out that the recordings show they misled the Central Bank.

The executives from the recording have been identified as John Bowe (head of the bank’s capital markets) and Peter Fitzgerald (director of retail banking).

However, Bowe “categorically denied” that he misled the Central Bank and Fitzgerald, who wasn’t involved in discussions with regulators, said he was unaware of any intention to mislead, the report said.

In this regard, we are reminded of Bill Clinton’s repeated denials about his serial infidelities and one notorious intern. But there’s more.

Bowe tells Fitzgerald that they met with the Irish Financial Services Regulatory Authority (IFSRA) the previous day about getting €7 billion.  They laugh how they will never be able to pay it back. 

Bowe:  “So we went down … and we basically said. In Central, yeah. And I mean, to cut a long story short we sort of said. ‘Look, what we need is seven billion euros…and we’re going to give you and we’re going to give you, what we’re going to give you is our loan collateral so we’re not giving you ECB, we’re giving you the loan clause. 

“We gave him a term sheet and we put a pro not facility together and we said that’s what we need. And that kind of sobered up everybody pretty quickly, you know.” 

Fitzgerald: “Yeah.”

Fitzgerald: “And is that €7 billion a term?”

Bowe: “This is €7 billion bridging.” 

Fitzgerald: “Yeah.”

Bowe: “So … so it is bridged until we can pay you back … which is never.” (Both laugh)

And we know you’re laughing, too.  even though these fiduciaries are intent on committing a fraud, one would assume that they had at least done the math to compute the amount of their losses that the resulting fraud with sponge up, correct? Uhhh …

Fitzgerald asks Bowe how he came up with the 7 billion figure.  Bowe responds that like then-CEO David Drumm, he picked it out of his “arse.”

Fitzgerald: “Ah we are, yeah, yeah and, em, what, how did you arrive at the seven? 

Bowe: “Just, as Drummer would say, ‘picked it out of my arse’, you know. Em … I mean, look, what we did was we basically said: ‘What is the amount we can securitize over the next six months?’ And basically say to them: ‘Look our problem is time, it’s not our ability to create the liquidity, the enemy is time here.'” 

Fitzgerald: “Yeah.” 

Bowe: “So we can rebuild, in other words, we can rebuild the liquidity off our loan book, but what we can’t do, we can’t do it now and the balance sheet’s leaking now.” 

So we will essentially torture Bradley Manning and subject him to a political show trial, and hunt Edward Snowden to the ends of the earth. We will prosecute those who reports wrongdoing though official channels to demonstrate the futility of using those channels, and to send a message to other potential whistleblowers. We will foment wars all over the earth in order to enrich a handful of arms manufacturers. And if American boys need to die in pursuit of that particular pocket of profit, so be it. But this scum, and their ilk on this side of the water, walk free, and proud knowing they’re doing “God’s work.”

As noted above, the Independent also has a media-filled story about how these two deceived the Irish government and cost Ireland sovereignty.

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Humans ARE directly to blame for a rise in the number of endangered species

Researchers from Ohio State University discovered that as human numbers rise, the number of animals and species in the same region decrease with the study predicting that 11% of animals will be endangered by 2050. Increasing numbers of animals are moving from endangered to extinct lists, like the Western Black Rhino of Africa, pictured

It might seem to be CFS, or “common fucking sense,” as re: would’ve her, to find a direct link between increase in population size and the number of life forms on planet Earth threatened with extinction. Yet in every gathering of sub-literates, whether it be the corner bar or Congress, there are those will argue otherwise. No more.  Research findings just in from Ohio State University demonstrate that there is a direct link between human activity and the extinction and endangerment of certain animals.

Researchers from Ohio State University discovered that as human numbers rise, the number of animals and species in the same region decrease with the study predicting that 11% of animals will be endangered by 2050.

Previous studies have suspected that the number of threatened species could be linked to the size, density and growth of the human population yet research from Ohio State University is the first to have confirmed the theory.

. . .

They found that changes in human population density had ‘measurable consequences’ on changes in the number of threatened species by nation.

The average nation with a growing population can expect a 3.3 per cent increase in the number of threatened mammals and birds over the 10 years and a 10.8 per cent increase by 2050, based on human population growth alone.

Another animal edging up the endangered species list towards extinction is the Philippine Tarsier. The Tarsier feeds on tiny insects and is believed to be the world’s smallest primate

The implications of the study are quite clear:  human population density is at the very heart of extinction threats to both mammals and birds. The report does not directly suggest conservation efforts, but the future conservation efforts and certainly consider the impact of human population.

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Surveillance not for terrorists

surveillanceA Bloomberg article  thankfully reminded us of the real issue at the heart of the NSA surveillance/Edward Snowden drama.  As some of us have seen, to our horror, ordinary Americans seem to not mind the government’s digital monitoring of their communications as long as it seems to be genuinely targeted terrorists. That’s really not the case. The government’s monitoring of our communications and days of our digital privacy is really targeted at ordinary, law-abiding citizens.

The infrastructure set up by the National Security Agency, however, may only be good for gathering information on the stupidest, lowest-ranking of terrorists. The Prism surveillance program focuses on access to the servers of America’s largest Internet companies, which support such popular services as Skype, Gmail and iCloud. These are not the services that truly dangerous elements typically use.

In a January 2012 report titled “Jihadism on the Web: A Breeding Ground for Jihad in the Modern Age,” the Dutch General Intelligence and Security Service drew a convincing picture of an Islamist Web underground centered around “core forums.” These websites are part of the Deep Web, or Undernet, the multitude of online resources not indexed by commonly used search engines.

The Netherlands’ security service, which couldn’t find recent data on the size of the Undernet, cited a 2003 study from the University of California at Berkeley as the “latest available scientific assessment.” The study found that just 0.2 percent of the Internet could be searched. The rest remained inscrutable and has probably grown since. In 2010, Google Inc. said it had indexed just 0.004 percent of the information on the Internet.

Websites aimed at attracting traffic do their best to get noticed, paying to tailor their content to the real or perceived requirements of search engines such as Google. Terrorists have no such ambitions. They prefer to lurk in the dark recesses of the Undernet.

 Undernet?  Really? I’m not sure most Americans, including this writer, could find the undernet if provided a map and a Chilton’s Guide.  Given the fact that no self-respecting terrorist would use the open Internet for communications of any sort, one is left to consider the implications of just why the government is hoovering up all manner of personal communications of law-abiding citizens. Perhaps it’s to create the “surveillance effect” of demoralizing an already cowed populace now used to serial fingering and probing by uniformed TSA goons?

…Monitoring phone calls is hardly the way to catch terrorists. They’re generally not dumb enough to use Verizon. Granted, Russia’s special services managed to kill Chechen separatist leader Dzhokhar Dudayev with a missile that homed in on his satellite-phone signal. That was in 1996. Modern-day terrorists are generally more aware of the available technology.

At best, the recent revelations concerning Prism and telephone surveillance might deter potential recruits to terrorist causes from using the most visible parts of the Internet. Beyond that, the government’s efforts are much more dangerous to civil liberties than they are to al-Qaeda and other organizations like it.

Surveillance societies exist to disrupt and prevent change to the status quo. Here’s a theory: having successfully prosecuted a 35 year class war to extract the  accumulated wealth of the American middle class, the elites now have a militarized police force and a state surveillance apparatus  in place to prevent social movements that will lead to change. Especially political movements, like Occupy. All the better for the 1% to keep their ill–accumulated gains off the table and  safely in their Cayman Islands accounts.

A related story:

None Dare Call it FASCISM: How the NSA has (already) privatized tyranny

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Add Michael Hastings

HuffPo moved an article last Monday about Michael Hastings’ last communications. Speculation continues about the circumstances of his death.

Hours before dying in a fiery car crash, award-winning journalist Michael Hastings sent an email to his colleagues, warning that federal authorities were interviewing his friends and that he needed to go “off the rada[r]” for a bit.

The email was sent around 1 p.m. on Monday, June 17. At 4:20 a.m. the following morning, Hastings died when his Mercedes, traveling at high speeds, smashed into a tree and caught on fire. He was 33.

Hastings sent the email to staff at BuzzFeed, where he was employed, but also blind-copied a friend, Staff Sgt. Joseph Biggs, on the message. Biggs, who Hastings met in 2008 when he was embedded in his unit in Afghanistan, forwarded the email to KTLA, who posted it online on Saturday.

Here’s the email, with the recipients’ names redacted.

Subject: FBI Investigation, re: NSA

Hey (redacted names) — the Feds are interviewing my “close friends and associates.” Perhaps if the authorities arrive “BuzzFeed GQ,” er HQ, may be wise to immediately request legal counsel before any conversations or interviews about our news-gathering practices or related journalism issues.

Also: I’m onto a big story, and need to go off the rada[r] for a bit.

All the best, and hope to see you all soon.

Michael

Rumors that the FBI was investigating Hastings began the day after his death, with a couple of mysterious WikiLeaks tweets.

In a rare move, the FBI issued a statement denying that Hastings was under investigation. The Los Angeles Police Department also said it had found no evidence of any foul play in his death.

Hastings, an accomplished war correspondent and sharp political reporter, was best known for writing a critical Rolling Stone profile of General Stanley McChrystal that led to his resignation.

It’s unclear what “big story” Hastings was working on prior to his death, but it might have to do with yet another military bigwig, this time retired general David Petraeus.

The LA Times reported that Hastings was researching a story about a privacy lawsuit brought by Jill Kelley, the Florida socialite who took center stage in the Petraeus cheating scandal, against the Department of Defense and the FBI. According to a person close to Kelley, the paper said, Hastings had plans to meet a representative of hers to discuss the case next week.

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Ecuador offers U.S. rights aid, waives trade benefits

 

For those of us following the Edward Snowden/NSA story with the avidity of a drama, the statements made this week by Ecuadorian president Rafael Correa certainly compelled our attention.  Correa rejected trade benefits and courted the risk of sanctions, plus tolerated threats from a number of American politicians  as a result of considering asylum for Edward Snowden.

(Reuters) – Ecuador’s leftist government thumbed its nose at Washington on Thursday by renouncing U.S. trade benefits and offering to pay for human rights training in America in response to pressure over asylum for former intelligence contractor Edward Snowden.

The angry response threatens a showdown between the two nations over Snowden, and may burnish President Rafael Correa’s credentials to be the continent’s principal challenger of U.S. power after the death of Venezuelan socialist leader Hugo Chavez.

“Ecuador will not accept pressures or threats from anyone, and it does not traffic in its values or allow them to be subjugated to mercantile interests,” government spokesman Fernando Alvarado said at a news conference.

