July 23, 2012

There's only one way we can deal with the liquidity trap

Posted in Sunday Business Post · 149 comments ·
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Of all the developments in financial markets last week, surely the most telling came out of Germany. Berlin successfully auctioned off €4.173 billion worth of two-year notes at a negative yield of 0.06 per cent.

This means that investors are actually paying the German government to lend it money. This gives substance to the expression that the “return of capital is the new return on capital”. In other words, getting your money back is as good as it gets these days.

This happened at the same time as the financial markets gave up on Spain. Despite the fact that the eurozone bailout for Spanish banks was sanctioned last week, the markets are fleeing Spain and its bond yields ended the week above 7 per cent.
The reason 7 per cent is important is that, as the yield moves above that mark, the chance of the bonds being downgraded increases. Now the average bond investor – think a typical pension fund – doesn’t like risk. It doesn’t see the higher return as an opportunity to make more money, it sees the higher return as tantamount to higher risk. Based on the return of capital, rather than the return on capital idea, these guys don’t like risk, but more than that they are debarred from taking risks.
If a sovereign bond is downgraded, many bond funds are prevented from holding them because their legal structure explicitly says they can only hold AAA assets or something similar. So the risk for Spain, as it heads past 7 per cent, is that its bread and butter supporters will fall away. This seems highly likely in the weeks ahead.

All of which makes a mockery of the notion of a successful monetary union when one big country is being paid to hold other people’s money and another big country, Spain, is being squeezed.

Obviously the background noise to all this are the shapes being thrown in Brussels by the Finns, Dutch and Germans about the extent of “peripheraid” that they face. Peripheraid is the likely permanent infusions of money from the north of Europe to the south and west for years to come.

But it is important to gain a bit of altitude from the machinations of European politics to see what is happening. The issue is not so much about what is happening, but why.

Look around the world and you see yields on all major bond markets falling rapidly. This means that investors think the deleveraging cycle is nowhere near over, and a combination of no inflation and hardly any growth is going to predominate.
So how do we square this with the knowledge that the central banks of the world have rarely printed more money? Surely inflation must take off. After all, in the US there are entire political movements based on the end of the dollar or the prospects of an inflationary explosion – and the notion that the Federal Reserve is some sort of anti-patriotic conspiracy to impoverish the average, hard-working American through inflation.

But as Irish-American commentator Bill Bonner noted last week: “The ultra-low yield on the ten-year T-note is a polite ‘FU’ to inflationistas everywhere, and a bet on a continuing and painful deflationary deleveraging cycle.”

This cycle is most evident in Ireland, where huge debts inherited in the boom are fixed while after-tax income is falling for many – and has been eliminated completely for those who have lost their jobs. If, in addition, companies are cutting their prices to compete, they face the situation where their revenues are falling but their debts are fixed.

If they move to improve their balance sheet by selling an asset, this makes sense so long as no one else does this too. But as we see with the case of Spanish bonds, if everyone sells at the same time, you get the paradox of deleveraging. This is where what is good for the individual is not good for the collective. If we all decide to sell, the price of assets falls more, and the very process of trying to improve the balance sheet actually makes it worse.

We can see this deflationary cycle very clearly when we see the fall in money supply relative to GDP in major economies. When there is loads of credit around, the money supply expands relative to GDP; it leads the cycle and where it goes, the economy will follow.

Now in the US in particular we are seeing a collapse in money supply relative to GDP. This means that, despite the central banks making loads of money available to the banks, these banks are not lending this money out.

In economics, this is termed the decline in the velocity of money. It also means that monetary policy worldwide isn’t working because there is a liquidity trap. People and companies are still paying debt, they don’t want to borrow and banks are still dealing with bad debts, so they don’t want to lend.

All this means is that, for the global economy to grow, some big shift in demand has to occur. More and more, it is looking as if the governments are going to have to engineer demand.
I know that this is unpalatable to many who believe that the governments are already big enough and create waste. I have some sympathy with that view, but the only other way the crisis is going to be fixed, in Europe at least, is for the ECB to buy up all the debt of Spain with money that it prints. Can you imagine this being accepted by the Germans or the increasingly belligerent Finns?

Looking at historically low bond yields and capital flight from the periphery, as well as the liquidity trap everywhere and the paradox of deleveraging, I am at a loss as to how growth will be kick-started otherwise.


  1. morganf16

    “The reason 7 per cent is important is that, as the yield moves above that mark, the chance of the bonds being downgraded increases.”

    David it needs to be put in “layman’s” language – the reason 7 per cent is important is that a quick calculation on debt appreciation = (70/7 per cent) = 10 yrs to double the debt i.e at these rates the debt will be doubled in 10years! So if one cant pay the debt now they dont have a chance in paying double the debt. This is why 7 percent number is bandied about so much . This is a “back of fag packet” calculation and the number 70 is derived from more complicated maths….but it illustrates the point factually without no opinions…

    • Tony Brogan

      We in the realestate business learned it as the rule of 72. As Morgan says devide the interest rate into 72 and it tells with annual compounding how soon an investment doubles if the interest received is compounded or the debt doubles if the interest is not paid but compounded.

  2. redriversix

    Spain 10 year at 7.47% this morning.IMf will no longer lend to Greece.
    Several Spanish regions request aid.

    The sooner this “crisis” blows up the better , so we can see what we are facing.

    Has anything been so badly managed in History ?

    • Tony Brogan

      Brilliantly managed by the elite as the social structures collapse they will come forward with solutions. Evry solution will involve having less freedom and more authoritatian centralised government.

      just like DMW is already asking for. Bait the trap, and snap it shut.

      There is another solution.
      Get out of the system that bankrupted you in the first place. It is a banking problem, nothing else.

      Close the central bank, stop fractional reserve banking, impliment a sound commodity money system that does not allow excess credit or inflation.

      • redriversix

        Excellent Tony

        That is it in a nutshell,It is a Banking crisis and a new system is urgently required.

        On A separate note,I am pretty sure our Iraqi friends are very upset as to how Amerika has brought Democracy to their Country.

        17 dead and dozens injured south of Baghdad yesterday.
        107 dead this evening and over 300 injured.

        I am sure the Amerikan Government is very upset about these people this evening.

        RR6

        • Tony Brogan

          All the wars and invasions are to protect the US petro dollar.
          Afghanistan may have been for the money made by the drug cartel. Reports circulate that 80% or more of the cocaine imported to the US is from Afghanistan. a real money making enterprize and run, according to Jim Willie of the Golden Jackass, by the CIA

          Iraq was because Saddam who foolishly thought he was a part of the club attempted to sell his iol in other than US dollars.

          Libya was because Gaddafi promoted a Pan African coin, a gold dinar, for African traDE. He also did not have a central bank and had 132 tonnes of gold and had to be brought to heal. Libya also controls a vast acquifer in the Sahara and a vast amount of water. He was about to green the desert. Bon bon would have liked the scale of that project.
          The rebels have not even a quarter of the territory and they had already formed a central bank.

          Iran is a threat to the dollar because of trade on everything else for oil except the US dollar. Now trading oil for gold with India until the US snarled at India.

          Syria is a front for the battle between the new world order and the Chinese and Russians. Vast oil and natural gas fields have been located in the eastern Med,.
          Israel, Syria, Turkey,Lebanon. Cyprus and Greece will divide the spoils. Yes Greece will become oil rich, oh the irony!!

          It is all about banking and the money cartel elite families retaining control. Don’t forget they are evil, and nothing will be beyond them including direct assinations.

        • Tony Brogan

          Hi RR6, hope all is well with you. I trust you have a warm shelter, enough to eat and some good company.
          Best
          T

          • redriversix

            Hi Tony

            Thank you,we are all good today.I am really intrigued lately by the apathy of people.

            Its like I am walking on a “different side of the street” watching a drama unfold.

            I must admit I am really enjoying life at the moment, to finally be able to live without fear , stress and anxiety is like finding the secret to life.

            These “symptoms” have not been a part of our life for a while now and looks like we might have “cracked it”

            We don,t have much but we have enough today.I still enjoy helping people but have realized that most people “you just have to let go”

            Have a great day Tony

            Talk to you soon

            RR6

          • Tony Brogan

            RR6
            good to hear you are reconciled. It is the only way to free the energy to move forward .
            I spent a time in my life trying to hang on to what was already lost. a lot of energy went there.
            cutting the losses, settling the debts, is the release to new endevours.
            I had a period of high tension, late nights, troubled sleep, little rest, turmoil arising in the middle of the night, up at five to hoe the strawberries for relief.
            Once I faced the problems I had, square on, I felt a release and euphoria that provided energy for settlement and then recovery.

            Apathy may not be what you see. It is simply a lack of awareness of most people. They carry on in the circle of their world in a personal bubble. Ignorance reather than apathy. Still it amounts to the same reaction. When people look at you, as you try to explain, with bovine expressions, then move on.
            Save youself first and then give time to others.
            a drowned man can not pull another from the water!

            we have a sunny warm wonderful day here in Victoria BC. A day to bless. Now for brunch!!
            So pleased to hear yo are on the “bright” side now.

  3. Adam Byrne

    subscribe.

  4. Surely one can put it like this:
    When % growth rate + % rate of inflation < % rate paid on govt debt = inward spiral

  5. A long crises which has caused a psychological shift in the population creating fear of spending, risking and investing; youth unemployment of 50% in Greece and spain; a lack of leadership…the writing is on the wall…this is a Weimar Republic. Social unrest will follow; and strongmen will emerge who will order the banks to lend and shake the people up. This is the future. The Anglo-American model has failed, we need to give up some democracy and implement “dirigisme”. I just hope it will be an FDR that emerges rather than something else. But its coming…Choose your propaganda bogeyman… the Chinese I guess.

    • Tony Brogan

      Correct in your assumptions Gavin except that the AA model only appears to have failed. It is a brilliant success and even more so when the people do not even see they have been had, duped, deceived. The results are as planned

      Again asking for more government stimulus. Just how much are you willing to give up to state control or to the eurocrat in Brussels?

      Ireland needs to be its own boss. A nation amoung nations not a wimpering outcast on the periphery of europe. It’s fisheries controlled, it’s trade policies controlled, it’s money supply controlled, its identity to soon be lost in the turmoil of emigration of the brightest and best and receiving immigrants from europe and elsewhere in replacement.

  6. Raf

    David,

    Try this proposal for creating some new and necessary stimulus to offset some of the debt deleveraging process. I cannot see any other way forward other than a massive contraction in the money supply and a deflationary spiral.

    http://sustento.org.nz/wp-content/uploads/2012/07/NZ-Investor-Piece-Monetary-Dialysis.pdf

    Be interested in your thoughts.

    Best

    Raf

    • Tony Brogan

      Hi Raf
      Your policy idea is I believe sinilar to that proposed by Ellen Brown. It is a plank in the monetary reform of canada as proposed by the Canadian Action Party.
      i think it is or was known in Canada as Social Credit. I am sure you will correct me if I am wrong.

      As I understand it the central bank does not issue debt based interest bearing currency, but instead currency is issued by government directly and earned into existance. This is presumeably handled directly by treasury.

