Archive for November, 2009
Do you feel like you’ve been robbed?
If so, it’s not far from the truth, and you are not alone.
Why did the government and the Fed bail out some and let others collapse?
- because of extreme corruption and cronyism
What are the amounts involved?
- enormous, the bailout of AIG went directly to Goldman, which is why they were bailed
out in the first place. The Fed created the money that was necessary out of thin air.
Does this have any bearing on you?
- of course. The Feds don’t have the money required for these huge bailouts, so they print it.
As a result, all prices go up.
What did Thomas Jefferson say?
- it will keep happening until the American people abolish the Fed.
“I believe that banking institutions are more dangerous to our
liberties than standing armies. If the American people ever
allow private banks to control the issue of their currency,
first by inflation, then by deflation, the banks and
corporations that will grow up around [the banks] will deprive
the people of all property until their children wake-up
homeless on the continent their fathers conquered. The issuing
power should be taken from the banks and restored to the
people, to whom it properly belongs.”
- Thomas Jefferson
Do I have anything to add to that?
- No, except follow the smart man, abolish the Fed, and do so quickly.
Otherwise we will all have to deal with the dollar losing a couple of
zeroes (99% of its current purchasing power) or more within 5 years.
Will any of that cash find its way into your pocket?
- No.
Is the current money printing operation enough to shave 2 zeroes off the dollar?
- Thank God, no. Unfortunately, it’s a start down the road of peril, and it’s
enough to drop the purchasing power of the dollar 70%.
Why Austrians call for a return to free-market money.
by Thorsten Polleit
For a full essay, see
The Dark Side of the Credit Boom
Austrians maintain that international monetary affairs have entered a vicious cycle: a credit boom, epitomized by a relentless expansion of circulation credit and money supply that is bound to collapse at some point. That said, could the world then enter a period of deflation, comparable to the scale of output and employment losses witnessed in the early 1930s of the 20th century?
As things stand it seems that inflation rather than deflation remains the real danger. Whatever the relative costs and benefits of inflation and deflation might be, deflation is now feared much more than inflation. And indeed it seems that the path the Great Depression took had much to do with the monetary and economic paradigms prevailing back then.
Anna Jacobson Schwartz and Milton Friedman wrote in their famous book A Monetary Historic of the United States, 1867–1960 that the US Federal Reserve
[…] was operating in a climate of opinion that in the main regarded recessions and depressions as curative episodes, necessary in order to purge the body economy of the aftereffects of its earlier excesses. […] regarded it as desirable that the stock of money should respond to the “need of trade,” rising in expansion and falling in contractions; and attached much grater importance to the maintenance of the gold standard and the stability exchange rates than to the maintenance of internal stability.
Today, as soon as the credit pyramid showed the slightest signs of potential unwinding, central banks would be pressed to lower interest rates. This is because the public at large sees lower borrowing costs as a remedy against crisis — rather than its cause. What is more, highly indebted social groups have a preference for inflation, and an aversion to deflation. That said, a highly leveraged society might even be ready to accept a deliberate policy of (”controlled”) inflation rather than agree to a period of declining prices.
Critics of the Austrian School might argue: The rise in credit growth and debt ratios has been going on for decades now. Credit has been expanding, but so have incomes and real wages. In fact, no major disaster, at least not on the scale predicted by Austrian economists, has occurred so far. Isn’t there a flaw in their theory?
The answer, say the Austrians, is that it is still too early to reject their prediction as false.
In fact, the credit boom is not, in the words of Murray Rothbard, a “one shot”:
It proceeds on and on, never giving the consumers the chance to reestablish their preferred proportions of consumption and saving, never allowing the rise in cost in the capital goods industries to catch up to the inflationary rise in prices. Like the repeated doping of a horse, the boom is kept on its way and ahead of its inevitable comeuppance by repeated and accelerating doses of the stimulant of bank credit. It is only when bank credit expansion must finally stop or sharply slow down, either because the banks are getting shaky or because the public is getting restive at the continuing inflation, that retribution finally catches up with the boom.