In a cheeky jab at the U.S. spying program that Snowden unveiled through leaks to the media, the South American nation offered $23 million per year to finance human rights training.

The funding would be destined to help “avoid violations of privacy, torture and other actions that are denigrating to humanity,” Alvarado said. He said the amount was the equivalent of what Ecuador gained each year from the trade benefits.

Ironies abound.  Yet the fact that the president of a small, Latin American country can give voice to the many of us still inside the FSA who reject the Washington consensus  is a thing of beauty.  The wholly-owned corporate media simply gives no play to domestic critics of the new world order or any of its instrumentalities.

“They’ve managed to focus attention on Snowden and on the ‘wicked’ countries that ‘support’ him, making us forget the terrible things against the U.S. people and the whole world that he denounced. The world order isn’t only unjust, it’s immoral,” Correa continued, taking an aggressive new rhetorical tack on the case.

A sentiment now forgotten in most quarters within the FSA.

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Deregulation Makes Things Blow Up

Charlie Pierce of Esquire made note of the fact that, when there is no oversight and regulation, owners won’t spend any money on safety or their people in pursuit of maximum profit.

 

Meanwhile, Congress seems to be getting interested in what happened in Geismar. Today, the Senate Committee On The Environment And Public Works held a hearing into what happened in both Texas and Louisiana. The committee’s chair, Barbara Boxer of California, said that, “This should be a wakeup call for all of us, and we must take steps to ensure that such a disaster never happens again. Here’s the good news: under existing law, EPA can strengthen safety at facilities that handle dangerous chemicals.”

If only the EPA had, you know, a director right now.

Meanwhile, Kim Nibarger, an environmental specialist for the United Steelworkers minced no words about what’s really going on here. Decades of deregulation and removing the dead hand of government from American corporations have turned far too many American factories and storage facilities into mini-Bhopals in waiting.

This is Rick Perry, Governor Of Texas, including the city of West,on the EPA and environmental regulations:

“… tell the EPA that we don’t don’t need you monkeyin’ around and fiddlin’ around and gettin’ in our business on every kind of regulation that you can dream up. You’re doin’ nothin’ more than killin’ jobs. It is a cemetery for jobs at the EPA.”

This is “Bobby” Jindal, governor of Louisiana, including the city of Geismar, on government regulations:

“We believe in planting the seeds of growth in the fertile soil of your economy, where you live, where you work, invest, and dream, not in the barren concrete of Washington. If it’s worth doing, block grant it to the states.”

This is Mike Pence, governor of Indiana, including the city of Union Mills, on the same topic:

“Over several decades the proliferation of administrative rules and regulations at all levels of government has increased the complexity and expense of economic life. Reducing this regulatory burden will promote citizens’ freedom to engage in individual, family and business pursuits.”    

Yeah, that’ll work.

Self-reporting is a joke. Leaving it to the states is an open invitation to the wild kingdom, Right now, the occasional death of a worker or three is cheaper than installing sprinklers or something. When your state’s governor starts spouting off about creating a “business-friendly environment” in your state, this is what he’s talking about.

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 Schlafly: Latino voters “don’t understand” the Bill of Rights “at all”

The blogging gods are good this week…

Conservative activist Phyllis Schlafly is still telling anyone who will listen that the Republican party should only pay attention to white voters (something that it is already pretty good at doing, according to recent data).

This is a popular refrain for Schlafy, even though, as Jordan Fabian at ABC News notes, this is precisely the strategy that lost Republicans the popular vote in five of the last six presidential elections, to say nothing of how offensive it is to suggest the GOP disregard entire segments of the voting population based on race and ethnicity.

Schlafly was a guest on a conservative California radio show when she fired off her latest proclamation about the future of the GOP, announcing that courting Latino voters is a waste of the grand ol’ party’s time because they “don’t have any Republican inclinations at all,” and are “running an illegitimacy rate that’s just about the same as the blacks are.”

As Hunter S. Thompson would undoubtedly observed, Res ipsa loquitor.

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Radiation Levels Skyrocket at Fukushima

The Accident Is NOT Contained

What better way to execute a “Great Culling” than to poison groundwater?  Washington’s Blog moved this story. Record high levels of radioactive tritium have been observed in the harbor at Fukushima.

Japan Times notes:

The density of radioactive tritium in samples of seawater from near the Fukushima No. 1 nuclear plant doubled over 10 days to hit a record 1,100 becquerels per liter, possibly indicating contaminated groundwater is seeping into the Pacific, Tokyo Electric Power Co. said.

***

Tepco said late Monday it was still analyzing the water for strontium-90, which would pose a greater danger than tritium to human health if absorbed via the food chain. The level of cesium did not show any significant change between the two sample dates, according to the embattled utility.

On June 19, Tepco revealed that a groundwater sample taken from a nearby monitoring well was contaminated with both tritium and strontium-90.

***

During a news conference Monday in Tokyo, Masayuki Ono, a Tepco executive and spokesman, this time did not deny the possibility of leakage into the sea, while he said Tepco is still trying to determine the cause of the spike.

Kyoto reports:

A sample collected Friday contained around 1,100 becquerels of tritium per liter, the highest level detected in seawater since the nuclear crisis at the plant started in March 2011, the utility said Monday.

***

The latest announcement was made after Tepco detected high levels of radioactive tritium and strontium in groundwater from an observation well at the plant.

Indeed, the amount of radioactive strontium has skyrocketed over the last couple of months at Fukushima.

The New York Times writes:

Tokyo Electric Power, the operator of the stricken nuclear power plant at Fukushima, said Wednesday that it had detected high levels of radioactive strontium in groundwater at the plant, raising concerns that its storage tanks are leaking contaminated water, possibly into the ocean.

***

The company has struggled to store growing amounts of contaminated runoff at the plant, but had previously denied that the site’s groundwater was highly toxic….

Xinhua reports:

Very high radioactivity levels were detected in groundwater from an observation well at the crippled Fukushima Daiichi nuclear plant, said the plant operator Tokyo Electric Power Co. (TEPCO) Wednesday.

***

The observation well was set up on the Pacific side of the plant’s No. 2 reactor turbine building last December to find out the reasons why radioactivity levels in seawater near the plant remained high. The company said the sampled water could be from the contaminated water that seeped into the ground.

Just a reminder that weather patterns move West to East.

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Brain-eating amoebas thrive in US lakes as global warming heats waterways

 

These deadly invaders from the deep are showing up in surprising locations

For some people, a fatal infection without any obvious treatment strikes the sufferer down. After a swim on a hot summers day, the swimmer inadvertently inhales and me big organism which travels through the nasal passage into the brain where it multiplies devours cerebral fluid and gray matter and causes death.

And if you live in the North, it’s coming to a theater near you.

These “brain-eating amoebas” — known to doctors and scientists as Naegleria fowleri, or N. fowleri — aren’t believed to kill often. In the US, researchers estimate that between three and eight people die from N. fowleri disease, commonly referred to as PAM (primary amebic meningoencephalitis) each year. But that might not be the case for long. In recent years, N. fowleri has popped up in unexpected locations, which some experts suggest is a sign that warmer waters — caused by brutal summer heat waves and rising temperatures across the country — are catalyzing their spread.

 “The climate is changing, and let me tell you, so is this,” says Travis Heggie, an associate professor at Bowling Green State University who’s tracked the amoebas for several years. “If warm weather keeps up, I think we’ll see N. fowleri popping up farther and farther north.”

That speculation seems to be reinforced by recent cases of PAM, once a health woe confined to fresh water in southern states like Texas and Arizona. In Minnesota, public health officials were stunned to see two fatalities caused by N. fowleri — both young children — in 2010 and 2012. 

 

 

And this from an earlier article:

Here’s a ghastly thing that has been making headlines lately: Naegleria fowleri, a.k.a. brain-eating amoebas. So far this summer, this microscopic mind-muncher has claimed the lives of three people in three different states: Virginia, Florida and Louisiana. According to MSNBC:

“Naegleria fowleri moves into the body through the nose and destroys brain tissue, according to the Centers for Disease Control and Prevention. The bug causes primary amoebic meningoencephalitis, a nearly always fatal disease of the central nervous system, the CDC reported. … Naegleria fowleri is usually found warm, stagnant water in freshwater lakes, ponds and rivers. It can also be found in wells.”

The good news is that brain-eating amoeba infections are very rare, and there’s no sign of any sort of outbreak at this time. Nevertheless, the Naegleria fowleri is one of nature’s many ghoulish, nightmarish creepy-crawlies, ranking alongside flesh-eating bacteria, which destroys skin and muscle tissue by releasing toxins, and the human bot fly, and insect that implants its larvae into human skin. Parasite rex, indeed.

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FBI Document—“[DELETED]” Plots to Kill Occupy Leaders “If Deemed Necessary”

In a story that would strain credulity even in these credulity-straining times when the daily headlines outstrip The Onion for absurdity, comes this piece of journalism from Dave Lindorff.

 

 

 

 

 

“Would you be shocked to learn that the FBI apparently knew that some organization, perhaps even a law enforcement agency or private security outfit, had contingency plans to assassinate peaceful protestors in a major American city — and did nothing to intervene?

“Would you be surprised to learn that this intelligence comes not from a shadowy whistle-blower but from the FBI itself – specifically, from a document obtained from Houston FBI office last December, as part of a Freedom of Information Act (FOIA) request filed by the Washington, DC-based Partnership for Civil Justice Fund?

“To repeat: this comes from the FBI itself. The question, then, is: What did the FBI do about it?”

Many will recall that the Occupy movement swept the US beginning in mid-September 2011, taking root in a number of urban areas. It was rare for a city of any note not to have a couple of bedraggled activists in residence, many of whom had visited the OWS encampment in Zuccotti Park to see how Occupy was done. In October of that year the movement came to Houston. Given the prevailing, uh, local political temperature, the local powers-that-be, including law enforcement, banking and oil execs reacted even more strongly than in some other places.

The push-back took the form of violent assaults by police on Occupy activists, federal and local surveillance of people seen as organizers, infiltration by police provocateurs—and, as crazy as it sounds, some kind of plot to assassinate the “leaders” of this non-violent and leaderless movement.

Here’s what the document obtained from the Houston FBI, said:

An identified [DELETED] as of October planned to engage in sniper attacks against protestors (sic) in Houston, Texas if deemed necessary. An identified [DELETED] had received intelligence that indicated the protesters in New York and Seattle planned similar protests in Houston, Dallas, San Antonio and Austin, Texas. [DELETED] planned to gather intelligence against the leaders of the protest groups and obtain photographs, then formulate a plan to kill the leadership via suppressed sniper rifles. (Note: protests continued throughout the weekend with approximately 6000 persons in NYC. ‘Occupy Wall Street’ protests have spread to about half of all states in the US, over a dozen European and Asian cities, including protests in Cleveland (10/6-8/11) at Willard Park which was initially attended by hundreds of protesters.)