      All well and good so far. Increased money in circulation. No increase in the national debt. No interest to pay thereby lowering costs.

      What is to stop a government simply closing the book on the bank debt, that is the money issued by the central bank and added to the national debt, and simply paying off the national debt with the “new” currency.

      A problem I see is that the amount of currency to be issued is still subject to the opinion or whim of people ((politicians). There is way of telling how much currency is enough and so we fall prey at some point to a new round of monetary inflation.

      However I could agree to this system of ‘social credit’if at the same time silver coin was issued into circulation.
      The coin would be of guaranteed weight and fineness and issuued by the national mint with such guarantee.
      For example a coin containing one troy ounce of silver at 92.5% silver alloy (Sterling silver which is hard enough and durable enough to be used as a day to day medium of exchange)
      This coin would have no monetary value stamped on it but would be given a monetary value assigned by the government in the currency of the country, from time to time, but this value could rise but never fall.

      This is how it is done.

      In Euros the current world spot price for silver at this minute is E22.24.
      The monetary value of the one ounce coin is set at 20% higher than the world spot price and rounded up to the closest number divisable by 5.(this is so there is not a constant adjustment each week)
      22.24 plus 20% = 26.69. Increasing the monetary value to the next number divisable by 5 = E30
      Just like a bank note this monetary value can never decrease no matter the spot world price of silver.If the world price of silver falls 10 euros or 5 euros or one euro the monetary value of the coin is still E30

      such value would be publish in newspapers and on the web site of the mint.

      Suppose at the weekend the world spot price of silver rose to E24.
      The calculation is 24plus 20% =28.80. rouned up is still E30
      but suppose the spot price on a future sat night was E26 then the calculation is 26 plus 20%= 31.20 and rounding up is now to E35.
      This E35 as the new monetary value of the one ounce silver coin will be set as the minimum value never to go lower.

      What have we achieved.
      1. We have a money that always has an intrinsic value (melt value) that can not drop to zero like paper money.
      2. We have money that protects the saver from the ravages of inflation.

      This money would circulate in parallel to the fiat money and give the people a choice in what they want to use.
      It can be deposited in a bank and used electronically as a debit card as is fiat money. it is still convenient to use.
      The mint can buy silver anywhere in the world to its own account at the spot price. Refining costs, and the cost of minting and distribution are covered by the difference in the spot price and the monetary value set.Any difference left over is a sovereignage left to the account of the mint.

      Thus the mint can acquire at no cost but a minor profit all the silver it needs to supply the demand for coin. The mint will be instructed to issue coin to meet the demand.

      It is anticipated that there will be a huge demand for these coins. The sovereignage accumulated by the mint will accrew to the account of the government and begin to act as a backing to the fiat currency.

      As this is not in the preserve of the central bank, the distribution will be through the post office of which there is a branch in most communities.
      People will be able to purchase their silver coins at the post office in exchange for the paper fiat issued by government.

      Over a period of time it is thought that the silver coin will circulate as a medium of exchange as the savings needs of the people are met.

      The use of the silver coin as money will put a natural market based restriction on the government printing of too much fiat paper currency which if devalued through inflation will encourage the people to use the silver coin instead.

      Raf, perhaps you will consider this idea and give me your thoughts on it.

      Best
      Tony

      • Tony Brogan

        correction “There is NO way of telling”

        One other thing. At a period when the fluctuation of the world price is lower the mint can still buy silver at the lower price and dsitribute coin at the monetary value and make extra profit or seigniorage to the governments account as the spread will temporarily be greater.

      • Raf

        Tony, Thanks for your reply. My proposal is not quite the same as Ellen’s, as it involves a two step movement designed to keep the overall money supply stable, which, as you note, is the real issue at hand. The supply of money has been severely inflated by excessive credit creation, primarily by the commercial banks. The single tool of monetary policy, interest rates, has not been able to control this. In fact, rising interest rates simply stimulate inflation, rather than the opposite. Interest rates rises only “work” in bringing forward a recession by loading further costs onto businesses and consumers.

        So my approach is to introduce new money directly into the economy, whilst at the same time, limiting new bank credit (of course, some of the new money will end up being used to pay down debt, which will contract the money supply). We should end up with non-inflationary growth (assuming an output gap, which is quite large at the moment).

        As you note, the key is to set limits on the new money coming into the system, which is why is use the term monetary dialysis. At some point, as old debt is paid down and new non-debt money (fiat) comes into circulation, the economy will rebalance. At that point, the limits need to be set on increases in the money supply, alongside traditional inflation measures, and to be monitored by an independent monetary authority, formerly known as dopey central banks.

        I take your concern about government getting its hands on the printing presses seriously and so make clear that the independence will be clearly defined, as it is now.

        In terms of the gold and silver issue: I am not a big fan of bringing back the gold/silver standard. We know from history that it can also be abused…The Bank of England, herself, had a run not long after founding (in 1696), as it lent out over 6 times the gold it actually had stored. Not quite as “good as gold”. However, I do acknowledge that some form of commodity backing is useful for a currency. In other words, what can you collect for the “paper” you have been issued. Are their hard assets to support it? I think this is certainly something to look at, as part of the overhaul of the financial system. After all, if money is simply a claim on resources, it makes sense to know that those resources are somewhere :-)

        I think shifting there now would be even more destabilizing. The key now is to re-start economic activity by direct injections of new money before economies go beyond rescue (that will not be pretty). Then, it’s a case of stabilising the boat: looking at how the new money is flowing round the system, whether it kickstarts new bank lending, how much and so on……

        If we don’t intervene directly, then the debt spiral will continue and we will have social chaos. I don’t believe anyone wants that. Yes, the debt must be written off, banks must fail, shareholders must be wiped out, bondholders converted and so on. At the same time, we must keep the real economy ticking over.

        Then, by all means, we can shift the conversation to a more stable monetary base.

        I hope that makes sense.

        Regards

        Raf

        • Tony Brogan

          Hi Raf

          I do not agree with maintaining the central bank. It is a myth that this separates banking function from the politicians. The central banks first loyalty lies with the banks and banking system. BUT it is in the bankers interests to provide money to the politicians so they get what they want.

          Implimenting a silver currency with siver coin is not going on a silver standard so that is a confusion. It is simply giving the people a choice of currency to use. If your system is better then it will be used. If not people will move to silver coin. They will soon learn to price goods and services in how many ounces of silver for a good or service offered.

          Money was not the creation of government and so it should not be the property of government now. Fiat should be abolished and the paper currency be voluntary for the papyment of private debt. silver coin the same. A free money is the personal property of a free man.

          Silver has an advantage in that it is unversally acceptable as money and so removes the problem of currency exchange. an ounce of silver is an ounce of silver in any jurisdiction. as an aside the french word for money is the same as silver. silver is real money. Napoleon implimented a silver coin in 1813 which seved for 100 yerars with no inflation. France went to fiat paper to finance the preps for WW1.

          Best regards
          Tony

          If people opted for silver and traded their fiat for it all fiat would eventually be redeemed and the country would be on a sound money system.

          In the absence of any support for a commodity money such as silver then I am not in favour of messing with the economy replacing one fiat currency with another.
          The problem of fractional reserve banking can be eliminated at the stroke of a pen by legislation. simpler, faster, easier.

          silver money can be introduced in any event and it will displace the current fiat faster than the new fiat and be less confusing.

          I have hardened my resolve!!

          • Raf

            Tony,

            Good luck with that :-)

            I think it’s important to have a clear idea of how you might see a reformed money system operating. Certainly the idea of using silver as currency is worth considering. No doubt new currencies may spring up in the local domain (community currencies), as well as the internet and mobile space (bitCoin, Mpesa etc). Maybe, the fiat system will completely disappear…who knows?

            My concern right now, however, is transitioning out of the mess we are in. I agree central banks have been captured by the banks (as well as the politicians). I do believe we can change that with the right structures and people. Perhaps I am too optimistic but I always like to hope for the best (and plan for the worst!).

            Right now, we need an injection of new money directly into the economy. That’s simple maths. Without it, the debt spiral will continue and we will see economic collapse…that’s also simple maths. Some people may think a complete collapse is what we need, so that new growth can come forward. That may sound good in theory but the social cost will be immense.

            So whilst we deflate the debt balloon in financial assets (those losses must be taken), we must take care to keep the basic (real) economy ticking along.

            Then, by all means, we should consider how we can create a more stable monetary system.

            Best

            Raf

          • Tony Brogan

            Hi Raf
            I am enjoying you civil response. I can see that we can agree to disagree. WWe both see the problem and wish a solution and that is the divergence>

            clarity re central banks
            Central Banks ar ethe problem. They are a cabal responsible to BIS in Switzerland. The central banks control the politics ans the policies of a country. They fund the commercial banks. They control.You have it backwards. That is why I say they must be shut down. It is the only way to regain sovereignty.

            Injections of money were what created the misalocation of capital resouces in the first place. More of the same will ad to the problem. It becomes expoentially worse each time.

            Not all parts of the economy are suffering. People must eat use electriciy, water etc. Those that have debts to pay must pay or default.
            I do not believe a bankrupt should be harassed for a lifetime. after say 3 years credit should be able to be re-established.
            But an economy should grow from invested savings into capital assets rather than trying to expand on the back of debt borrowings.
            give the peole an inflation proof money to save and save they will. shortly savingsturn into investment and the savings move into circulation.

            Put silver coin into the hands of the people and in a short time the economy will recover.

            Best regards
            Tony
            PS I have spent a cople of months over the last two years in Nelson. If I come down again I’ll treat you to your favourate brew.

    • Raf,

      I am with you on household debt relief.

      Best
      David

  7. Tony Brogan

    Von Mises is correct
    There is only one end to a boom, a corresponding bust.
    The longer things are held up the bigger the fall.

    1.Borrowing more money to stimulate is all the central bankers know. It no longer works.

    2.Debts must be paid off. can’t happen, not enough money. Even if the debt is monetized by the central bank it is still there and just grown larger.

    3.Default is the only answer. Burn the banking bondholders, shareholders etc. Everyone takes the hit who is owed. Those who can’t pay sell the assets to liquidate what they can.

    2 and 3. is the only solution. I have done it twice in my life and each time made a speedy recovery. Not back to where I was but back to a productive solvent existence.

    The bible and Shakespeare had it right. “neither a lender nor a borrower be”
    and all interest is usury

    We bite the bullet like Iceland and recovery is in hand.

    • Philip

      Iceland is stable, but far from recovery. The interlocked nature of this crisis at the global level means all are failing or all are recovering or you are on a different planet.

    • bonbon

      Am I right in surmising you went through von Mises boom-bust cycles? Is that why von Mises is so important?

      Well we have SF and burn the bondholders is indeed the only way forward. But then as DMcW touches on in the article here, we will have to rebuild a wrecked economy, not simply a “demand”. When Germany rebuilt with the KfW from rubble, it was clear not to wait or try to generate demand, rather to build a base for industry to take off, which it did. It demanded vision. Considering Britain and France got $4 for every $1 Germany got under the Plan, look at the total difference in approach. It was FDR’s Reconstruction Finance Corp. method put into practice in Germany.