Seeking to prevent the final crisis — which would most likely entail a debasing of the currency — Mises concluded: “The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” Being fully aware of the dark side of the credit boom — that is its socially destructive ramifications — Mises argued for returning to free-market money, which he saw as the only monetary regime that would allow preserving the ideal of the free society.
US economic slump is 8 years old
Fiat currency creates a lot of obfuscation. You pay taxes on profits when actually
there were none. It was all inflation. Did you know that 90% of all DOW index long term gains
actually comes from inflation? So, with that statistics, how about a 20% tax on all your gains?
You lost some. Well, not really, given the dividend, but that’s the only thing that saved you.
What is gold? Gold is honest money, not subject to excessive printing. Gold also shows the
true picture of economic malaise, since it subtracts the currency obfuscation from the picture,
such as the government (BLS) inflation statistics, also known to some as inflation lies.
No wonder all central bankers hate gold and try to suppress the price. It shows the true picture,
and the truth makes them look bad.
What does gold say? Let us see.
1) The Secular bear market for stocks started in 1999
2) Crude oil was not a bubble, but it was somewhat overpriced in 2008. It is currently fairly priced
3) Home prices were in a bubble, but currently dropped to fair value
4) Home prices are fine long term
5) However, median income is not. Instead of prosperity, we had 50 years of stagnation.
6) USA has been in depression since 2001, and its Gross Domestic Product was halved in real terms.
7) US disposable income keeps dropping thanks to the currency depreciation and an economic depression.
For more insight, see this wonderful web site:
The Fed is the major cause of this economic crisis
What did they do?
They defended and propagated the use of derivatives, the very same extremely leveraged
instruments that blew up in 2008, and the key reason why the libor rate and Ted spread
went ballistic.
Read and weep – this legal document removed all regulations from the expansion of OTC
derivative markets, including the infamous Credit default swaps that blew up Bear Stearns,
AIG, and Lehman. Nobody talks about 400 Trillion notional in interest rates swaps. Apparently,
JP Morgan and Goldman who hold most of these “slow bleeder” but “deadly” securities are
regarded as the safest “banks” (Goldman is only a bank cause that status allows them
to go to the government and beg for money)
Over-the-Counter Derivatives Markets and the Commodity Exchange Act
Specifically, with respect to OTC derivatives, the Working Group is unanimously
recommending:
• An exclusion from the CEA for bilateral transactions between sophisticated
counterparties (other than transactions that involve non-financial commodities
with finite supplies);
• An exclusion from the CEA for electronic trading systems for derivatives,
provided that the systems limit participation to sophisticated counterparties
trading for their own accounts and are not used to trade contracts that involve
non-financial commodities with finite supplies;
• The elimination of impediments in current law to the clearing of OTC derivatives,
together with a requirement that any clearing system for OTC derivatives be
regulated by the CFTC, another federal regulator, or a foreign financial regulator
that satisfies appropriate standards;
• A clarification of the Treasury Amendment that clears the way for the CFTC to
address the problems associated with foreign currency “bucket shops” and
excludes all other transactions in Treasury Amendment products from the CEA,
unless they are conducted on an organized exchange;
• A modification of the exclusive jurisdiction clause of the CEA to provide greater
legal certainty to hybrid instruments; and
• A statutory clarification of the inapplicability of the Shad-Johnson Accord to
hybrid instruments that reference securities.
Yes, the very same Larry Summers from the current Obama team.
For background on derivatives, see Wiki entry. According to the BIS report, the Real
value of these extremely leveraged instruments (not notional) was about equal to the
Global Stock market cap back in December 2008.
So, what did they do after the systemic crash of 2008?
They injected enormous amounts of liquidity into the financial system yet again,
and the derivative mega Ponzi scheme continues to grow in size exponentially. Cheer up, folks!