Occupiers Astounded—But Not Entirely

Paul Kennedy, the National Lawyers Guild attorney in Houston who represented a number of Occupy Houston activists arrested during the protests, had not heard of the sniper plot, but said, “I find it hard to believe that such information would have been known to the FBI and that we would not have been told about it.”  He then added darkly, “If it had been some right-wing group plotting such an action, something would have been done. But if it is something law enforcement was planning, then nothing would have been done. It might seem hard to believe that a law enforcement agency would do such a thing, but I wouldn’t put it past them.”

Seeking confirmation, the reporters and asked the FBI about this document—which, despite its stunning revelation and despite  press releases, was, per usual, generally ignored by mainstream and “alternative” press alike.

The FBI confirmed the authenticity of the document and that it originated in the Houston FBI office. (The plot is also referenced in a second document obtained in PCJF’s FOIA response, in this case from the FBI’s Gainesville, Fla., office, which cites the Houston FBI as the source.)  That second document actually suggests that the assassination plot, which never was activated, might still be operative should Occupy decisively re-emerge in the area. It states:

On 13 October 20111, writer sent via email an excerpt from the daily [DELETED] regarding FBI Houston’s [DELETED] to all IAs, SSRAs and SSA [DELETED] This [DELETED] identified the exploitation of the Occupy Movement by [LENGTHY DELETION] interested in developing a long-term plan to kill local Occupy leaders via sniper fire.

Remington Alessi, an Occupy Houston activist, was one of the seven defendants whose felony charge was dropped because of police entrapment. He speculates that the plot could have been the work of a police or a private security group.

Alessi, who hails from a law-enforcement family and who ran last year for sheriff of Houston’s Harris County on the Texas Green Party ticket, garnering 22,000 votes, agrees with attorney Kennedy that the plotters were not from some right-wing organization. “If it had been that, the FBI would have acted on it,” he agrees. “I believe the sniper attack was one strategy being discussed for dealing with the occupation.” He adds:

I assume I would have been one of the targets, because I led a few of the protest actions, and I hosted an Occupy show on KPFT.  I wish I could say I’m surprised that this was seriously discussed, but remember, this is the same federal government that murdered (Black Panther Party leader) Fred Hampton. We have a government that traditionally murders people who are threats. I guess being a target is sort of an honor.

This simply cannot go on.

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Quick hits

This is a number of odd bits collected throughout the week. Some of these stories received national play, and need no attention here. As for the others, after you get past 5000 words, you simply need to quit.

New hero in Texas
http://site.pfaw.org/site/MessageViewer?dlv_id=52542&em_id=38761.0

Texas Abortion Bill Filibustered By State Senator Wendy Davis Is Dead
http://www.huffingtonpost.com/2013/06/26/texas-abortion-bill_n_3501005.html

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Who they are.

Yeah____________________________________________________________________________

Renewables projected to overtake natural gas as world’s second-largest power source

http://www.theverge.com/2013/6/28/4473694/iea-says-renewable-energy-overtakes-natural-gas-nuclear-by-2016
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Mixed week for SCROTUS

http://mariopiperni.com/conservative-media/scotus-rules-jesus-weeps.php

Money & Wealth: Part IV

Off the keyboard of Monsta666

 

Discuss this article at the Money Table inside the Diner

Monetary terms

The terms below should prove useful in understanding the content of this article:

Anchor/Reserve Currency – Is the currency that is most commonly held by foreign central banks as reserves and is most commonly used to settle accounts when trading for vital commodities such as food/oil etc.
Fixed Exchange Rate – Sometimes referred to as a pegged exchange rate. A fixed exchange rate means a currency is priced at fixed range to another currency most commonly the reserve currency. Fixed exchange rates offer price stability to exporters but this comes at the expense of the country being unable to alter its competitiveness, in terms of exports, on the world market. A fixed exchange rate also leaves the country open to speculative attack meaning the country’s central bank must defend its exchange rate using foreign reserves. Notable examples of a country failing to defend its exchange rate occurred in 1992 when the UK failed to defend its rate in what was to be later dubbed “Black Wednesday”.[1]
Floating Exchange Rate – Is when a currency is openly allowed to be traded in the foreign exchange market. A floating exchange rate allows the currencies to become more or less competitive depending on market forces but comes at the expense of greater volatility in currency prices. This issue of volatility is problematic for less developed countries and it is this reason why they tend to favour fixed exchange rate policies.

In part 2 and part 3 we established not only the basic mechanics of the monetary system but also that all major currencies are debt based. Moreover due to the component of interest the total level of debt will always exceed the money supply of an economy. It is this property that means that long-term stability can only be assured if there is continued growth in the money supply and for this growth to remain viable it requires that the growth in the overall economy i.e. wealth increases in lockstep. Since resources and ultimately wealth in the planet is finite it follows that the balance between money and wealth will eventually fall out of sync and we will be faced with a situation of too much money (hyperinflation) or too little money (deflation). This part of the money/wealth series will attempt to answer the question of what scenario is more likely.

Main article

It is perhaps logical to think that if the rate of wealth extraction (GDP) declines and money supply increases then the obvious conclusion would be that hyperinflation would be the inevitable end-point as the number of claims on wealth (money) would vastly exceed the amount of actual wealth available in the economy. While such a conclusion sounds plausible it is important to consider that hyperinflation is only a relative measurement. That is the value of the currency can only diminish relative to something else so when making such statements it should be made explicit what the currency is hyperinflating against. In light of this it is best to make a small detour by explaining the International Monetary System and the one remaining function of money that has been neglected up to this point which is:

Relative valuation mechanism: Money acts a means of putting a numeric value to every good or service in the economy.

While this function may seem patently obvious the act of adding numeric value to each good or service greatly facilitates trade. To understand why this is the case it is best to consider a situation where no money exists. In a less developed community with no money the main means of exchange would likely be barter. The issue with barter is exchange rates for each item must be made so if we had carrots, tuna and milk we would need to devise an exchange rate for each combination of item i.e. 5 carrots = 1 tuna, 1 tuna  = 3 litres of milk, 1 litre of milk = 1 carrot. While this system of barter maybe possible with a low number of items once the number of goods or services on offer increases then it becomes exceedingly difficult to maintain valuations for all items as all the possible combinations for trade become staggering high even with a modest number of items to trade for.

This issue becomes especially problematic if the availability of some items is very volatile (say some items go in and out of season). Moreover if there is a large degree of trade taking place it will become necessary to keep a number of goods in reserve as some goods such as tuna would be more easily bartered for certain goods while in other circumstances carrots maybe needed to barter for other items.

As we can already see the system of barter is quite cumbersome and the costs of storing all those reserves and maintaining exchange rates for dozens maybe even hundreds of items for future trade create addition costs than can quickly become prohibitive. It is this reason why most communities – once reaching a sufficient size – develop a monetary system as money serves to add numerical value to all items in question eliminating the need for constant reserves and constant revaluation of exchange rates.

As it happens this system is not only useful on a national scale but is especially important when it comes to the matter of international trade where the reserve or anchor currency serves the same function of “money” as it does with a small community described above. For the same reasons mentioned above, it would be impractical for every exporting nation to trade their domestic currency in exchange for each nation it happened to import into. If this method of trade occurred then every nation would need large amounts of reserves of every currency it happened to trade with and this dynamic would suffer the same inefficiencies as highlighted earlier. To avoid this issue a reserve currency has been established and all nations settle the vast majority of international accounts using that reserve currency. As a result all major central banks hold this currency in their reserve (hence the name). If we look at the chart below we find that there has always been a reserve currency and this dynamic has occurred for hundreds of years:

Bretton Woods System

In 1944 when the US officially became the world’s reserve currency with the establishment of the Bretton Woods system as it was clearly the most creditworthy and powerful nation in the world as all its former rivals literally lay in ruin.

In this particular incarnation the reserve all other foreign nations had their currencies pegged to the dollar at a fixed exchange rate. The dollar could then be redeemed for gold and $35 was enough to acquire one troy ounce of gold. This dynamic would continue until August 1971 when Richard Nixon closed the gold window making the dollar a fiat currency. 

So how do countries decide on which currency becomes the reserve currency of the world? Generally a currency gains reserve status if it is the currency that belongs to the largest and most creditworthy country in the planet.

While there are definite benefits to having a reserve currency there are clear weaknesses with this system. This weaknesses stems from the fact that if a reserve currency is decided upon then the demand for that currency rises significantly as not only is the currency used for domestic purposes but foreign nations will demand enormous quantities of this currency to settle international accounts. In fact in many cases these international settlements will not even directly involve the country that holds the reserve currency. This large demand creates a strong incentive for the nation holding the reserve currency to overspend and run large deficits so it can supply other nations with the necessary reserves (and liquidity) to allow them to trade. Indeed after only 15 years of the Bretton Woods system being established Robert Triffin made the following observation:

“If you choose a currency because it’s a strong credit, and then give the issuing nation a financial incentive to borrow and print money recklessly without penalty, eventually that currency won’t be the strongest credit anymore!” – Robert Triffin, 1959

This statement would later become known as Triffin’s dilemma. It was this overconsumption and the subsequent over-indebtedness caused by this consumption that ultimately led to the demise of the Bretton Woods system. Despite this demise however the dollar retained its status as the reserve currency of the world. So why did this happen? As stated earlier the chief reason for this system being implemented in the first place was it facilitated international trade by making it far more efficient so despite its obvious flaws, weaknesses and privileges it bestows to the nation holding the reserve currency the system was maintained for this reason. The other major reason for the dollar maintaining its reserve status was the simple fact that there were no viable alternatives that could supplant the dollar and this fact remains largely true even today.

As time went on another problem became apparent and it centred on large exporting nations such as Germany, Japan the OPEC nations and more recently China. The most obvious and perhaps logical action is to think that foreign nations who received dollars for their exported products would sell the dollars they received from their exports in exchange for local currency via their central banks. However if this actually happened then it would have terrible consequences for the export nations future competitiveness. This is because the act of selling dollars would not only cause the value of the dollar to decline; it would also cause their own local currency to appreciate in value relative to the dollar. If this continued then over the time the value of the exported goods would become more expensive and reduce the nation’s ability to export further products.