      Now we need exactly this on a vastly larger scale.

      First split the Banks as FT has also called for,
      Second consider the ruined physical economy hidden by all the financial noise
      Thirdly finance it with investment banking out to dry.

      A 3 in 1 solution, no part independent of the other. All must be done in a wave.

      • Tony Brogan

        Bon bon
        You are the one who made Von Mises so important. Original postings were pounced on by you proclaiming the arrival of the Austrians and attacking with great gusto. you still do.
        I quote them now to refute most of your statements about them.
        you have a hate on for them and for Ron Paul and you seem disposed to label things and people to catagorize them.
        People are more complex than that and even I recognize that even you have many valuable suggestions.
        I suspect we could have a rousing conversation over a coffee or a brew!

  8. Philip

    Everything has been wasted bar the lenders. I think the very fact that negative yields are accepted speaks volumes. As matter of interest, Minus 7% means you get less than 50% of your money back in 10 years AS Plus 7% means you get double your money back.

    Reductio ad absurdum for David’s argument means that all money flows to Germany, Netherlands and Finland etc. The rest have no money. Now, anyone doing 101 Economics says we need some means of exchange before we can buy goods and services. Exactly who does Germany etc expect to be trading with shortly?

    I know our German friends are not thick. They see the same thing.

    I see it very simply. If the bank chooses to keep all the money, people just walk away and use another means of trading. (I know there are a few little issues with government and law but remember this is global) This is the next breakthro’ I see coming and I have no idea how it will emerge.

  9. SLICKMICK

    The UK created 200,000 private sector jobs in the last quarter, as ever it will be a saviour for the land of the peasant Paddy.

    • bonbon

      You mean, to service the Olympics?

      • Tony Brogan

        Well at least the olympics are a government sponsored enterprise that will stimulate demand in the short term and also encourage tourism in the longer!!!
        Unfortunately the olympics usually leave a deficit to be picked up by the tax payer.
        It took 30 years to pay of the Montreal Olympics, but the LA olympics turned a profit with all the corporate advertising generated.

  10. SLICKMICK

    http://www.independent.ie Shane Ross has an excellent peace on BOI director Joe Walsh.
    Willie Mc Ateer has been arrested ! LOL.

  11. Sub Atomic Economic Particles

    From the above the most important statement is , in my humble opinion :

    ‘this is termed the decline in the velocity of money. It also means that monetary policy worldwide isn’t working because there is a liquidity trap.’

    I am reminded that Higgs Bosom believed that matter existed elsewhere that could not be detected . This was verified recently by colliding two sub atomic particles and measuring their impact and subsequently their weight.

    Science has identified Atoms when Economics has failed to do so not to mention sub atomic particles .

    What David is revealing is falling short of how to measure the immediate impact following his above statement .

    What are the Economic Atoms ?

    What are the Economic Sub Atomic Particles ?

    How do we know their Weight ?

    Lets visit the Sistine Chapel and the Prophet Zechariah who painting adorns the entrance and who has predicted the Apocalypse .

    By the way 2012 is the 500 year anniversary of the Sistine Chapel …why is everything so quiet in the Vatican ?

  12. The Demise of Economics

    What can this Science serve to us any more? Has it reached its Nadar?

    What will Galbraith think in his grave ?

    Can Economics not predict any more ? Why look at the clouds when it can see the heavens?

    • Philip

      I have heard it said that the purpose of economics was to make astrology respectable.

      Galbraith said “Under capitalism, man exploits man. Under communism, it’s just the opposite”

      The reality is there is the genius of human blunders and the greyness of experience. Ever notice how coat hangers multiply in your wardrobe or how every string and cord seems to knot itself with marvelous complexity. And so it will be for all organization and plans of man.

    • joe hack

      Those pesky human-beings they always get in the way logic an science never do what they are supposed to do,I mean they buy stuff not based on work done but on what it might be worth.

      The bankers know/knew this so they found more commodities that were not under the minuscule interfering control of states and its taxes (at least in a public way), a true free market was found a market closer to Neanderthal man or hunter gatherers that they had not dared not dream of, with such freedoms, the bankers were high on their drug (big Bonuses)with this newer freedom and increasing drug taking from the 60 onward (yep its all John Lennon Fault) the bonuses were flooding in.

      In Mexico alone there are over 47,000 people dead in the past five years due to drug wars but the Neanderthals bankers and their hunter gatherers need their free markets to collect their blood bonuses.

      Governments seem to be acted like a mafia would ie no one on their patch will not pay protection money you can’t do business without them getting a cut or else they will close you down via war in south america and soo… hence the money Laundromats.

      • Did you find an Atom or a Sub Particle?

        • joe hack

          It’s the hicks bottom of economics-that is what we are in-we knew it was there but we had to go find and now look what we have gone and done.

          I don’t know what I was on about I started with a joke then got angry at drug pushers, the bank monsters having a ball, a monstrous ball, a bunch coke heads washing drug money, if only the washing mangle was still in use, we could feed them in to it and then put on a 1500 revolution spin cycle that learn im. A man robs a loaf bread and gets sent to jail – these coke heads get yacht.

          The young boys and girls are taking note getting great lessons-crime pays so when your kids are mugged or your house is robbed and so…you know who to blame,the state is losing its grip the end neigh.. ah! I am off on a rant again it must be the sudden rise in temperature? where is Robbin Hood and his band of Hooddies when ya need them, Out Joy Riding?

      • Tony Brogan

        “but the Neanderthals bankers and their hunter gatherers need their free markets to collect their blood bonuses.”"

        The bankers do not employ free markets but cartels and government corruption.
        you malign the Neanderthals!!

    • Tony Brogan

      Economists predicted correctly and also the odd politician. It was just those who were correct at the time were ignored and now being proven right are still ignored.

      There are those who now call out and will be right yet again.

      ‘A Profit is without honour in his own country”

      look outside the MSM.

  13. DarraghD

    It’s actually hilarious now seeing the way it’s going for Greece!

    http://www.rte.ie/news/2012/0723/imf-reacts-to-reports-of-extra-50bn-for-greece-business.html

    **********************************************

    A German conservative was quoted today as saying that Greece should start paying half of its pensions and state salaries in drachmas as part of a gradual exit from the euro zone.

    Alexander Dobrindt, general secretary of the Christian Social Union (CSU), the Bavaria-based sister party of Chancellor Angela Merkel’s Christian Democrats (CDU), has long argued that Greece would be better off outside the euro zone.

    “With Greece we have reached the end of the road. There must not be any further aid. A country which does not have the will to fulfil the conditions, or is not able to do so, must get a chance outside the euro,” Dobrindt told the daily Die Welt.

    “A soft return to the old currency is better for Greece than a drastic move. Having the drachma as a parallel currency would allow the chance for economic growth to develop.” he said. Dobrindt did not explain how Greece could manage a partial return to its old currency without triggering turmoil in financial markets and a likely run on its banks.

    **********************************************

    I’m laughing my arse off here at, “”A soft return to the old currency is better for Greece than a drastic move.” A soft landing no less, now where did we hear that same language of bullshít being used before?!?

    • bonbon

      The CSU has brought a court case to refuse the financial equalization among Länder, the basis for Germany. My reading is this is because it knows that will go to foreign and local banks and not be used for the original purpose. This is on top of the Constitutional Court taking time to examine claims against the ESM. The CDU must react to this, and Merkel too.
      I think DMcW realizes, at least partially, the extent of the stress this is causing in Berlin.
      Germany is better off outside the Euro, and that is well known. The delay is intolerable.

  14. bilimori

    Dear DMcW,
    Just a quibble with my favorite economist,

    ‘This means that investors are actually paying the German government to lend it money. This gives substance to the expression that the “return of capital is the new return on capital”. In other words, getting your money back is as good as it gets these days’

    4 billion euros is not a lot in today’s financial markets, what it means is that some Italians. Greeks, Spanish, Irish, etc are betting the euro will not last 2 years. They believe that having their money in a German bond, will provide them with Deutschmarks at maybe twice the value of their future local currency.
    Kind of a future currency swop.
    Am I wrong?

    bilimori

    • joe hack

      It seems a logical gamble, should it be allowed?

    • Tony Brogan

      Better off in gold than Deutchmarks. That’s my bet.
      Better off in silver than in gold

      • joe hack

        If you want gold compete in the Olympics, if you win you get a minimum of 6 grams of gold ( that is an I.O.C. Rule)the rest of the medal is made of sliver.

        I believe this years Olympic gold medals have more gold in than most apart from the 1912 Olympics when the medals were solid gold.

    • Dear Billimori,

      You are right. The punters don’t believe that this thing can hold together. I have been suggesting this for a long time now. Things are getting worse right now and it remains to be seen whether the Spanish political class stick with it or not.

      Best

      David

  15. Philip

    Government Engineered Demand (GED) is feared by many because they seem to benefit the administrators, coordinators, policy makers, strategists etc more than the final end user. They are perceived as inefficient and ill conceived. Just look at the stupid endeavor for 2,5bn to build more roads and unblock what was never blocked.

    GED works. But it’s how you work it is the key. PPP down to community/ small company level is the key. No g=big operators and no project over 6 months long with an average time of 3 months. We need fast returns and lots of small ones. None of the nonsensical eggs in one basket lah lah.

  16. joe hack

    so it looks like its Greece for the holiday again, cheep Ozo and so…

  17. Tony Brogan

    “If we all decide to sell, the price of assets falls more, and the very process of trying to improve the balance sheet actually makes it worse.”

    When trust and confidence in a currency is lost is when hyperinflation occurs. Despite the loss of economic activity we still have positive inflation reported.

    as nations abondon(sell) the US dollar as the major reserve currency the US dollar will fall in value against other currencies and inflation in the US will increase.

    This will give the US a trade advantage and other currencies will attempt to devalue to compete. At present this is what is happening. (All currencies are being sold off to the highest bidder!!)

    Therefore all currencies are in a controlled descent against physical goods. This is inflation.It does not now require the printing of more money to produce inflation.

    At some point people will lose faith in most paper currencies and move to commodity money which is not inflated but retains its buying power.

    This is why it is prudent for people to rid themselves of the paper currencies and own real property (defined as real estate) and the ultimate in money , silver and gold.

    This is why the central banker scam artists hate gold and silver and denigrate them as it exposes the continuing erosion of the value of the paper currency. As has happened to every paper money its ultimate use will be for papering over the chinks in the wall and burning in a fireplace for the momentary warmth it will supply.

    Since 1913 the year of the implementation of the Federal Reserve the US dollar price of gold has gone from $18.92 average to $1571 average in 2011. current price is about the same at $1577
    That is an increase of 83 times.
    Or the dollars purchasing power today of one ounce of gold is 1.2% of what it was in 1913.

    Does anyone have any faith that the paper currencies will retain value when they are already reduced to near zero.

    In 1971 the gold price average was $40.62. This is the year when all currencies were backed by nothing as Nixon removed the convertability of a dollar to gold.
    gold is up 39 times since then. Or the dollars buying power is 2.6% of what it was in 1971.

    What would you rather put under your mattress. An ounce of gold or $1571 US.?

    I know what the Russians, Chinese, Indians, Vietnamese, Iranians etc. etc. are doing and I know why. Why are you not?

    what is good for the individual is prudent for the country also. Implement commodity money.

    • imithe

      Hi Tony. I found this comment interesting:

      “Since 1913 the year of the implementation of the Federal Reserve the US dollar price of gold has gone from $18.92 average to $1571 average in 2011. current price is about the same at $1577
      That is an increase of 83 times.”

      If I wanted to sell gold I would use your example.
      In reality this is an annual return of 4.6% which is respectable.

      • Tony Brogan

        Yes I suppose that is not bad as it includes the great depression and the recession of the 1980′s

        since the year 2000 gold has gone from around 300 to todays price which is a return closer to 15% P.a. I think. It has doubled roughly every 5 years over this time as it plays catchup after being depressed by bankers and governments.It is still depressed.
        The gold price suppression scheme is a part of the LIBOR rigging. when it is realized that gold is double and tripple counted in places and that the western governments have just a little of what they maintain to have the price will double from here very quickly and then ascend to unimaginable fiat prices as the value of gold rebounds as well as the fiat currencies falling. I expect gold at 10,000 as a minimum and silver at 500 and they will settle at these new levels or higher as it is the only way to have assets expunge the accumulated debt and restore the balance sheets. The debt will be inflated away and gold and silver the beneficiaries.

        • bonbon

          Gold at 10,000 what? Worthless fiat Dollars? But 10,000 times worthless is even less worth. Something amiss with the bankers accounting there, I fear.

          • Tony Brogan

            You can pick any currency you like and it is going down compared to real assets.
            You can bet that the monied elites will have plenty of “old Yella” and “hi Ho” They know the rubbish they peddle to the rest of us.

  18. StephenKenny

    My difficulty with this argument is that as far as I can see, looking at the last 20 years in the Republic, US, UK, Greece, Spain, Iceland, and various other countries, governments efforts to increase demand simply result in the problem getting worse.
    We’ve watched trillions of $€$ build the greatest pile of malinvestment in recent times. So we can print and spend a further $€£15trillion, over the next X years, and where will it go?

    Why do we believe that it will go into functions that create things that others want – which has been the basis of all civilisations since before writing was invented. Trade.

    The recent past shows us, absolutely unequivocally, that the money will just go into the modern equivalents of digging and filling in ditches.
    So we waste trillions of hours of effort, doing things that no one wants, and we end up with a massive pile of size 65 left boots.

    Why is everyone so sure that there’s this really nice button called “Grow!”, hidden in the undergrowth, and all we have to do is find it. Once pressed, we can all sit back and wait for the magic.

    Every part of everyone’s history tells us that to make things broadly better is hard. Financial capital is only a part of it, and it’s so easy to waste (see the last 20 years).

    • bonbon

      My difficulty with both arguments, is that it was not Governments that inflated $30 trillion, rather private agencies holding any elected Gov’T to ransom.
      The basis of all civilization is not trade, as London School of Economics idol Adam Smith, CEO of the British East Indie Company said (and Marx parodied), rather improvements in the physical infrastructure to progess – water, agriculture, energy, transport, manufacturing, health, education.
      Right now HSBC is flourishing on trade – drug trade and LIBOR trades such as the Carry Trade.

      The utter and complete ignorance of either archaeology and civilization leading to the Tiger silliness, is evident again. Not cured yet!

      • StephenKenny

        Improvements in infrastructure are possible only through specialisation and the division of labour, and that means trade.
        Without a means of trading, everyone sits in their small holding, eating and using what they make.
        Trade starts within a settlement, in many cases was why settlements formed. Then grew to be trade between settlements, and so on, and so on.

        A good trade is one in which both sides benefit. Anything else, which includes most of what the British East India company did, is not good, and leads to trouble. It is unfortunately the natural condition to fight, to some extent, over resources when they are scarce. That’s probably partly why (other than staying dry, warm, and in one piece) human civilisation has focussed on getting as far away from nature as it can.

        The last 20 years, including the Celtic Tiger, was not about trade or not trade, it was about corrupting and distorting the system, to the benefit of a very few. It was about a system that became so distorted that almost none of the prerequisites for fair trade were in place.

        Adam Smith wrote another book, The Theory of Moral Sentiments, in which he describes the moral and social landscape which is necessary before any a society will develop the effective forms of market structures that he describes.

        • Tony Brogan

          Hi Stephan
          The corruption has been in place for over three hundred years starting with the bank of england in the 1690′s.
          I was boostyed considerably 100 years ago with the formation of the Fed and elevated to a superior plane when Nixon abandoned what was left of the gold standard in 1971.
          Sence then it has rapidly escalated to today’s debacle.

          There is no doubt that a clear moral standard is required beforesociety cam prosper. The bible is full of stories warning what happens when people lose their moral compas. Thet end up in trouble.

          • bonbon

            Well the Bible is now an economics reference? Morals are fine, but Glass-Steagall is better – the jailed gangsters will have a fine time discovering morals. Remember Blankfein of GS “We are doing God’s work” and realize we need Glass-Steagall to enable reflection on God’s work for these charlatans.
            It is very funny to hear, from von Hayek followers, the appeal to morals considering their whole reality is based on Private Vice, Public Virtue. It is hilarious!

          • Tony Brogan

            Bon bon
            I am not exactly a follower of anyone. I listen to those who seem to make sense to me.
            at the moment you are making none, you are weird.
            There you go putting people in boxes again. Someday someone will put you in one and close the lid.
            There are all kinds of references to moral and economic behaviour in the bible.
            Snicker all you like.

          • bonbon

            Yes and Hayek echoed Adam Smith on Moral Sentiments. No wiggle room, those you may be listening to are fooling you. But we have seen that quite a lot since 1783.

        • bonbon

          I am being blocked replying to this with accurate quotes from Adam Smiths other book. I will keep trying to see what triggers it.

        • bonbon

          Seems my reply on Adam Smith vanished – so here it is again :
          “To man is allotted a much humbler department ….

        • bonbon

          Seems my reply on Adam Smith vanished – so here it is again :
          “To man is allotted a much humbler department …. Nature has directed us to the greater part of these by ori.gin.al and immediate instincts. Hunger, thirst,the passion which unites the two sexes, the love of pleasure, and the dread of pain, prompt us to apply those means for their own sakes, and without any consideration of their tendency to those beneficent ends which the great Director of nature intended to produce by them.”

          –Adam Smith Theory of Moral Sentiments – 1759

          This is exactly the Mandeville theory of Private Vice, Public Good, praised by von Hayek at the London School of Economics, defining the Austrian School. So wee see that School joined at the hip to orthodox British policy.
          Now why would any good Irishman submit to be a beast of instinct for the elite? But this is exactly what happened with the Tigers.

          • bonbon

            Seems the darned web agent triggered on the word dotted above. Weird, probably a bug.

            Any back to economics – Adam Smith, Mandeville, moral sentiments, public good, private vice.

            Much better Glass-Steagall, and let the inmates read these tracts until they see the error of their ways…

    • Tony Brogan

      Good comments Stephen

      NNot only a pile of oversizes left boots but a bigger pile of debt owed to bankers from money produced out of thin air from nothing.
      The intrinsic value of this money is zero,
      These debts must be repudiated, the central banks closed, fractional resrve banking stopped, and the country returned to commodity money which has an intrinsic value that protects from inflation and abuse.
      Otherwise the bankers elites will own us lock stock and barrel.

      • bonbon

        The intrinsic value of all money is 0, it is the credit commitment be a nation state that gives it value. This is non-existent in the private banking “credit” so no matter what they do they collapse.

        Strange paradox, but one committed monetarists just cannot understand.

        • StephenKenny

          Money has no value – money is a store of value.
          It is dangerous, as you say, to rely on it, as it can suddenly go to zero. I don’t quite see the paradox. I also can’t see why a monetarist would have trouble with this, although I can imagine them saying that it’s a rather pointless argument as when one form of money went to zero, the accumulated wealth of a society – assuming there is any – would immediately go into another form of money.

          The only societies that have no form of money are ones in which there is no trade beyond barter (and that’s on the slippery slope to currency based trading), and I like modern dentistry, clean water, and reading.

          • bonbon

            The monetarist below has problems with that, and wants “sound money”. That seems to me a pre-industrial obsession, when clean water and dentists who were not executioners did not exist.

            The problem with the money obsession is derivatives, not really money, but a bailout monetizes their debt. A horrible trap thought up by the Inter-Alpha group suckering monetarists of all colors.

        • Tony Brogan

          Not true
          The intrinsic value of all PAPER FIAT MONEY is zero. It is only the backing and credit of the state that gives it any value and often by coercion.
          On the other hand the intrinsic value of gold and silver is what it will fetch as a commodity on the open market.
          In canada the one ounce silver maple leaf has a stamped monetary value of $5.
          The gold one ounce maple leaf has a monetary value of $50 stamped thereon.
          both are legal tender at the mandated fiat value.

          in the case of the paper , it continues to circulate as money as the monetary value assigned is higher than its value for other purposes.
          The gold and silver coins have gone out of circulation as their intrinsic values are $27 and $1576 respectively. No person in their right mind will trade a coin for the monetary value when it can be sold for melt purposes for so much more.
          Greshams’ Law. Bad money drives out good.

          You are the one that does not understand Bon bon. you have the blinkers on and can not see the full spectrum. I suspect you have trained as an economist and have been educated against the value of commodity money as has our good friend David McWilliams who will not go near the subject of gold as money with a 10 foot pole!!

          I repeat
          The current intrinsic value of one ounce of silver is $27.02
          The intrinsic value of a one ounce gold coin is $1576.

          So do not tell anyone again that the intrinsic value of All money is zero. It is just that paper trash backed by nothing that is inherently worthless.

          The subject will have to be addressed and quickly as it is a part of the solution to the banking crisis. Very soon other counrties will accumulate enough PM’s to suggest the remonetization of silver and gold on an international scale. Those countries who have little or non will be the worse off for lack of it.

          • Tony Brogan

            Bon bon
            you have monetarists on the brain. nothing I have suggested or proposed has anything to do with monetarism.
            The banking system in existance exercises monetarism. your suggested Hamiltonian credit based finance is monetarism.
            get your definitions correct or you will continue to sound as if you know not of what you speak.

            Here is a selection of essays to educate you.
            https://www.google.ca/search?sourceid=navclient&aq=hts&oq=&ie=UTF-8&rlz=1T4SKPT_enCA449CA449&q=monetarist

            And do not talk about others having an obsession when every fith sentence and second post has G/S embedded in to it. And it is not Goldman Sachs I reference.

            As I have said before, you are either ignorant or a calculating deceiver. At this point I stick to the latter rather than the former.

      • joe hack

        I will Have some of your Zero money if you don’t value it?

        • Tony Brogan

          It is not that it has no value but that it is subject to inflation that consitantly reduces its value.
          It is subject to inflation as governments and bankerts collude to keep expanding the money supply which immediately makes all other money worth less. As money is worth less successive times it is eventually worthless.