The solution to this problem was for the central banks of the exporting nations to hold onto the dollars it received from the exporting company and then issue those companies with newly printed money in their domestic currency. Over time however the amount of dollars these central banks held became substantial and so they invested those dollars back into the US economy with the most obvious target for this investment being US treasury bonds. By doing this the exporting nation avoided the problem of an appreciating currency. This dynamic however had the side-effect that an artificial demand for US bonds was created resulting in the rates the US pays for its debts being kept artificially low. This then encouraged the US to spend beyond its means even further as their lack of financial discipline was not punished with higher interest rates as would occur with other nations. This ability to go into debt without incurring any cost became known as exorbitant privilege and is an advantage that no other nation enjoys.

So why did the export nations such accept this dynamic for decades even though they knew the US was becoming increasingly over-indebted, less creditworthy and generally less financially stable? There are several reasons why this dynamic has persisted but one of the reasons could be the simple fact there was no real challenge to the US dollar. Other reasons would be the strength of the US military and influence in international diplomacy meant that many countries were frightened to not challenge the status quo.

Perhaps the most significant reason for the US retaining its reserve status however may lie in the fact the US insured that all oil is traded in dollars. The US clearly understood the benefits of this exorbitant privilege and wished to maintain it even after the demise of the Bretton Wood system. To achieve this they had to ensure that people had to use the dollars to obtain some vital resource and that resource was oil therefore by linking the dollar to oil the dollar gained petrodollar status. To insure petrodollar status however the US had to make an agreement with various Arab nations that if they kept trading their oil exports in dollars they would receive their “protection” from attack. The Arab states agreed to this agreement and have traded their exports in US dollars ever since. This agreement to trade in oil can offer a possible reason why the US waged a war against Iraq as it was said that Saddam Hussein wanted to trade Iraq’s oil exports in Euros and if successful this would have posed a clear threat to the US’s exorbitant privilege and general hegemony of the US dollar.

How is this related to the deflation/hyperinflation story?

So the question maybe asked why this detour was necessary in the first place. The reason it is important to understand the international monetary system is because by realising how the system operates we can begin to appreciate that the reserve or perhaps the more appropriate term: anchor currency is the currency which all other currencies base their value on.

Considering the anchor currency is the dollar then this means all other currencies gain most of their value by how they are valued relative to the dollar as the dollar acts as the lynch pin to the entire international monetary system. In other words, if the dollar were to hyperinflate then the international monetary system would have no benchmark for other currencies to base their value on and so it would be likely that other currencies would have to hyperinflate themselves to maintain relative valuations to the dollar or more likely global trade would collapse. To understand this phenomenon more easily it is best to offer a hypothetical example.

If we consider the dollar to hyperinflate then it must hyperinflate relative to something else. This would most likely be the Euro the Yen or a currency held by an OPEC member. It can be either one; it does not matter. If the dollar hyperinflated against the Euro then the competitiveness of the Eurozone exports would decline to roughly zero as anyone trading in dollars could not afford to buy them. This lack of competiveness may be obvious to see in terms of US customers being unable to afford Euros as the dollar would be worthless but why would it be bad news for trading with other countries? This is because a considerable amount of international trade is settled in dollars and if the dollars themselves are worthless why would the vast majority of exporters continue to accept payment? It is likely they would refuse payment and so trade would drop dramatically (it can be noted that such an event would be highly deflationary as a collapse of global trade would render many companies insolvent). Now the only way trade could continue to remain viable is if the Euro reduced the value of its own currency rapidly to maintain some parity to the hyperinflating dollar. By doing so its exports could remain competitive and exporters can gain some value from their dollar denominated exports although the rapidly changes are likely to bring about its own issues.

It is this property in the international monetary system that almost guarantees the dollar can only hyperinflate once all other major currencies have already done so. The only scenario that can prevent this from happening is if another currency replaces the dollar as the anchor currency. However this seems rather unlikely because most currencies have generally moved from a fixed exchange to a floating exchange rate. This movement is significant because in the past when more currencies had a fixed exchange rate they held more foreign currencies in case they needed to “defend” their currency to keep it within its fixed exchange rate. By not having a fixed rate then there is no such need to hold these reserves which results in the currency fluctuating over a wider range. This however makes it harder for currencies to move towards a new reserve currency as they need to build more reserves of the new future currency.

On this topic of reserves it is instructive to look at the distribution of currencies held in reserve to see what the most viable alternatives for a reserve currency are:

Foreign reserve figures obtained from the International Monetary Fund.[2]

 As we see the only other currency that could realistically supplant the US dollar is the Euro and as off 2011 just under 24% of all foreign reserves is held in Euros. It remains questionable however if the Euro will actually take over the dollar considering the on-going Euro crisis that is making foreign investors question the future stability of the Euro. Indeed many of the developing countries are shedding their reserves of Euro at a tune of $90 billion since 2011.[2][3] If this trend continues, and it seems likely that it will, then it means the chances of the Euro gaining sufficient worldwide confidence to become the next reserve currencies are slim. If the Euro cannot displace the dollar and become the new reserve currency then it is unlikely any other currency will in the foreseeable future seeing as the next largest reserve currency is the Pound sterling which only makes up around 4% of the world’s reserve currency.

The other popular suggestion for a successor to the dollar is the Chinese Renminbi (RMB) however there are several issues China would need to address in making the RMB a viable contender to replacing the dollar. First it must allow the RMB to be fully convertible so investors can move money in and out of the country easily, second there needs to be greater access to its domestic stock/bond markets which foreigners are largely barred from taking part in. Once these barriers are removed then it can be viewed as a more serious contender but even then the Chinese would need to address the issue of a lack of RMB in the world market. To increase the amount of RMB outside of China it would need to run a trade and capital deficit (as the US did) which is a complete reverse of what policies China is currently undertaking. Due to these reasons it seems unlikely China could become the reserve currency in the foreseeable future. For more information on this matter it is recommended to read Patrick Chovanec’s article which summarises the issue quite nicely.

This all leads back to the situation that the most likely scenario is the dollar will maintain its hegemony over the world market and so because of this the chances of it hyperinflating will be low until the other major currencies collapse first. It is possible however that another major currency such as the Euro could hyperinflate and this collapse could cause the dollar to hyperinflate as the breakdown in the European banking system may trigger a collapse in the global trade rendering the dollar useless outside its domestic market.

Before drawing such conclusions however we must consider the inflationary and deflationary currently at work. On the one hand we have various central banks such as the Federal Reserve with their open ended $85 billion a month QE program and more recently the Bank of Japan following suit with their own $43 billion a month program.[7][8] These programs have created some inflation but only in the assets market and have had a minimal impact on the general economy; this particular issue was addressed in part 2 of this series. The other possible inflationary forces would be in the case of underlying wealth in the economy declining while the overall money supply would increase thus creating a large inflationary force. This inflationary force has been the main driver of inflation in the general economy and as energy prices have risen so has the cost of producing goods/services.

Speaking of energy it is useful to note that in the build-up to the 2008 financial crisis the price of oil shot up to $147 a barrel and these high prices likely played a significant role in triggering the financial crisis that was highly deflationary. These deflationary forces occurred because a large number of bankruptcies meant that a large amount of the money supply was destroyed as debt had to be removed from the balance sheets of various banks. Mass layoffs reduced spending and these combination of factors caused not only the price of oil to collapse to $35 but it also caused large scale declines in various assets prices from real estate to stock and even bond valuations.

It seems likely that another run up in prices in food, energy and oil prices will likely trigger similar events in the future and unless the inflationary forces are stronger than this then the most likely scenario is for a deflationary end-point. This scenario does assume however that the various central banks will not resort to “naked printing” i.e. giving money directly to consumers to spend. Which is a big assumption to make and it is very possible that if a country’s sovereignty faces an existential crisis then it is very possible they may resort to measures such as naked printing or money printing directed towards large government projects that will prove highly inflationary. Moreover it is very possible for currencies other than the dollar to face imminent hyperinflation once the world markets lose confidence in the currencies viability.

Summary

In the story of hyperinflation/deflation it is important to note these terms are all relative. If a currency hyperinflates or deflates it always does so against some other currency. Moreover for an event such as hyperinflation to take place it requires that people can take their currency and transfer this money into something of perceived value; which will be some other stable currency. This explains why governments always add capital controls during periods of high to hyperinflation as it makes peoples’ job of moving their money that much harder thus reducing the rate of inflation.

To demonstrate this last point let us consider a recent case of a currency collapse. In the case of Zimbabwe in 2009 the people of Zimbabwe could transfer their wealth to an object of perceived value, in this case the dollar.[4] In the event of a dollar collapse however it is difficult to envision such an option being available as the value of wealth held in dollars is not only much higher but the amount of currency (say Euros, gold etc) is unlikely to be available in sufficient quantities to hold all this perceived value. If people cannot transfer these dollars into any other asset then hyperinflation cannot take place. Seeing as a collapse of the dollar would also cause global trade to decline massively it becomes even harder to see how hyperinflation would take off as assets and currencies across the board would be affected. In other words there would be no place where wealth could be reliably stored and maintained (which was not the case in Zimbabwe). It should also be noted that if global trade were to collapse then there would be many bankruptcies and most significant bankruptcies of major international banks. As was hinted on in part 2 of this series many of these banking institutions hold derivatives that are worth hundreds of trillions of dollars.[5] If these contracts were not honoured it will lead to a significant perhaps catastrophic deflationary event. In any case though even if the dollar hyperinflated then the value of the other currencies would quickly diminish as their profits from exports would quickly plunge to zero due to massive currency appreciation against the dollar.

The other possible “run” on the dollar could be into precious metals such as gold but even this is unlikely to create hyperinflation either as there is not enough gold to absorb all the lost value from the dollar. This issue becomes even more problematic if we consider that gold ownership is more concentrated than ownership over actual dollars. Moreover such runs are likely to be prevented either through high taxation of gold related transactions or outright confiscation of gold as happened during the Great Depression.[6] In addition to all this if there is a collapse in global trade the amount of goods/services in circulation would greatly diminish so the amount of real wealth in the economy would drop while the amount of gold in circulation would remain the same. If the money supply (in this possible case gold) remains stable while real wealth drops then this will create inflation as the claims are not following the rates of shrinkage in the underlying economy.

With all that said a great deal of caution must be exercised. These matters are far from certain and it should be recognised that at best everything said is informed speculation. We also need to acknowledge there is a good probability that the government can bring in some monetary policy that is highly inflationary particularly if their very existence is under threat. Then there is always the possibility of a black swan event that can change the outcome of the world economy quite markedly.