          On the other hand commodity money has a higher intrinsic value as it requires sweet and toil to prduce from the ground. There will be no increrase in the money supply of note as the amount of increase is insignificant compared to the above ground stocks.

          approximately 180,000 tonnes of gold are thought to be held and new production is about 2500 tonnes for an increase of only 1.35%. all things being equal that would be the maximum inflation rate and held there by organic means rather than central bank policy and government edict.
          PM’s are inflation proof and do not lose their buying power.
          Paper money is subject to inflation because of central bank and government policy and consistently loses its buying power.
          any paper money i have has value to me to be converted into a good or serive I need or converted to a PM as a means of protection frominflation and retention of purchasing power.

          sorry I have no cash to spare Joe.

        • bonbon

          Well we could swap valueless paper. Adam Smith calls that trade. Swapping gold for silver is essentially barter of the glorious past.

          Notes try to appear valuable with personal signatures and guarantees written on them. If the guarantee is a national commitment to the general welfare for generations, and not simply a mugshot of some private banker, then the note is useful. The Euro has no state guarantee and there is its intrinsic weakness.

          • Tony Brogan

            The only paper currency worth anything is that redeemable for sound money, gold or silver.
            All else is artfully delusional.

          • bonbon

            The Greenback was delusional thought the Confederates and they were routed. “Sound money” is an illusion using “Nobel” metals to give it a patina of age-old value.

          • Tony Brogan

            Sound money, commodity money is the only money that is not an illusion, it is the only real money.

  19. joe hack

    Dammed Cyclist, spoiled my drive yesterday one cyclist really got to me his out fit was splashed with a bank logo he should be careful cycling with such profanities pasted to his Lycra top, imagine cycling with HSBC plastered on you back, a bit like dancing in a bull infested field all dressed in RED.

    • Tony Brogan

      Boy was that guy in danger. You could easily have run him down and then backed over again and again to make sure you got the bastard.
      Remind me to resist advertising on clothing. Of course unless they paid me!!!!
      No it’s not worth the risk in the current climate.

      i am laughing as I try to imaging a bull infested field and a person like a firefly junping aroung
      how many bulls per acre to get an infestation?
      About as many bankers as there are in every town.

    • bonbon

      Maybe he was a dope dealer? HSBC likes to launder their dirty heroin and cockaine-stuffed underwear!

  20. Deco

    Italy has a municipal budget problem. Italian cities are stretched.

    http://globaleconomicanalysis.blogspot.ie/2012/07/ten-major-italy-cities-at-risk-of-crash.html

    This means more austerity, and more rationalization of urban politics in Italy (which is often loaded with corruption).

    We are also edging towards a full Spanish bailout. This is going to be very very expensive. Spain is still in a dire situation. The Spanish government will have to do something urgently considering the state of the Spanish labour market. The unemployment problem is reaching crisis point.

    http://globaleconomicanalysis.blogspot.ie/2012/07/full-spanish-bailout-coming-up-yield-on.html

    • joe hack

      and it seems to be heading to Sicily too

    • bonbon

      Spanish Yields Hit Record Highs

      July 23 (EIRNS) — Spanish government bonds are collapsing rapidly, with yields on 10-year bonds brought to a new record high of an unsustainable 7.513% over fears that Spain’s autonomous regions are on the verge of default. The news sent European markets down with Madrid stock market IBEX losing 5%, the Greek market 6%, Italy 3.7%.
      City of London mouthpiece Ambrose Evans Pritchard, once again blames the Euroland austerity policies and the German insistence that austerity policies are carried out for Spain’s trouble. Making matters worse, he reports that Spain’s {El País} revealed that European Union officials have declared Spain’s credibility is at zero. Nonetheless Evans Pritchard once again states that Spain does not have a budget or foreign debt problem, but a banking system that went bankrupt because of the bursting of the real estate bubble, which he writes, “the EU was complicit in the Spanish bubble, and so were German banks. This is a collective failure.” He alleges that the reason for the failure of Spain’s EU100 billion bank bailout was that it was a fraud from the beginning, since it is once again the Spanish government, which is responsible for the guarantee which puts another EU100 billion on the Spanish national debt.

  21. joe hack

    From “The Old Woman Of The Road” to,

    KING OF THE ROAD
    Words and Music by Roger Miller

    Trailer for sale or rent, rooms to let fifty cents
    No phone, no pool, no pets, I ain’t got no cigarettes
    Ah but two hours of pushin’ broom buys and eight by twelve four-bit room
    I’m a man of means by no means, king of the road

    Third boxcar midnight train, destination Bangor, Maine
    Old worn out suit and shoes, I don’t pay no union dues
    I smoke old stogies I have found, short but not too big around
    I’m a man of means by no means, king of the road

    I know every engineer on every train
    All the children and all of their names
    And every handout in every town
    And every lock that ain’t locked when no-one’s around
    I sing…

    REPEAT FIRST VERSE (2x), fade..

  22. I’m glad to see some discussion in this article about money creation because it’s an important issue and one which I feel gets to the route of the debt crisis problem.

    For a start very little money is printed as demonstrated by the green line on the graph at the link below:

    http://www.sensiblemoney.ie/the-issues/#whats-different-about-this-recession

    I’d like to note also that while central banks have been recapitalising banks with reserve account money, banks do not lend this money when they make loans. Banks create the money they lend by typing it into the borrower’s account and recording a corresponding debt.

    They do this somewhat proportional to the balance of their reserve accounts but they don’t lend directly from reserves.

    There’s also no mention in the article about how banks destroy money through settlement of debt with them but it’s equally as important.

    If central banks created the nations money supply they could do it debt-free and once money was issued it would never be canceled out of existence. We’d have a much more permanent money base.

  23. Tony Brogan

    “but the only other way the crisis is going to be fixed, in Europe at least, is for the ECB to buy up all the debt of Spain with money that it prints”

    It will never work. Japan has done that for 20 years and they have a 20 year recession, the US is doing it for 4 years and things get progressively worse.
    David your education betrays you are you were fed propoganda and lies by the banking system who fund the universities to to train the profs to repeat the lies that cloud your mind.
    Europe has been monetizing the debt via the banking system and the Fed. Things get worse.

    There is no solution to the debt and dirvatives except default and bust or inflate away by dilution. The choice will be to inflate and dilute. You have opted for this solution as you were trained to do.

    gold and silver are the only solution for the individual protection and the national good.

    • bonbon

      DMcW actually said no one can imagine Germany tolerating this. And he is right on that point.

      There is a solution, and the only one tried and tested. That is Glass-Steagall application of powers only nation states have, not metal. Split off the problem part, and rebuild a wrecked economy with national public credit.

      Public Good will not appear from institutionalized vice (or Noble metals) as von Hayek, Mandeville and Adam Smith claimed. Public Good only appears from a commitment to the General Welfare, as Hamilton devastatingly countered Smith.

    • Moring Tony,

      I have a lot of smypathy with your positon now and over the past few months on the site and thanks for all the comments. However, and there is always a but, I do think that the ECB could solve this crisis reasonably easily.

      Best
      David

      • Tony Brogan

        Good morning David.
        a pleasant surprise to hear from you.

        I quote “some big shift in demand has to occur. More and more, it is looking as if the governments are going to have to engineer demand.”

        How and what do you propose that governments do? Whatever you have in mind then how would it be funded?
        Would you resort to government printed money earned into existance and issued by treasury, or would it be borrowed at interest and the extra added to the national debt?

        I am curious about the specifics you have in mind.As I understand it the ECB is constitutionally barred from bailing out a specific country. And it can not engage in QE because of that.

        There is a substantial body of thought that the demand for US bonds is low. the shortfall is being made up by the Fed buying the surplus bonds and thereby driving down the interest rates. The fed wants to create the appearance of deflation. They do this to give themselves room to manouver to issue yet another round of QE on the basis that it is not inflationary.
        In fact it is inflationary as the major buyers like China and Japan are not present and the alternative to fed Monetization is rapidly rising interest rates and a collapse of the bond bubble as is happening in Spain.
        Manipulation is a fact of life in all facets of American finance, business and politics. This is not a theory but based on documented facts.

        Unless you have the magic bullet, David, I do not see a way out for Europe or the US. For Ireland I believe it is to get out of the Euro pronto and establish a national currency based on commodity money with a kick start from fiat earned into existence, debt free and no interest, but with a short time frame. Ireland can not wait for Europe but must act in self preservation.

        Have a terrific day.

        Best Regards
        Tony

      • bonbon

        I is unreasonable to hyperinflate, without first splitting the banks as I have often posted here.
        Legitimate debt can be honored, but first Glass-Steagall. Spain can then initiate public credit to bring their wrecked economy up to decent levels. Legitimate debt can be put in cold storage, but the casino loose there must be shut.

        • Tony Brogan

          It is unreasonsable to hyperinflate, period.
          It decimates business, people and society.

          BTW who do you leave the debt with when the banks are split? The debt is still there.

  24. Alan42

    This seems to be the Krugman arguement on ‘ liquidity Traps ‘ which seems to tie in with Bernake’s policy of one bubble after another
    policy .http://www.usatoday.com/USCP/PNI/Business/2012-02-11-APUSBernanke_ST_U.htm

    This is actual US economic policy ???

    I thik we need to start reading John Mauldin’s newsletter’s a little more closely

    • Tony Brogan

      Hello Alan

      That piece was written in February and the housing market is worsened sinse then.
      Yes you have the nub of US policy. Meet Helecoptor Ben.

    • cooldude

      I agree with you Alan. The whole tone of the article is that only massive central bank currency creation can solve our problems. I expect this global currency creation on a massive scale to start very shortly (within the next month) but it will not solve anything and will just postpone the inevitable collapse of our current monetary system. Whilst we have deflation in assets which used bank leverage such as real estate we have inflation in the basic necessities such as food, petrol and heating. Both of these can quite easily exist in different areas at the same time but the central bankers are trying to create a deflationary scare in order to justify the massive global currency creation which is now very close.
      Just a couple of points on the defense of the Federal Reserve in this article. The dual mandate of the Fed is to create maximum employment and to protect the Dollar. In my view they have completely failed on both counts and it is high time this semi private institution should be abolished for its failure to carry out it’s mandate. The Dollar has lost 97% of it’s purchasing power over the last 99 years and unemployment is rampant both in the US and throughout the western economies. If the US had continued on the classical gold standard which existed in 1913 it is estimated that a family’s purchasing power would be 60% greater today than under the elastic system of the constantly depreciating Dollar. Here is a piece which explores this issue
      http://www.lemetropolecafe.com/img2012/Midas/1913Gold2.pdf
      Central bankers do NOT have our best interests in mind when they enact policy. The only thing they care about is the banking system which they constantly support to the detriment of ordinary people. Consider this quote from professor Carroll Quigley from his 1966 book Tragedy and Hope. Professor Quigley studied the world central banking system for over twenty years and eventually came to the conclusion that it was a completely corrupt system for the benefit of the banking elite alone.
      “The growth of financial capitalism made possible a centralization of world economic control and use of this power for the direct benefit of financiers and the indirect injury of all other economic groups.”

  25. Philip

    Reality is we are generally a richer world than we were 20 years ago and people are more globally aware and more educated and more switched on. So whatever the banksters etc have been doing during this interval may not have been all bad. And the fact we can all waffle on this blog and slag each other is not to be taken for granted.

    The best analogy of what is happening today was explained to me by a teenager. “You old fogies simply cannot keep up”. We have functionality and capability that allows us to accelerate way beyond our abilities to control it. We are doing the equivalent of riding a motorcycle as though it were a bicycle – not aware that speed has the added danger of catastrophic sudden stops – and that my friends is what is happening today – we got in new machinery (internet/ hi-speed logistics/ flexible labour) and switched it on without realizing we needed new rules for running organizations and government. Bankers do as bankers do in the past…provide credit – it just happened so fast – and it’ll smash them as well.

    There are the other issues of excessive consumption, advertising, super-power politics etc. But anyone who thinks any one group of Illuminati nutters are controlling all this need to leave the comics for the above mentioned and very grounded teenager who’ll probably use them for something more useful.

    I think DMW is onto something with Government Engineered Demand as a way out of this and in addition, there was a comment on NAMAising the unemployed in the last article that I would like to see explored more. We have an issue here of developing a vision of planning of what needs to happen next when the mother of all crashes occurs as Spain, Italy and I expect the rest of the EU goes under. We need some kind of an and economic emergency response unit (IMF is of no use) which brings more than a “means of exchange” to the table. The current “same as usual” responses are simply ineffective.

    • bonbon

      NAMAising is a nice name for RAD, and I replied to that in that theme. It is devoid of a commitment to economic recovery after a devastating “war”, so is an insult to the survivors.
      We need a Marshall Plan based on the FDR Reconstruction Finance Corp, that gave us the KfW German Reconstruction Credit Fund.

    • cooldude

      Philip you make some interesting points. But are we generally a lot richer, either materially or in any other way, than we were 20 years ago.? We certainly have fantastic technology such as the internet and smart phones but our economies are all suffering from from the extremely serious consequences of our massive debt levels, on an individual level as well as a corporate and sovereign level. With all these fantastic technologies this should really be an era of prosperity but it’s the exact opposite and we now have the very real threat of the Syrian conflict spilling into Iran which has been the plan all along. We have all the European countries losing their sovereignty to unelected eurocrats like Van Rumpoy (creepy guy) and the export of our industrial base to the far east. We are still struggling with the massive hangover from our property bubble which is causing huge hardship especially on young couples. I’m afraid I will have to say no we are not any better off but the banking elites who run the central banks are immensely richer and are enjoying the spoils of their exclusive franchise of our monetary system. For me the best way to take away that franchise is to allow different forms of money to coexist and let the people decide which form they want to use both for the payment of goods and services and also as a store of wealth. I don’t just mean precious metals, although they certainly provide protection to savings, but also modern payment systems such as bitcoin which is an internet payment system BUT the supply of money is strictly controlled. All the financial problems our economies are struggling with are the result of the extreme elasticity of our modern money supply. The last 41 years is the first time in monetary history we have had a global money supply unbacked by anything and I think it is fair to say it has not been a very sucessfull experiment. It is now just a matter of time before this experiment fails completely and then we will have to return to a more stable monetary system.

  26. joe hack

    On house hold debt forgiveness, liquidity and David’s and others comments above;

    I caught a bit of the Andrew Neil show last week, a strange show, the guest documentarian that night had made a short documentary on liquidity, I did not see it, but in the studio with Andrew Neil and the shows long time guest Michael Denzil Xavier Portillo, a strange beast, thank Cod he did not get to be PM, the guest documentarian asked where had the 300 billion gone.

    The 300 billion he was talking about was the 300 billion that the British exchequer had pumped into the banking system for the last 3 years or so, he suggested that it would have been better to have given the money directly to the people and suggested that in future this is what should be done.

    The guests said no and suggested that it would be better to give incentives for the likes of home improvements, Andrew Neil interrupted and said exactly what I was thinking which was that their idea was that they were telling the public were they should spend their money controlling freedom and of course the housing market and what if people did not have property and such, so why not just give the cash Neil exclaimed. they did this in Japan in the early 90ths how did that work?

    On house hold debt forgiveness mentioned above, again this seems to be selective those with debts including mortgages arrears get off lightly, those that are debt free get nothing but pay the bills of others, such as banking debts.

    Those that did not create the problem have again to pay to try to fix the problems its creators those of us who have no debts and were not the cause of the problem are been continually left to pick up the tab of some who may have used their mortgage loans to buy nice cars and fly to exotic destinations while spending my money destroying the environment and more.

    This is steeling my money and my kids future.

    So if debt forgiveness is the next tax I might be asked to pay, then for example, if the average household debt was 3,000 euro, then those with the out debt should be given 3,000 euro cash to spend on whatever they choose to, they at least have been responsible citizens.

    But there is little point in household debt forgiveness when the household tax and others might increase by the same amount given money with one hand and taken with the other is quite simple a load of…well I won’t use profanities.

    It seems again what some a suggesting is a white collar crime on grand scale and with the support of the state, the good citizens and the man who goes to jail for steeling bread to feed his kids for example might wonder why he is in jail because he can’t afford the likes of house hold changes. A tax on him to pay the bankers and the Vat liabilities of the likes of Mick Wallace’s company who and some want him to forgive more debts, but no one wants to forgive him.

    By the way, Wallace was out campaigning against the household charge, 21 thousand households would not have to pay the household charge if his company had been good citizens.

    So David I am concerned that you would support this bailout when the most likely to suffer are the low paid or unemployed this kind of policy would increase crime rates and worse, but maybe the HSBC might do well with the increase of drug taken if the lower paid are continually asked to pick up the bill.

    I was not low paid, paying tax is a privilege, it is what good citizens do, but the feel good of the rich such likes of Bono, Denis O’Brian will avoid and may set up some feel good charity, maybe David you are hanging around with the wrong crew out there in Dalkey.

    When I hear people on here and elsewhere say that they employ and without them there would be no work and more, such as Sean Quinn, I heard this years ago-what a great man he is for creating employment in Cavan, this is Rubbish if people need cement they go to whomever is selling it and he did for MONEY he just transferred jobs from other suppliers to himself, they make it sound like they are charitable organisations, David they simple do it for MONEY, they do not own the work, the work is there because people buy, diversity excluded, this of course is a bigger debate than the little that I have mentioned here.

    David McWilliams, I think you are well off the mark on this and in particular its consequences.

    Let’s try this instead give the lowest paid and the unemployed the cash let them spend it on surviving and in turn the cash might end up in the household that are in debt sure hell they may even buy your new book, or at least give everyone a equal amount of cash yes like the children’s allowances, give everyone lets say 3 grand so those in arrears can pay their debts, but would they? and those who are not can buy things, your book included.

    • gizzy

      Joe a lot of those in debt are the low paid and unemployed, not because they were irresponsible but because they lost jobs through no fault of their own. Do not think debt forgiveness and think Sean Quinn. It goes from top to bottom of society. In a functioning society it works to care for others. Your attitude towards debt forgiveness does not come accross as responsible but eff You jack I’m alright. How do you think you or society is better off by an unemployed person getting a judgement for not paying a Bank so it can pay an investor.

      • joe hack

        Hello gizzy,
        yes, but I did not mention debt forgiveness in relation to Quinn.
        My attitude to debt forgiveness to the opposite to your remark “I all Right Jack” and I personalty don’t need debt forgiveness. You appear to be saying that its OK to spend others peoples money this is called steeling, there is a danger and some call it a “moral hazard” if don’t support the bailout of banks then morally you cant support any bailout including small bailouts.

        Using others crimes to justify your own is part of the point I am making – “if alright for the bankers its alright for me”

        If people on average wages use the capitalistic system to cash in on booms and then look to be bailed out that is a gambling debt big or small, the size of it does not give it any more or any less morality.

        People who gamble sometimes need psychological help the capitalistic system as it is could do with a gambling psychologist.

        I don’t believe you read my above opinion or, if you did you just seen words.

        • gizzy

          Joe

          I believe when ordinary citizens make decisions on the basis of the information they have. A My job is safe B Buying a house makes good economic sense. I do not believe they gambledi in many cases but made rational decisions.They were then then hit with a seismic shift in the world’s economy. The solution to this needs to be done in the context of a catastropic event almost an economiv war. It needs thinking and solutions on a different level. My father in law spent 4o years building up Bank of Ireland shares. He had a motto you never sell bank sharea. Was he a gambler when it went bust.

    • Andrew Neil and Michael Portillo are a pair of sleaze balls.
      You see it in their cold fish eyes and smug facial expressions.
      Stop watchign this shit and wise up.
      There is no excuse

      • joe hack

        I agree, but only a fool would read one source of news one paper I don’t pay for is the paper that has a lie printed the front page of every issue is the Independent it is far from “independent”

  27. The Bloody Rain

    Its pouring here in buckets .I wish Davids new book was out .I am looking forward to reading it . He is a good story teller.

  28. joe hack

    For Mr. Tony Brogan some thought for ya,

    ON GOLD!

    Yes your thoughts on gold-these are facts maybe,,,, BUT bu but b ut buuut wait a minute the value of most things are played with, food included, states are protecting the paper stuff that is why it has value, a promise to pay, a credit for goods, work done, resources supplied and so… that is why default is the nuclearly option.

    The value of anything is decided by mankind the problem you are mentioning is more to do with what BONBON continues the repeat repeat repeat… its a policing issue, this can apply to most things and all things in our modernity has no essential or intrinsic value gold is of no value the hungry or starving. I do think there is merit in money been tied to some earthly resources but deciding what that is has caused more grief over the century’s than it’s worth.

    Let’s say for example we align paper or computer inputs to oranges then Ireland will be broke since we don’t have sun but maybe we should align it to human beings no there is something of value, or to polar bears, fish maybe, fish might be better as there are no borders, sciences too would be better we all gain from that, well sometimes, what about we align to those that help others and those that improve the wellbeing of the planet now that might be it………………………………………………then there the Branded grab that some kids kill over are you part of this,,,,,,,,
    you put a value non ferrous corpus rock but you use what to value it with, Oh! yea the paper stuff.
    gold has much better uses than been horded away……………..

    • Tony Brogan

      Hi Joe

      thanks for your musings.
      Hard for me to nail down what you are trying to say but I think my response will be along these lines.
      Simple societies localized and static, traded goods and services in the style we call barter.
      society then grows more complex and barter becomes unsatisfactory and inefficient.
      The concept of money developed. Money could be traded for a good or a good for money.
      money is a brilliant concept that serices mankind by allowing an effecient means for the trading of goods and services.
      A local money can be anything agreed as long as the rules of that agreement are honoured by all.
      Now one complex society contacts another and each use a different money. Is it better to have one money unit valued against another money unit or better to agree to use the same money.
      If so whose money. Then several complex societies interact and we have several monies competing to be the one used by all.
      so the question becomes how do we get a money acceptable to all societies that enable the transfer of goods and services between all in an efficient matter so that all benefit.
      Mankind has sort the answer to that question and there is a money generally agreed between all people that enables the universal trading of goods and services.
      what is the character of such a money and why does it work. Why is it that other moneies do not work as well.

      joe, I have a commitment to attend and not the time to go further. but I will get back to you with the answer that has been decided upon by mankind generally and the money that best serves mankind.