A war between Iran and Israel or a war between North and South Korea are possible examples of black swan events. In the case of an Iran-Israel war oil pipelines could be destroyed creating such havoc in the oil markets that would likely cease to function making international trade very difficult. A lack of confidence in receiving goods/services could see large exporters dumping their dollar reserves in mass leading to the dollar hyperinflating.

Black Swan Event: A low probability high impact event. Such events often take people by surprise however it is actually quite rare for a true “black swan” event to occur as often the event can be accurately predicted years in advance if people scrutinise data thoroughly in an unbiased manner. The last commonly stated black swan event would be the 2008 financial crisis as claimed by various neoclassic economists.

Assuming such events do not transpire however it seems inconceivable that the dollar could hyperinflate unless the government decided to hand people open checks to consumers to spend as these please or started some major government project using printed money (as was the case in the American Civil War). Also while the fate of the dollar is not likely to result in immediate hyperinflation within the foreseeable future the same cannot be said of other currencies. This I suppose could be included as part of the exorbitant privilege that the US enjoys. However even here there is an important fact to take note and that is in recent years some other currencies have enjoyed this privilege albeit to lesser degree. The UK and Japan have enjoyed low interest payments (which are actually negative in real terms) in their bonds despite both economies experiencing high debt, high fiscal deficits, trade deficits AND low growth prospects. The reason this happens is because both these economies enjoy “safe haven” status due to the on-going Euro crisis. Once the crisis in the Euro is resolved then it remains to be seen how the pound or yen will fair. In the event of a major currency collapse (such as that of the Euro) then it is likely we see appreciation in the Yen, Sterling and most significantly the US dollar in the immediate after mass which is the opposite of a hyperinflation end-point.

References

[1] = Black Wednesday: The day that Britain went over the edge (The Telegraph)
[2] = Currency Composition of Official Foreign Exchange Reserves – COFER (IMF: PDF document)
[3] = Developing World: Euro Loses Attraction as Reserve Currency (SPIEGEL)
[4] = Zimbabwe abandons its currency (BBC)
[5] = Amounts outstanding of over-the-counter (OTC) derivatives by risk category and instrument (Bank of International Settlements – pdf file)
[6] = Roosevelt’s gold confiscation: could it happen again? (The Telegraph)
[7] = QE4 Is Here: Bernanke Delivers $85B-A-Month Until Unemployment Falls Below 6.5% (Forbes)
[8] = Bank of Japan’s Haruhiko Kuroda in aggressive growth move (BBC)

Liquidity Traps & Asset Class Sinkholes

Off  the keyboard of RE

Published originally on Reverse Engineering on October 27, 2010

Discuss this article at the Economics Table inside the Diner 

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

Liquidity Traps & Asset Class Sinkholes

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

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

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

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

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

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

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

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

RE

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

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

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

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

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

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

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

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

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

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

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

RE

 

Debt Monetization Economics

Off the keyboard of RE

Published originally on the Doomstead Diner on January 12, 2013

Discuss this article at the Economics Table inside the Diner

If you are the kind of person who worries about Inflation and read the pages of Zero Hedge, there’s a good chance a few days ago reading through the article summaries on the Home Page you had to take a trip to the Throne Room and kneel down and Pray to the Porcelain God while Heaving the Technicolor Yawn.

Let me begin this article by pasting in a few of the synopses from Jan 7th, which came nearly one right after another describing the various and sundry Monetary “experiments” being undertaken by the Bank of Japan (BoJ), the People’s Bank of China (PBoC), the Swiss National Bank(SNB) the European Central Bank (ECB), and of course that Central Bank we all Love to Hate here in the FSofA, Da Fed(FRB).  Not all these main CBs are covered in these articles, but they are sufficient to detect a pattern forming up.

 

Tyler Durden's picture

Japan May Or May Not Mint Quadrillion Yen Coins, But It Will Monetize European Debt

Submitted by Tyler Durdenon 01/07/2013 – 22:03

Just when we thought America would be alone in crossing into the montary twilight zone where so many Keynesian lunatics have gone before, and where trillion dollar platinum coins fall from the sky right onto the heads of all those who have not even the faintest understanding of money creation, here comes Japan:

ASO: JAPAN TO BUY ESM BONDS
ASO SAYS JAPAN TO BUY ESM BONDS USING FOREIGN EXCHANGE RESERVES
ASO: ESM PURCHASES WILL HELP TO STABILIZE YEN

For those who have forgotten, the E in ESM stands for European (the S for Stability), not Japanese (Stability). Otherwise it would be, er… well, JSM. Keynesian at that. But yes – Japan will now proceed to “stabilize” itself by monetizing European debt. Because its own JPY 1 quadrillion in debt was not enough.

Tyler Durden's picture

Meet Jack Lew: Tim Geithner’s Replacement

Submitted by Tyler Durdenon 01/07/2013 – 19:58

Bloomberg is out after hours with news that was expected by many, but which was yet to be formalized, until now: namely that following today’s flurry of contntious nomination by Obama, the latest and greatest is about to be unveiled – Jack Lew, Obama’s current chief of staff, is likely days away from being announced as Tim Geithner’s replacement as the new Treasury Secretary of the United States. In other words, Jack will be the point person whom the people who truly run the Treasury, the Treasury Borrowing Advisory Committee, chaired by JPM’s Matt Zames (who just happens to also now run the notorious JPM Chief Investment Office which uses excess deposits to gamble – yes, you really can’t make this up) and Goldman’s Ashok Varadhan, global head of dollar-rate products and FX trading for North America (recently buying a $16 million pad at 15 CPW) will demand action from.

 

Tyler Durden's picture

Greek Banks To Merkel: “Please Ma’am, Can We Have Some Moar”, Or Here Comes Bailout #4

Submitted by Tyler Durdenon 01/07/2013 – 19:19

As loathed as we are to say “we told you so,” but we did and sure enough eKathimerini is reporting this evening that: thanks to the ‘voluntary’ haircuts the Greek banks were force-fed via the latest buyback scheme and the political uncertainty causing non-performing loans (NPLs) to rise (in a magically unknowable way), they will need significantly more ‘capital’ to plug their increasingly leaky boats. The original Blackrock report from a year did not foresee a rise in NPLs (which Ernst & Young now estimates stands at 24% of all loans) and the buyback dramatically reduces the expected profitability of the banks as it removes critical interest payments that would have been due. Whocouldanode? Well, plenty of people who did not just buy-in blindly to the promise of future hockey-stick returns to growth. Expectations are now for the Greek bank recap to be over EUR30bn.

 

Eooowwwchhh!   Reading this stuff, you get the sinking feeling that Monopoly Money is pouring off the Printing Press at Warp Drive Speeds, and in a fashion you would be correct in believing that.  The Nipponese are clearly in the Deep Doo Doo, their Export Market is collapsing,  the “Off” switch on “cheap” Nuke Power currently remains off (though the new Goobermint intends of firing them up again); the Greeks are a Black Hole of Debt the ECB and various and sundry Financial Special Purpose Vehicles (SPVs) like the ESM keep funding with more fictitious money, and of course Da Fed remains busy in Financing the FSofA War Machine through an exponentially growing Federal Deficit, while at the same time expanding it’s “Balance Sheet” in order to buy absolutely WORTHLESS collateral from the TBTF Banks to keep them from going under this week.

Trying to look at what EVERY CB is doing here to Monetize Debt is an exercise in futility, the rest of the post would be filled with Graphs up the Wazoo here.  As it is, just looking at FSofA Debt Monetization and Population Issues has more graphs than I like to jack into one article.  I’m a Big Picture Pontificator, not an Actuary or CPA, so inundating the reader with endless Graphology of the Exponential Function in action is not my Stock in Trade.  I’m a decent enough mathematician, but I am also perfectly aware that throwing out endless numbers for most people makes their eyes Glaze Over, so I try not to do that.

However, it is necessary in going forward with this post to look at what actually is occurring on the Monetary level, at least here in the FSofA utilizing Da Fed as the Example.  It’s no different for the BoJ,the ECB, the SNB or the PBoC, and in fact since Da Fed produces the WORLD RE$ERVE CURRENCY of the DOLLAR, this best represents what is occurring on a global scale with the monetary system.

Let’s begin with the expansion of the Balance Sheet of Da Fed.  This BS expands as Da Fed purchases Trash for Cash.  TBTF Banks unload worthless MBS, CDOs, Soveriegn Bonds, Securitized Student Loans and Baseball Cards (the ONLY thing in this list of real value)

 

As you can see, the FRB Balance sheet shot to the Moon in 2008, when in order to keep the Financial System from Imploding, Da Fed when on a Buying Spree of Junk Assets on the books of these banks they could not unload to anybody else for Cash, which everybody was short of at the time.  Does this really mean Da Fed “printed money” here for this stuff that wasn’t already in existence?  Not really, becuase these ‘assets” represented money that was already trading around in the system anyhow, Da Fed just traded FRNs for the collateral, providing more liquidity in the system.  Actual Dollars in Circulation, the M1 Money Supply didn’t change all THAT much, certainly not as much as what the above fairly TERRIFYING Graph would indicate.

Not that it still isn’t terrifying to see this vast expansion of Da Fed BS, it still is because it is indicative of the fact the regular Credit Market was in catastrophic failure mode so the assets were transferred off of Private Balance sheets onto Da Fed Public one, even though all this accomplishes is moving insolvency from one place to another.  In the end when the system does implode (it will), it really doesn’t matter who goes broke FIRST here because everybody will go broke.  The Banksters weren’t ever going to be able to pay off their Bad Bets, nor will the Taxpayer be able to do it.  Broke is Broke when distributed over an entire system like this.

The next graph shows the ALSO TERRIFYING expansion of the Federal Deficit, not coincidentally occurring at precisely the same point in time, 2008-9, when Da Fed Balance sheet went Ballistic.

Why is the Federal Deficit ballooning here at the same time?  Because with Private Credit drying up for lack of Creditworthy Borrowers in the Private Sector, in order to keep the system from imploding on this level, Da Goobermint steps in as the Borrower here, basically borrowing money on its own account to do the numerous Bailouts of failing institutional lenders.  This again serves the purpose of providing liquidity and keeping Zombie Banks as the Walking Dead a while longer, but it is still not really putting money into a system that wasn’t already there, just in other forms in the “Shadow Banking” system.  This is unaccounted for money, and nobody really knows how much of it is out there even now, estimates run as high as Quadrillions.  All that is happenning in this case is that some of that sloshing pool of fictitious money is being moved to the Public balance sheet, in dribs and drabs as parts of the system continue to fail.

So now what we have to do is to drop back from the gross debt being pitched around here and look at the components of the Money Supply to see how they are doing.  Below is the graph of the FSofA Monetary Aggregates, divied up into M1, M2 and M3 forms of “Money” that circulate and/or get parked as Savings or Investment in something.

The part of this graph that concerns the Main Street Economy and J6P is mainly down in Blue at the Bottom of the graph.  That’s the actual Cash FRNs floating around out there and digibits in your Checking Account.  As you can see, it has increased substantially since around 1980, but nowhere near the vast increase through the other components of the Money Supply, half of which were such a small component of the total supply in 1970 they don’t even show up on the graph.  This is where most of the “Money” is floating around, and it is mainly held in large Corporate Accounts, Pension Funds etc, in theory there as a balance sheet number, but in realty not there at all.  This is the most fictitious of the fictitious money.  “Other Checkable Deposits” I believe represents Reserves the TBTF Banks have on deposit at Da Fed, my good friend and fellow Macro Economist Steve from Virginia from Economic Undertow will correct me if I am wrong on this.

Although the increasing muber of FRNs and digibits is causing some inflation, particularly in Food prices now which are also being pressed on the Supply End due to drought,  overall cost per capita doesn’t expand that rapidly (at least not at an HI pace until there is a currency collapse of the Dollar), because this Main Street Economy money is distributed out over many more people than it was in 1970.  First the graph of US Population expansion over the time period in question.

As you can see, since 1970 the FSofA has seen a roughly 50% increase in population size from the 200M neighborhood to the 300M neighborhood, so what FRNs there are out there for J6P to earn are spread over more people.  All else being equal, if the number of FRNs don’t increase at the same rate the population size does, each person will have fewer of them, which would be of course highly deflationary for Prices.  Fewer people would have say $5 for a 1 lb Ribeye Steak at Safeway, so to sell the same number of ribeyes, Safeway would have to lower the price to what the new normal was, in this case a 50% decrease in available cash per capita of consumers of Ribeyes, so the price would have to drop to  probably around $3/lb to keep selling the Ribeyes.

Obviously no such thing has happenned, the price keeps going up, but not as fast as you might think it would if you look at the top graphs in the Fed balance Sheet and Federal Deficit graphs.  More money is out there, but sprinkled out over many more people than it was in 1970, and not just here in the FSofA either.  The vast increase in total money supply mostly is NOT distributed out either, it remains “in reserve” at Da Fed on accounts of the TBTF Banks.

This because with increasing Globalization of trade along with the fact the Dollar has served as World Reserve currency through the time period has meant many of these Dollars are now sprinkled across the WHOLE WORLD, often used as black market currency in many highly populous nations that are unable for one reason or another to run a viable currency system of their own.  So Dollars now aren’t spread through just the FSofA population, but across the whole WORLD population in one form or another.

So this leads us to look at the Global Population Graph for the time period, yet another TERRIFYING graph.

 Here you can see especially if you look at Asia since around 1950, the Global Population has more than Doubled, and where have many Dollars been spent to buy stuff?  From Asia of course, Japanese Carz and Electronics, Chinese Plastic Toys etc.  Since the FSofA has had a Trade Deficit since at least the 1970s, a constant outflow of Dollars produced has made it into the hands and savings accounts of literally Billions of Asians, when looked at across the aggregate scale anyhow.  In reality, most of said dollars are just in a few hands, not ALL Asians have gobs of FRNs stuffed in the Bank of Sealy.

Any given INDIVIDUAL in China doesn’t have gobs of FRNs to spend to buy a Ribeye steak, in fact most have far fewer than even the most imoverished Amerikans living on Food Stamps.  The result is that instead of getting an HI in the price of Ribeyes, what yoou mostly get is Demand Destruction as margins are compressed and the actual price a Cattle wholesaler can get is pressed down by the inability of most people to afford to buy the Ribeyes.

The same Bizness of course is occurring with Gasoline (Petrol for the Eurotrash), so instead of HI in Gas, actually prices have now once again DECLINED here in Alaska to BELOW what I paid for it when I first got up here 7 years ago.  It has been above that price for most of those years, but across the board the Demand Destruction is taking hold on this, and despite no increase in total production of Liquid Fuels (see Monsta666 Energy I&II articles), the prices are getting pushed back down again.  Mainly probably attributable to cratering demand for Gasoline in Eurotrashland, now Double digit Unemployment throughout the PIIGS countries and working its way into France also.

To conclude here in this portion of the running Kick the Can Game in Debt Monetization Economics,  despite some outrageously BIG numbers and some really TERRIFYING graphs is really just spreding its way across the entire global monetary system, but because all the CBs are currently engaged in the same process of trying to provide liquidity to an illiquid market, the RELATIVE VALUATIONS between the currencies are not yet changing that much.  Euro’s will spike up or down on a given day dependent on the Newz, same with Yen, same with the Dollar itself of course.  Everytime they do spike though, the OTHER CBs in the system react to it, genrally themselves ALSO adding more liquidity.  Absolute Numbers go up, Relative Values don’t change all that much, at least they have not YET.

Eventually, somebody’s currency will crack here in a Crisis of Confidence, forcing a run out of that currency.  Remains to be seen who is the FIRST to go down the Toilet, but it most CERTAINLY will not be the Dollar.  It is too big and too much of the current system is dependent on valuations made in Dollars.  the much more likely candidates are the Euro or the Yen.  These are the currencies most at risk right now for an HI event, not the Dollar.

In terms of actual Purchasing Power for all these currencies with respect to Oil & Food (closely related clearly), all are destined for terminal decline as the resource base declines and the Cheap Oil dwindles in availability.  What counteracts that on the gross scale is Demand Destruction, and that can occur a lot faster than actual resource depletion does.  It is moving at an INCREDIBLY rapid pace in Eurotrashland right now.

I had Chartist Friend From Pittsburgh do a curvilinear wave analysis of this graph, and as I suspected,  the resistance line is well broken and demand for Oil Products in Europe is likely to hit new lows as we move into 2014. How LOW will it GO by 2014?  13K BPD seems like a very good bet to me.  This represents around a 20% decline off Peak Demand in Europe for Oil, while at the SAME time the population there has increased substantially.  Obviously, per capita consumption of Oil is on a steady downward slope there already,  and this is nothing if not highly deflationary all around.  Thus of course the massive Unemployment problems the Eurotrash are immerssed in already.

Where will the Demand Slack be taken up?  Will it be in China or South America or Africa, in the “growing” economies of the developing world, or will it be in the last place to lose Credi to buy the Oil, likely the FSofA, home of the Printing Press of the Dollar and Home Base for the Big Ass Military?  One thing is for certain, TPTB cannot allow the Demand to Crater entirely, because when it does (it will eventually of course), the entire monetary system they depend on to maintain power goes with it.  The ULTIMATE demand side solution for this is full on WAR, and that of course is liekly to come down the pipe in the bye and bye.

Time will tell, but until the whole Geopolitical equation plays itself out, my bet is that no debt monetization undertaken by Da Fed will spark an HI in the Dollar during this period.  There are too many other weaker players in the same game.  The “Game” still has a few rounds to go in terms of competitive devaluations of the Major Currencies by each of the respective Central Banks, along with still more rounds of Austerity and Demand Destruction being embarked on by more Central Players, including France, Germany, and of course the FSofA.

RE

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.

America:

 

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.

 

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.

RE

 

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.

RE

Facepalm Suckers the Suckerbugs

Discuss this article at the Market Flambe Kiosk in the Diner

 

As the spin down proceeds along here, the circular nature of Money Creation and Destruction becomes ever more apparent, even I think to the Casual Observer now.  Reason it is becoming much more obvious now than in the past is that BOTH Money Creation and Destruction are occurring exponentially more rapidly these days than just a few  years ago.

We have all been Witness to TARP, QE1 & QE2, and the EFSF Slush Fund, which in combination add up to TRILLIONS of some Fiat created over the last 4 years since the 2008 Financial Crisis.  This non-stop creation of credit to maintain liquidity has provided an enormous amount of Fodder for the arguments of Hyperinflationistas and Gold Bugs alike.  According to BOTH John Williams and Speedy Gonzalo Lira, all this Printing SHOULD have resulted in HI of the Dollar in around 2011 at the LATEST, if you read their arguments in 2009-10 anyhow. Here we are in 2012 though, and it still does not take a wheelbarrow to buy a Loaf of Bread, though Bread IS more prcey today than in 2009.

Why has HI not occurred as of yet in the Dollar?  A few reasons for this.  First of all, the Dollar is just a COMPARATIVELY valued currency, valued against the worth of other currencies in operation.  It’s not a good currency, but compared to the other main currencies it is valued against, it is positively Sterling!  Bad as FSofA debt is, it is better debt than that owed by the various PIIGS nations.  Its better than Glow inthe Dark Yen.

The ABSOLUTE Truth of course is that ALL Fiat is diminishing in it’s relative worth against Oil, which in this industrial cuture provides the underpinning for the value of all Fiat.  PMs play a tangetial role in this, their worth depends on valuation against both the Oil resource and the perceived Safety of PMs while Fiat loses its value. Overall though, Gold is a minor player in a much bigger game, and Gold cannot abosrb the lost value in Industrial Equities.  Put it this way, if you took all your Monsanto,IBM,GE etc Stock and tried to convert it to Gold, at current valuations for Gold there is not enough around to place all that value. Gold would have to raise in value by orders of magnitude to take on the current valuations, and that is not going to happen. Why?  Because the current valuations of equities are entirely WRONG to begin with! You cannot transmute false valuations in equities (or real estate or derivatives etc) into “real”valuations in Gold anymore than you can transmute Lead into Gold. The shit simply isn’t WORTH what the “market”says it is worth, because the “market” marks to MAKE BELIEVE now, not any real valuation.

Anyhow,it is the recent IPO of Facepalm that leads me to write this analysis, because inside the Diner the case was made by GO that $100B worth of fiat was created in this IPO, which is for the most part true.  At this point, Morgan Stanlety who underwrote the IPO is going to have to Borrow money to buy the stock itself and keep the price propped up at anywhere near its IPO price. MS can only do this for so long though, even with an open spigot from Helicopter Ben. The rest of the competitors to MS will see this weakness and keep dumping stock forcing MS into a deeper hole to prop it up. The OTHER sharks in the water will eat MS ALIVE if they persist in propping it up.

So,the $100B or so created to purchase this stockrather quickly goes up in flames here without EVER making it out into the Main Street Economy to Hyperinflate anything. Rinse and repeat said process with all the recent IPOs from Poopon to Zinger to the “new”GM.They are ALL losing their value, all the money created to buy them is going right up in SMOKE here.