      Not being an academic type I have to go back and look up some sources and read again, to consolidate the thinking process.
      Talk to you in another 12 hours or so after my return.
      It is the time for another 120km bike ride and a spell of boxing coaching.

      Take care.
      T

  29. Deco

    Zero Hedge present their perspective that Spain is next up for a Troika takeover.

    http://www.zerohedge.com/news/spain-curve-inversion-all-its-gravitational-glory

    At this stage the Italian government must be wondering about panic in their bond market, and the Frenh banking system must be worrying about panic in their bank balance sheets.

    We have the Germans on holidays. The Finns have decided that they will leave rather than incurr more liabilities for the benefit of countries where the regulators lie repeatedly about everything.

    The Netherlands are trying to get themselves to a position that they can quit, if the bill becomes greater than the value of staying – while an increasing proportion of the Dutch population is demanding a degree of accountability from Brussels, that Brussels will simply not deliver. Ever.

    All that is missing is the clown in chief, pay-away-Jose, to step up to the microphone and make Comical-Ali type pronouncements that all is well.

    I did not expect this to happen as fast as it has happened.

    But now I suspect that events will take a course of their own, in a completely unpredictable, and harsh manner.

  30. Germany has begun to Wobble

    Moody downgrades the Holy Grail and its issues .

    • bonbon

      Moody’s has just lowered the bond ratings of Germany, Luxembourg and the Netherlands–all because they see the whole Eurozone in the process of breaking apart.

  31. bonbon

    Germany’s Oldest Private Bank, Berenberg, Calls for Bank Separation

    July 24 (EIRNS) — An analyst from the German private Berenberg Bank has come out calling for separation of retail and investment banks along Glass-Steagall lines, according to {Financial Times} Economics editor Patrick Jenkins. Writing in his blog, Jenkins says that the Libor crime of the century has prompted calls to go beyond the Vickers ringfencing to “forcibly splitting up universal banks. The danger and potential expense posed by an investment bank to a retail bank are just too great, the reformers argue.
    “The latest contribution to the argument comes from analysts at German private bank Berenberg, who make the case for a total split of activities and a forcible return of investment banking to partnership status. ”
    The Berenberg analyst is James Chappell, who formerly worked for Goldman Sachs. Jenkins writes that the “real focus of the Berenberg argument is essentially that the world should return to the old order of things in the U.S., when the now-repealed Glass-Steagall Act forcibly kept retail and investment banking apart….
    “There is, all the same, a powerful argument for breaking up universal banks — not through legal intervention but through shareholder power. As the Berenberg note argues, owning shares in an investment bank today, particularly one that is part of a universal bank group, is unappealing. ‘We do not believe that the current investment banking model is compatible with equity ownership due to the behaviors and incentive structure embedded in the industry’ … wrote Chappell, an analyst at Goldman Sachs Group Inc. in London from 2001 to 2009 before joining Hamburg, Germany-based Berenberg Bank, the world’s oldest private bank…. Ideally, banks should be split up into retail and investment banking operations, though that may not be possible considering ‘investment banks have hard-wired themselves into the system and remain too big to fail,’ Chappell said.”

  32. bonbon

    German Cabinet Minister Addresses LIBOR Scandal

    July 24, 2012 (EIRNS)–Finally, a leading German politician is addressing the LIBOR crime: Ilse Aigner, Minister of Agriculture and Consumer Protection, said in an interview with the {Handelsblatt} business daily today, that “if interest rates are being manipulated by banks to increase their profits from trading, that is a profound scandal.”
    “Interbank rates influence financial products of a value totalling numerous trillions of dollars, including savings accounts, money market funds, and loans,” Aigner said. “It cannot be that in the end, the consumers have to foot the bill again, for interest-manipulation by some unscrupulous traders.” In particular, Aigner called on Deutsche Bank to come clean on its own involvement in the scandal

  33. Johno

    So there is apparently 1.6 billion barrels of oil off the coast of Cork. So if a barrel of oil is roughly $100 ( give or take ) that is roughly $160 billion sitting off our coast. Anyone know how much of this the state can expect? Or has this all been sold already for a few quid and extention on a house for a t.d?

    http://www.rte.ie/news/2012/0725/providence-oil-find-could-have-1-billion-barrels-business.html

    • Philip

      2000 jobs at 100K PA each (including overheads) for 20 years with a 5:1 respend (all the 2ry and 3ry businesses) – Billion a Year approx. Assume no revenue from the gooey stuff -which apparently is way better than Brent.

      See similar from Element power proposing 10K people to build mills for 10% of UK’s green energy requirements. 2K longterm jobs for 25 years. Could be a 2 bn a yr play not including revenue from shipped power.

      I hope the gougers are kept away. But I fear not unless mandatory lobotomies are in place.

    • bonbon

      Look at Nigeria, unbelievable reserves and offshore drilling. Did Nigeria Benefit? Why was its second refinery (2 only!!!) shut? They buy refined petrol on the global market.
      Argentina does not want that – it nationalized Repsol.

      Any income will go straight to debt service – and give FG an argument.
      Still believe in “raw materials”?

  34. Philip

    I cannot help feeling we are missing a trick. We are screwing around with Economics as though it can be engineered. I see mathematics being applied with other fancy analytical paraphernalia. The sick joke of it all is that Economics has no underlying immutable laws as truly engineered systems would.

    Economics is also study of psychology and I feel no one discusses this. We look at returns on investment and present value analysis etc. but we never ask – what is the psychology driving all this stuff. What are the psychologies behind what is happening today? The level of paralysis in the human psyche at the level of Brussels and EU Intergovernmental Meetings could be driving the inability to make sharp and robust decisions. Maybe everyone is trying not to look stupid. Consensus in crisis could indeed be killing us.

    When we stand back, we see psychology has been used to drive many bad behaviors in the belief that it could go on forever. Call it advertising, clever product positioning, call it propaganda. Whatever it is, it is killing us and the planet.

    I look at the Irish psyche. In truth and in the main, we are gougers. We are psychologically disposed to maximising margin by delivering crap service. Ryan Air are very clever at this. If you had good customer service, people would feel they were being ripped off. But typically the negative side is all too common and yields itself as the Irish GougeFest. In the Gougefest – take your food markets, or festivals, the idea is to charge you as you come in the door and be overpriced at the stalls. Take any of the government sponsored events or any promotional events…rip off. Go into a restaurant – no coffee top up NO attempt to invest in good service. Maybe US customer service has tainted me too much.

    The primary problem for Ireland and its lack of growth is that the gougers and the psychology of gougerism and gougefest is all too real and is killing peoples confidence. We have no control of where our taxes go, we are constanly being funneled to areas where we can be taxed more or ripped off more.

    That is the true economics of Ireland. A psychology based on a lack of faith in the future.

    • Philip

      And I suspect that is the underlying issue in our pigs as well..

    • gizzy

      Philip

      Agree with a lot of what you say but some too simplistic and blames the front end the end they meet. Minimum wage in restaurant 9.50 per hour more than in banking. Rates and water rates astronomical for no service. Employers prsi, imro for music etc etc. there is no rip off I guarantee you, there is no profit and most weeks there is no wage for owner.

    • Tull McAdoo

      Tairnin ar an ceann, tairnin ar an cheann.

      I am not suggesting for one moment that my fellow countrymen in Oz are leaders in the field of customer services, as we do have a reputation for lets call it “robustness in the outback”, but one thing we do try to do is give everybody “a fair go ” when it comes to deliverable’s.

    • ‘The greatest crimes of human history are made possible by the most colorless human beings. They are the careerists. The bureaucrats. The cynics. They do the little chores that make vast, complicated systems of exploitation and death a reality’ …

      http://www.truthdig.com/report/item/the_careerists_20120723/

    • bonbon

      Ye are missing a universal principle Tigers are notorious for dismissing – progress or go extinct. Look at the archao’s work 99% of civilizations went that wax, and every time signs (that archaeos are also blind to with their fixation on animal behavior) that internal collapse was the cause (Anghor Wat a good example).
      Economics without this is part of a collapse process.
      It boils down to what is the essential difference between man and beast? Economics based on an irrational principle (pleasure-pain, consume-demand, or unknowable spontaneous growth) are essentially ecology theories of the swamp, suited to frogs and salamanders.
      And a maths to deal with real economics does exist.

      Gouging – look at the service to a dying empire, transatlantic (Obama gouged $30 trillion, no small change). No Irish Govt can approach that, even if they dream of it!

  35. piombo

    This evening an economist in Milan who advises various banks and writes for the “il giornale” ( I know it belongs to Berlusconi) stated on the radio that Italy should revert to the Lira. He claims that the changeover would be similar in it’s effects to the scenario when Italy was forced out of the SME in 1992 and incurred a 20% devaluation. He claims that there was a ZERO effect on inflation.
    It is also noteworthy that such a “flyer” was put on drive time peak radio. Maybe a signal of things to come.

  36. Astonishing language from someone who is supposed to be intelligent …

    “some sort of anti-patriotic conspiracy to impoverish the average, hard-working American”

    Oh no. The Fed and their friends would never impoverish us!

    • bonbon

      When Americans finally figure out it is the same old enemy committed to destroying the constitution and the very existence of the republic, watch out!

      • Americans are already figuring it out

        Ironic that grass roots Americans have the intelligence to realise the game is over while foreign feigning arselickers are still clinging to the notion of the American and capitalist dream

        ooooh we nust have growth we must have growth!
        Oh shut up silly little boys.

        These over educated spoiled boys need to realise their limitations and most of all the limitations of their stupid imaginations

        They need reigning in, sacked and put to the end of the queue

        • Tony Brogan

          This is what the Tea Party is about and the occupy movement. Ron Paul attracts huge crownds of youth at the campuses. He and they have seen the problem and have a solution.

          • Maybe. But what about his notion that there should be no safety net for the poor?

          • Tony Brogan

            Pauldiv
            i am conflicted about the safety net idea.

            Welfare is also defined as a subsidy. Most wellfare goes to corporations in the form of tax breaks and subsidies.
            The most recent being the bank bail outs.

            We are instructed to succor the poor and the lame , the blind and the infirm.
            But what about the old age pension. I get that and do not refuse it yet it is paid out from taxpayers money.
            I rationalize that I have paid a load of taxes and so therefore I have paid my share.
            I calculated that at one point I paid 66% of my gross income directly to the government in dues , fees, and taxes. This is an accurate figure and I was somewhat startled to find out how much it was.

            The problem is that the state is too powerful, too intrusive, too demanding and takes too much.

            This is why that on the overall consideration I will vote and agree to the 90% of the policy I like and hopefully mitgigate any negative affects for the balance of 10% of the policies.
            I would rather that than agree to the 10 percent and tolerate the other 90% I disagree with.

            so I basically agree with Ron Paul and am conflicted about potentially having people suffering from lack of food and shelter.I believe there will be less suffering with his policies and more people cared for than at present simply by an economic model that allows for greater freedom and a more vibrant egalitarian economy.