Forget HI, even just keeping regular Inflation going is a daily job for Helicopter Ben that overall he is losing.  None of the Funny Money being created makes it any further out to the Real Economy than the Bonuses paid to the Banksters for making these deals and setting up a new paper construct, in this case Facepalm.  Facepalm has no real good revenue model here, it is a fucking FAD.  In the end, social networking and Tweeting the details of your daily life is just BORING.  Really, even the Tweets of Bill Gross are BORING,and he is worth BILLIONS.

Facepalm is a fabulous example for what is going on in the Grand Schema here, which is to try to keep this monetary system running blowing ever more and newer Bubbles,but the latest Bubbles are so full of HOLES they capture no Air whatsoever, not even for a MOMENT after they are offered up for consumption.Railroads,Carz, they captured some air for a while when the Black Gold came a-bubblin’up from Jed Clampett’s farm, but these things at leasthad some SUBSTANCE to them. Virtual Creations on the internet HAVE NO SUBSTANCE.  In REALITY,they are quite worthless things. Facepalm is a MIRAGE of wealth,though to be sure Suckerbug cashed out himslf on this mirage. For everyone ELSE who invested in it, you are the Suckerbug’s Sucker holding the bag.

RE

The Banksters go ALL IN

Discuss this article at the Economics Table in the Diner

What follows this introduction is one of the many articles I wrote on TBP in the aftermath of the Fuk-U-Shima Quake and Tsunami.  Some of them are too dated to repost, but this one has particular significance because of a similar Quake and Tsunami building now in Eurotrashland, just on more of a financial level than a geological one.  The Euro markets are crashing now in much the same way the Nikkei did after Fuk-U-Shima.  The CB interventions already look similar to what occurred then.

The important aspect insofar as recent discussions going on inside the Diner are concerned relate to how Hyperinflationary events might transpire in the aftermath of such Quakes. In the first paragraph, just substitute “Euro” for Yen and “ECB” for BoJ and you should see the whole game is pretty interchangeable here as far as how the CBs are handling it.  Will this lead to Hyperinflation, and in which currencies and when?  Read on for some more thoughts on these subjects.

RE

After a couple of days watching the Nikkei sink like a stone and the Yen rapidly appreciate in value against the Dollar, the Central Banksters of the world Pulled together here, and now have gone ALL IN. The Geeks from MIT, Harvard, Princeton, Columbia and Trinity College of Cambridge University have loaded up on Jolt Cola and they are working in overdrive now pulling All Nighters every night. The BoJ will print as much Yen as necessary to keep the Nikkei floating and the other CBs will print in tandem to swap out as much currency as necessary to keep the relative exchange values even. This should keep the Supercomputers doing Teraflops here until the circuits burn out.

What are the Intangibles, what is going on BEHIND the curtain here? Its not all that different than what has been going on with the NYSE, which is that although the nominal value of the stocks are being kept relatively even, the OWNERSHIP of those stocks has been steadily changing hands. The Insiders are selling out their shares, the CBs are buying them up through their Proxies of the trading desks of the TBTF Banks.

All this really worthless paper is going onto the Books of Banks which ALL will eventually go BK, the liabilities then transferred to the Nation States they are chartered under. Insiders are currently exchanging the stocks for currency they can still use to buy hard goods and secure themselves. They need the currency to remain working as long as possible to be as complete as possible buying up what remains of wealth in the world. Every means possible to forestall currency collapse is being taken here, because once it does occur, all bets are off and it becomes a Power Game which all the Big Players are positioning themselves to play here, but which none of them know the outcome of.

By maintaining the relative value BETWEEN international currencies, none of them will Hyperinflate until there is a local collapse of confidence in one of the currencies, most likely to be the Yen first now. Local Japanese are going to start spending what Yen they have as fast as possible as soon as there are any hard goods to buy with that Yen. Internal commerce in Japan is so slow now (for all intents and purposes it is at a complete halt) that this Hyperinflation will take a while to develop. Might not be for a few weeks or even monthswhen they get some control over the ongoing Nuke disaster and Humanitarian crisis of around half a million people displaced from their homes and in emergency shelters, and try to begin “rebuilding”. Could begin sooner though once the currency traders wake up and smell the coffee.  (Note: over a year now still no HI of the Yen. It clearly takes a lot longer for such a loss of confidence and complete evacuation of a currency such as the Yen to occur.  So for the Euro, same probably is true, and it probably will take longer than seems logical right now for a complete Euro Collapse to play itself out)

Right NOW, the Yen has appreciated in value because it is NEEDED in Japan, but once it becomes evident that it is hyperinflating, everybody will try to get rid of what Yen they hold outside of Japan. The currency is fundamentally worthless now, the industrial infrastructure on which its value was based is pretty much in ruins. Short term though, it is highly VALUABLE, because everybody in Japan needs Yen right now, it’s the currency THEY use to buy stuff.

Anyhow, if the BoJ continues printing at this rate, currency traders who hold Yen should see the Writing on the Wall unless they are stupefyingly dense. The Unknown Variable here is just how fast this will Dawn on the currency traders, and how fast they react by trying to dump their holdings of Yen. If they start dumping, the BoJ has to stop printing, elsewise you get a synergistic effect and the currency completely blows up. (So WHY don;t they dump the Yen as  I wrote here?  My current take on this is that Da Fed and BoJ prevent this from occuring through Swaps and currency manipulation.  the Carry Trade here is enormous, and these folks cannot unwind these trades without gettinng HAMMERRED, so the CBs prevent runs on the currency juicing the market either way if it looks like a run is underway.  I suspect the same will be true if a major run begins on the Euro.  Not so sure Da Fed can move enough CASH through the Back Door in the even of a run on Spanish Banks though.)

If you think about it, this explains why the Dollar, despite constant printing by Helicopter Ben over the last few years has not Hyperinflated. Yes, there IS price increase in commodities and some services resulting from Hot Money flow into speculation in the commodities market and indexes which track that are perceived by many as “inflation”. However, for the most part the money printed here by HB is being HOARDED, not spent rapidly out into the market by end consumers. End consumers for the most part have no access to this money. Smart folks who are still in Surplus aren’t spending their dollars, they are paying down debt and some are Speculating with them buying PMs and driving the price of them up. Relatively small segment of the population in the category of current surplus to be doing either of these two things though. However, there is not YET a crisis in confidence over the Dollar which would lead to across the board Dollar Dumping by people who still have a large surplus of dollars. To achieve Hyperinflation, there must be a crisis in confidence in the currency, which has not happened yet with the Dollar. It will happen eventually as long as the current path is pursued, but the crisis of confidence will come in smaller currencies FIRST, the Yen being the most likely right now.

As it becomes ever more clear just how dire the situation is in Japan, there will be a crisis in confidence over the value of the Yen. Belief is a very strong thing, so is Denial. The belief still exists in many that Japan will shrug this off, rebuild and continue to produce Toyotas and Sony Plasma TVs to sell to worldwide Consumers. Reality will eventually undermine this belief, denial will become impossible as long as things there continue to be out of control, this will happen sooner rather than later.

Of course, the ongoing Nipponese Armageddon is only a part of the total Collapse Picture. Just about as big as this is what is happening over in the M.E., and with the sheer MAGNITUDE of the problems in Japan I haven’t spent much time in the last few Daily Rants keeping tabs on that Shitstorm. Fast as I can keyboard, its just not possible to keep up with all this shit. Besides, I have to keep the OP under 5000 words each day anyhow. LOL. Partially because I promised I would do this, but more for personal reasons which is that if I let myself go longer, it would take more time than the hour or so I will devote each night to writing while I make dinner before I hit the sack. I spend a LOT more time than this composing, but I do it during the day while I am at work in my head. It’s multitasking. So at night, all I have to do is keyboard it out which does not take that much time, not actually compose it which is more time consuming. That is how I write so much every day, in case you were interested, which you probably are not. LOL. The Quality varies from day to day obviously. A few Gems, plenty of Rocks. If you are Panning for Gold here in what I write, you have to sift through a lot of dirt to find some grains of Gold. I’m just ranting on what I think about with respect to the ongoing Collapse, that is all.

Since I last updated on the M.E., there has been quite a bit of action in Bahrain and Saudi Arabia, but the big Newz of the day is the UN resolution to implement a No-Fly Zone over Libya, AKA a License to NATO to Bomb el-Kabong back to the Stone Age. The “Arab League” quickly capitulated on the idea that Arabs could solve Arab problems here. The “Arab League” is of course not representative of the Arab PEOPLE, it’s the Stooges the Illuminati prop up as Goobermints in these countries, all part of the Oil Conduit.

Why are they doing this? It is NOT to bring Democracy to Libya obviously, its because there is so much fucking CHAOS there right now that probably ZERO Oil is floating on tankers out of Libya, even though the MSM claims that production is only down by 2/3rds or so. Italian Auto plants are dependent on Libyan Oil, and if they don’t keep producing Fiat Cars, Silvio Berlusconi will not have any Fiat Money to buy Underage Hookers with.

So the ANSWER they have come up with here is to as quickly as possible bomb the living shit out of all the military hardware THEY sold to el-Kabong, so that then HOPIUMFULLY they can send in a small force of Boots on the Ground to ally with Rebels and get those damn Oil Fields BACK online ASAP! They are likely to be as successful with this concept as they were with Bombing Baghdad back to the Stone Age to take control of Iraqui Oil Fields after Saddam got outta control.

This is of course a UN operation of “Peacekeeping”, not an FSofA Imperialist War, and dutifully all the NATO countries are contributing here, even the Hosers in the Great White North are sending over some Jets piloted by Bob & Doug Mackenzie to bomb the Living Shit out of the Libyans. What about the freaking ITALIANS? They get most of the Libyan Oil, who are THEY sending over there? OK, they are probably providing Airbases in Sicily to fly out of.

El-Kabong has been singularly uncooperative here, unlike the Hoser Mubarak in Egypt he did not dutifully Exit Stage Left with a few Billion in Gold Bars. No, El-Kabong is going to fight to the DEATH to keep control over his patch of depleted land. If he wasn’t such a complete SCUMBAG with bad taste in his wardrobe, his refusal to capitulate to the Illuminati could almost be viewed as heroic. LOL. However, like all the rest of the propped up Dictators, he IS a scumbag, and in the process of trying to hold onto “his” property, a whole heck of a lot of disenfranchised Libyans are going to get a near term ticket to the Great Beyond.

The Intangible Question in the case of El-Kabong is just exactly what Options he has here once NATO brings to bear their Air and Naval assets on that patch of land? How Well Prepped IS he? Does he have enough Anti-Aircraft weaponry to fill the skies full of Lead and shoot down some NATO hardware? Can he send Missiles aimed at Italy from Libyan shores? Can he send out teams of Special Ops forces to do some Assassinations? How LONG can he hold out under Carpet Bombing?  (Question has been answered. Not too long.  El-Kabong clearly did not Bunker himself up well enough here.)

El-Kabong is isolated and his days are numbered here, but he has made it VERY clear he is not going down without a fight. Also clear is he is not going to make a distinction between Civilians and Military, either among his own people or anybody else. ALSO clear is that he is not going to hand over the Oil Fields intact no matter what. His personal Pretorian Guard knows they are all Dead Men once his regime is overrun, so they are likely to be just as INSANE as he is. Even if its ONLY 10,000 troops he has as part of this force, if they have access to good military hardware and enough MREs to keep going for a few months, this will be a rough bunch to take out. They are ALL suicidal now, they all know they are dead men walking, so they have NOTHING LEFT TO LOSE. That makes them dangerous indeed.

I did have the intention tonight of addressing the question Flash asked, which is once all this SHTF stuff coalesces, where does that put us a year or so down the line after an across the board monetary system collapse? That is a very good question to ponder on, but too much to drop in this rant unfortunately even though on a word level this one is short at around 2000 words. I am about out of time here regardless, and I have a Salmon Fillet simmering in Garlic, Lemon Rinds, Dill, Cayenne Pepper and Kerri-Gold Irish Butter just about ready for consumption. I’m a little slow on the keyboard tonight because I have to keep a close watch on the fillet, overcooked it falls apart and doesn’t have the right texture, undercooked the flavors don’t blend properly. So that question will have to wait for tomorrow’s Daily Rant, unless of course I wake up tomorrow and still MORE SHTF I have to address. No shortage these days of Doomer Topics to write on. We have not reached Peak Doom here by any measure, it is the Gift that keeps on Giving to the Doomer. I am of course a major Doomer. (A year later now, we are still mired in what appears to be a “Long Emergency” of the Kuntsler variety rather than a Fast Crash.  Indidcations are that the “Long Emergency” will remain the dominant paradigm for a while longer.  However, the system remains so unstable that it could FLIP at any time.  You have to pay attention to it all the time to not get caught with your pants down.  If /when it flips to aFast Crash, you will not have much time to make the Last Bugout.)

Long Emergency or Fast Crash in terms of the Human Lifespan is concerned notwithstanding, either way I STILL See Dead People.

RE

Hyperinflation or Deflation?

The following is excerpted from an ongoing debate inside the Diner on the differences in the outcomes between Hyperinflation and Deflation in a Monetary System Collapse.  Come join us at the Economics Table in the Diner to chip in your Two Cents on this still nagging and popular question!

 

      Topic: Hyperinflation or Deflation? 

ross

The difference between hyper inflation and deflationary collapse matters to people with cash money and assets. Much depends on the type of assets you have.
Ben Bernanke is waving at the market like a drunk with his dick hanging out that he wants inflation. Serious inflation. And that explains a lot of the asset choice behaviors over the last 18 months. Inflation expectation are extreme. Wouldn’t you know, we just had our first shock in the form of a 25% increase for gas inside of three months.
The only outcome is deflation no matter what. The dynamics of the credit leverage we employ in the economy (30 year home financing, 5 year zero interest financing for automobiles) and the (loss of) velocity of money ensure a deflationary event is in our future. We are facing a global breakdown in trade because of failures in the credit/currency markets and availability of low cost energy. The reasons people freaked and made a lot of people full-time TSHTF about “TSHTF” in 2008 is because it looked like the global markets were imploding and going into a terminal collapse.
Even after hyper inflation comes a deflation where money is practically worthless. Meaningful trade is done in barter or “backed scrip.”
We are stuffing the toilet bowl to avoid the flush. It won’t work. But it can go on a lot longer.

Modify message

« Last Edit: March 31, 2012, 12:42:19 PM by ross »

RE

Re: Hyperinflation or Deflation?
« Reply #1 on: March 31, 2012, 01:43:48 PM

The difference between hyper inflation and deflationary collapse matters to people with cash money and assets. Much depends on the type of assets you have.

True, it DOES matter to people who actually HAVE some “savings” or “assets” which way the Ball Bounces here.  However, since about 80% of the population really HAS no assets or significant savings, how it collapses doesn’t really matter to them very much.
The folks who worry about Inflation/Deflation are those who have their Matresses stuffed with FRNs and their Basement Safes stuffed with Gold Eagles to hedge it.  They figure if the FRNs go worthless, the Gold will increase in value.  They may also buy Land to hedge further, figuring they can grow their own Tomatoes in their raised bed Permaculture Garden either way.  Of course, buying Land sticks them with a Tax Liability and since most of the folks with a pile of money would have no clue whatsoever as to what to DO with a piece of land, exactly how good an investment that is for them is an open question.
Let us look at the example of the Average sorta Successful Boomer here who has a Paid Off McMansion, an IRA of say $500K distributed out in Mutual Funds and Stocks and $50K in his FDIC Insured Savings and Checking Accounts.  How does Inflation/Deflation affect him?
If it is Deflation ruling the day, his $500K portfolio drops in value tremendously.  Stocks drop in value, Bonds are Defaulted on.  His $50K in Cash though has more value, assuming of course he gets it out of the Bank before it shuts the doors.
If it is Inflation ruling the day, his Cash money goes about worthless, but in theory he can sell his Stocks and Bonds for higher prices since this is where the newly printed money will flow in some fashion.  However, after converting the sale to Cash at the higher prices, it of course still buys less of what he needs, so he burns through the savings there faster.
In neither case can the Boomer Saver really protect himself, the assets he has may stay steady or even rise in nominal value in an inflationary scenario, but upon liquidating them he still cannot buy what he needs because the commodities have also inflated up in nominal cost.  In a deflation, his assets are worth less (or in some cases WORTHLESS), so he also is fucked this way.
Definitely Helicopter Ben is trying to Inflate the economy, evidenced by the current $4.35/gal I am paying for Gas now here on the Last Great Frontier.  That is even a higher price than I payed right before the crash in 2008-9, I think it maxed then at $4.25/gal.  I cannot see how this price can be supported very long.  Add to that the around $10/gal price I have read is common in Eurotrashland, WTF can BUY this product anymore in these economies?  Either the price collapses or we will quickly be going Lights Out and No Driving here and in Europe.  The end consumer isn’t being issued money to buy at these prices.  I expect a Price Collapse, because I do not think the Illuminati are quite ready to send the entire industrialized world into Lights Out quite yet.  Parts of it like Greece and Spain yes, but not the whole Ball of Wax.
RE


Surly1

Re: Hyperinflation or Deflation?
« Reply #2 on: Today at 06:27:48 AM »
This is great!!

ross

It does matter. If you don’t have money, it matters even more whether it is deflation or hyperinflation. Hyperinflation is an equalizer in some sense. It destroys everyone’s wealth equally past a certain threshold of intolerance. People always win out in these scenarios but they’re usually connected government insiders and the owners of physical capital who maintain physical possession through and after the hyperinflation occurs. Who in Zimbabwe was still rich after hyperinflation? The military and Robert Mugabe + entourage (100,000 lucky Ins?)
It has an intimate effect on the pace of collapse and the overall social compact. Hyperinflation would truly galvanize the 99% against the 1%. Engulfed in such a horror, no one can really protect papers assets at all. Consider the one difference going for this monetary collapse is that the majority of the denominations are digital ledgers.
It is the limited number of people capable of operating complex mechanical capital that come out holding the wealth in a hyperinflation. Crime would spike during hyperinflation but social order would not collapse. Government could maintain order up to the point of open insurrection. Rioting and “armed looting” would be expected. Basically, you’d see people get tribal in a hurry.
A lot of businesses would end up closing out of the sheer terror of operating in the HI price environment. Mafias fill the void in vulnerable areas, so pretty much every urban periphery becomes a slum area. Rents can’t be paid, real estate owners must collect from their tenants somehow especially b/c physical ejection is risky. The devolution of social order in the exurbs and “working class” suburbs does not signal the end of anything. A new currency can be strung up fast, and it can be fiat. Electronics also allows rapid deployment of a new currency regime. What choice do you have but to use your ATM card for the new red money. Since all the green money got canceled out…
Hyperinflation is not the dirt nap you’re looking for. It is likely the contraction in “Growth” aka consumerism and hedonism is restricted to a smaller group, the ones who float their reconstituted corporations on the new red money stock exchange. Who is rich in the Russian Federation? Putin may end up as the richest man in the world!
Deflation, on the other hand, truly threatens the entire economic paradigm and once deflation begins you scale on the Collapse spectrum. Deflation would essentially mean the abandonment of money and the tyranny of money. Greece is being forced to endure a deflation instead of being allowed to have a hyperinflation, which is what would ultimately occur if they default and then re-denominate all the old debt into the new currency.
In Greece, businesses have been shutting down because people stopped patronizing them and the taxes. People went into survival mode. Hoarding cash and supplies. Making arrangements to flee or go underground. Setting up barter exchanges and going back to the land. Also, as money left the economy, things got relatively more expensive. Gas may be $10 in Athens but what’s a Greek Taxi make per day? The notional feel for him could be what we’d feel like at $20
Deflation is like unplugging a bath tub full of water. It sucks cash out of the economy to settle obligations at once! The extension of credit ceases because projects and enterprises must stand on their own rather than their ability to favorably finance. Time value of money becomes the primal factor. Extension of cash flow credit, for time-sensitive businesses can end suddenly.
Cash flow ends for everyone because people stop getting paid. And businesses close because their not getting customers because people stop getting paid. It is the virtuous circle of credit collapse. It does not happen overnight. It happens in several dislocations. Greece is significantly advanced right now over a few years at this point. Argentina came through a deflationary collapse that had the unfortunate side effect of severe inflation just not hyperinflation.
Crimes and mafias increase. People turn to the underground economy and barter. The underground and barter exchanges are predatory because the deflation is advantaging certain people. The government can begin to lose a grip on certain areas. If the supply of important civilian goods and services has run out, then the government has become a predatory adversary towards the people. Some areas and communities may agree to incorporate the new mafias. Mostly, people who have hoarded supplies specific to life support. Cooking oil. Rice. Condoms… And they trust can get more.
This is getting long. I only mean to illustrate that while that these paths might lead us to the same place, the journey is very different and cannot be approached the same way. Hyperinflation and collapse takes a very different approach than a grinding deflationary collapse.

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