            Good question Pauldiv.

        • bonbon

          No they have not figured it out. Blair knows what I am talking about. London knows, and they after all put Obama in there.
          And Robert Burns knows what I am talking about, yon Birkie.

    • Tony Brogan

      Anyone who doubts that the Federal Reserve is not on the side of the banks has not been reading the news the last 4 years.

      To get a handle on who formed the Federal Reserve, why it was formed, how it was formed and when it was formed one can do no better than to Read the Creature from Jekyll Island by G Edward Griffin.

      Then you will never doubt again that there is a cabal of powerful people who not only wish to impoverish the Americans but the rest of us as well. One world order is in the works. Serfdom and enslavement for the rest of us.

      If you have not read The creature from Jekyll David then you must do. If you have read it then you you would never express those kind of doubts again.

      • bonbon

        No one here doubts “cabals” exist, and the FED is public enemy #1. That’s not the problem.

        A true American solution is to follow Lincoln and FDR, JFK, as Germany did with the KfW for economic reconstruction. Unfortunately Ron Paul will not sign up to the American way of dealing with banking and post-derivative-epoch reconstruction.

        Unfortunately Ron Paul is following the London School of Economics, and most do not see this.

        • Tony Brogan

          Of course the banking system is the problem.
          Central banking rules the roost.
          all other solutions are secondary.

  37. Not an article to set the heather alight. 4/10

    Low value. Cold, impersonal, academic, cynical. Disarray among posters descends into farce reflecting the chaotic and self interested psyche of a nation pulverised into panic, ingorance and perpetual stupidity. Little sympathy

    Could have been penned by anyone with as much personality and empathy as a week old darkening pound of sausages lying at the back of the fridge

    Not good

  38. Tony Brogan

    Congress passes Ron Pauls bill to edit the Fed
    now to work on the senate. This is Historic

    http://www.nysun.com/editorials/ron-pauls-triumph/87913/

    • Tony,
      you’re always saying that fractional reserve banking needs to be stopped…can you tell me why please?

      As far as I see it, the loanee hasn’t got the money for say a car up front so the bank gives him the money ( credit/out of thin air whatever you want to call it ) and he can purchase the car.

      The loanee then pays back the money/ means of purchase with his labour and the bank destroys the principle less the interest. Thus this does not lead to an increase in the money supply and is NOT inflationary.

      Please correct me if I’m wrong.

      Thanks,

      Josey

      • Tony Brogan

        Hi Josey

        Basically FRB is a fraud and it is the basic tool used by central bankers to expand and contract the money supply .
        This creates the booms and busts
        It is also the thin edge of the wedge that gave rise to the chicanery that is the derivitive banking problem of almost unlimited leverage.

        Now I hope I can explain.

        In the good old days or as they start the the stories “once up a time” there was a small town developed up and the people were happy working at their trades and occupations and exchanging goods and services.

        There was little need for money and the economic activity was self contained in the town as it was more than a days travel to the next town.

        People had developed gold and silver as money as they found it useful to do so and when a vistor brought goods from another town or a citizen of the town travelled it was found useful to have gold as everywhere it was recognised as money.
        Trade could be done with other places and goods imported now and then or goods sold now and then and the medium of exchange was gold.

        As time went by the townsfolk used the vault buit by the blacksmith to store their money and a receipt was issued for that money so the blacksmith could keep an accounting of who owned what in his vault.

        The blacksmith also developed skills in manufacturing and design in gold and became a Goldsmith.
        The goldsmith did good business charging a small fee for the storage and by making jewelry from his own gold and found profits were good as people liked to wear gold ornaments as it provided status and was a convenient way to carry your gold.
        The ancient Celts were noted for gold ornaments as are the Indian people today.

        Now the townsfolk found that they could show the goldsmiths receipt to another as proof of ownership of gold in the vault and so do trade with another without the requirement to go to the vault and physically transport the gold to the vendor.

        These notes from the Goldsmith became known as good as the gold they represented and people were happy to trade by using the notes as the medium of exchange. If anyone needed some actual gold they went to the goldsmith with a note and received the gold due them according to the note.

        As time passed it was decided to standardize the notes and to make notes of specific weights of gold in larger and smaller amounts and now it was easier again to do business in the town and seldom was it required to take a note to the goldsmith and redeem the note for gold.

        All was well and the notes passed from hand to hand and were not consumed in the trading process acting as a medium of exchange. These notes were now currency and represented the money owned by the individuals held by the goldsmith.

        The goldsmith developed techniques to make sure the notes were highly distinctive and were scripted with statements like,”I promise to pay bearer on demand one ounce of gold or 10 ounces or half an ounce. The goldsmith charged a small fee for his work which the people gladly paid and the goldsmith accumulated gold to his own account and he built a larger better vault for better security.

        Because the notes were easy to handle they passed from hand to hand quickly and the amount of trade increased and all citizens prospered.
        any notes that were worn were replaced by new notes and the old ones retired.

        The gold smith was now become a banker. But he was anxious to increase his business. So far the people trusted the banker with their money in storage as everytime they needed the actual money it was always there for them and they went on their travel and could use their gold in far away places if they wished

        Now the banker realized that little of the gold was redeemed at any time and he found that trade was good and that sometimes he could lend his own gold out for a fee to someone who wished to go trading or who wished to buy what they had not yet saved for.

        Now the banker chrged a fee to the borrower for the loan and so the borrower had to do good trade with the borrowed money to earn gold from another source ourtside the town in order to pay the interest.

        So far all the notes in circulation were backed by the amount of gold held.

        Then the banker had a great idea, he thought. what if he issued more notes to those who wanted to borrow but instead of having these notes backed by gold they were just created and circulated. nobody would know and the banker would earn more interest to his own account. So this is what happenned and the banker was careful that nobody knew what was happening.

        We now have the first fractional reserve banking and it is a deceit as if all the notes promising to pay barer on bemand were redeemed there would be some who would find they were bearing an empty promise to pay and would have no gold or money, just the worthless note.

        Still the banker issued more and more notes and the extra notes in circulation moved in to the commumunity as loans. The extra currency was issued as a loan and the banker grew rich and was able to buy the best location in the town with the biggest and best shop. But he was charging interest on what did not exist.

        The town council members noted these things and the fact that everyone was flush with Currency and the affluence of the banker and so they asked questions.

        The demand for goods and services was up and prices were increasing. Most people did not mind as wages had also increased and everyone was having a good time.

        The town councellors went to the banker and said how come we have so much money (currency ) circulating, it is a lot more than before. They were suspicious that there was not enough gold to cover the notes and rumors abounded that the banker printed extra.

        finally the banked admitted the practice but cleverly showed how everyone was better off, all had more money and hadn’t the banker been good to the councellor by paying for a few things to get the concellor shown as a good person worthy of re-election. Was not the business of the councellor thriving.

        The councellors agreed that the system was working fine and so they authorized the bank on behalf of the citizens that is was ok to have nmore currency circulating than there was gold to cover and the practice was made legal.

        The banker now had a free hand to keep issuing the extra currency but it was all issued as a loan and a debt that carried interest and the amout of reserves carried as gold deposits became less and less and at each stage the process was made legal.

        This process took place all over in all the towns and the resrves often were only 10% of the notes in circulation.

        In places where the people lost trust in the banks they would rush in to redeem their notes and so there would be a “run on the bank” and quickly people found their money was not there and the bank was ruptured. Bankrupted. It went out of business and a lot of hardship was created as people lost their savings.

        Forward to today.
        Because banks went out of business and this was a problem they got together and decided they would form a central bank that would have the power to issue currency to an individual bank if it ran out of reserves. At first the central bank had to have gold reserves to back the notes issued and these were offerred by the member banks who were the shareholders of the central bank. The Bankers were skillful in their presentation and persuaded the government to do their own banking here and to have all the nations gold reserves under deposit.

        In 1971 it was allowed that there need be no gold reserve at all for currency and that the central banks could issue notes to commercial banks, which they could call reserves and the commercial banks could issue new notes into circulation.

        There was now effectively nothing backing all these new notes and all were issued into existance as a loan bearing interest to be paid.This interest was due to the central banks and to the commercial banks.

        We now have a system that the interest being charged is larger than the people can repay. The reserves in the banks are invented money and when there is aslowdown in business even this is not enough to cover the losses so the bank is bankrupt or insolvent without anyone asking for redemption.

        The latest negotioation by the bankers resulted in the people guaranteeing the losses of the banks as thay are suggested to be so valuaable to society that they not be allowed to fail.

        but what of the effects of the fractional reserve system.

        As the reserves required are lower and lower it means that a dollar of reserve can result in an expansion of the money supply of 10, 20, 30 times that.
        It means that the system has become precarious and unstable. The central bank can rapidly expand the money supply and contract it again. This expansion and contraction is now at the desire of the central banks who are working for the banks butpretend to be a friend of the people.

        It is the cause of the business cycles and the banks can systematically create inflation and a boom and with a small retraction of the money supply cause a recession. Eachtime this happens there are a lot of people to lose the results of their years of labour and the interest on the loans accrues to the banks who increase their assets.

        The increse in the money supply is inflationary and causes rising prices. The only benefit is to those who first receive the new notes at par value.Who are these. The banks themselves of course and then those close to the banks. crony capitalism it is named. but it is not capitalism at all , just fraud, legalized fraud.
        As this extra money circulates it increases the demand and prices rise. Those who receive no extra money find that their existing money does not buy as much as it used to so they suffer the ravages of inflation. Paupery.

        Finding that they can not afford what they used to they borrow and indebt themselves to manintain a standard of living. when credit is tightened the interest rates rise and they are squeezed more and have less discretionary income so must sell assets reduced in value to pay off the loan or borrow more to make the extra payments. In any event they grow poorer.

        Today this system has reached its apex and all people have borrowed all that can be afforded and more. No matter how much money is printed no more can be borrowed. Even at zero or negative interest rats as people can not add any further repayments of any kind.
        This is the debt trap or liqidity trap.

        Now is left only repayment of existing debt from assets or default and the lender will lose assets as well. In the meantime we can be sure that the monied powers who control the bankingsystem have used their paper profits to acquire gold and other asset to ensure their wealth is secure and increased.

        This is largely the result of fractional reserve banking which is a fraudulent action in the first place as it is lending a fiction or mirage. Lending what does not exist. It is morally wrong, it is crooked behaviour.

        If fraction reserve banking had not been allowed there would not have been:
        Inflation of currency resulting in a loss of buying power and the pauperizing of the populace and the destruction of the middle class.
        The would be little debt as it simply would not have been there to borrow.People would be living within their means.
        The criminal mindset that thinks it can manipulate the money supply would not have flourished.
        The ultimate in fractional reserve banking is where there are no resrves required and that money that does not belong to you can be loaned and traded.
        Then invented fictional money can be foisted on people and the bear naked shorting practices and the derivaties market were developed.

        Basically put. The advent of what can be called dishonest money corrupts the morals of society until nobody can tell right from wrong.

        That is the essence of the fractional reserve system–dishonesty which leads to a corruption in society until all falls apart.

        That is why I call for fractional reserve banking to be eliminated. It is a curse on the people.

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