Tuesday, April 29, 2008

The Twilight of Irredeemable Debt

Schiller’s dictum: “Anyone taken as an individual is tolerably sensible and reasonable. But taken as a member of a crowd ― he at once becomes a blockhead”. Economics professors and financial journalists are no exception.

It is a delusion to think that the government can splatter debt all over the economic landscape to cover up its warts, and reap everlasting prosperity as a result.

Perhaps the worst aspect of the regime of irredeemable debt is the lowest level of morals followed by governments in modern history. It is epitomized by an elaborate check-kiting conspiracy between the U.S: Treasury and the Federal Reserve. Treasury bonds, contrary to appearances, are no more redeemable than Federal Reserve notes. It’s all very neat: the notes are backed by the bonds, and the bonds are redeemable by the notes. Therefore each is valued in terms of itself, rather than by an independent outside asset. Each is an irredeemable liability of the U.S: government. The whole scheme boils down to a farce.
His solution at the end is bogus.

The solution is simple, the results painful.

Just repeal all legal tender laws. Use whatever
you like as currency.

Ain't gonna happen. It would bring down The System.

Doesn't matter.

System self-destruct on the way.

The Gun in the Room assures it.

Full article.

Tuesday, April 22, 2008

Spiraling into the shithole thru stupidy

The global food crisis is a monetary phenomenon, an unintended consequence of America's attempt to inflate its way out of a market failure. There are long-term reasons for food prices to rise, but the unprecedented spike in grain prices during the past year stems from the weakness of the American dollar. Washington's economic misery now threatens to become a geopolitical catastrophe.
How does Washington's 'economic misery' translate into a 'market failure'?


Full article.

Wednesday, April 16, 2008

Take the red pill

More so than in any other area of human behavior, the world of politics is firmly and irretrievably grounded in contradictions and illusions. If you were to ask others to identify the purposes for which governments were created, you would likely get the response: "to protect our lives, liberty, and property from both domestic and foreign threats." This is an article of faith into which most of us are indoctrinated since childhood, and to suggest any other explanation is looked upon as a blasphemous social proposition.

"But what," I ask, "are among the first things governments do when they get established? Do they not insist upon the power to take your liberty (by regulating what you can/cannot do), and your property (through taxation, eminent domain, and regulations), and your life (by conscripting you into their service, and killing you should you continue to resist their demands)?"
Then why force always eats itself...
If the police system fails to curb crime, or the government schools continue to crank out ill-educated children, most of us are disposed to giving such agencies additional monies. The motivations for state officials become quite clear: "the more we fail, the more resources we are given." Contrary to marketplace dynamics, contradictions arise between the stated incentives of government programs (e.g., to reduce crime, to improve the quality of education) and the monetary rewards that flow from the failure to accomplish the declared purposes.
Highly recommended.

Tuesday, April 15, 2008

The Probability Broach, the graphic version

Now also a link on the right panel.


Sunday, April 13, 2008

An economy built on lies

From start to finish, from top to bottom, the entire structure was based on lies. It began with this one: "I'm from the government, and I'm here to help you." This is the third most widely believed lie in history, right after this:

And the serpent said unto the woman, Ye shall not surely die: For God doth know that in the day ye eat thereof, then your eyes shall be opened, and ye shall be as gods, knowing good and evil.

And this:

Of course I will still respect you as a person in the morning.

The tissue of lies that held together the subprime market was believed by the best and the brightest. They were blind to what was coming. It has wiped out over $200 billion in assets.

We are assured that the worst is over. But who assures us of this? Salaried reporters in a dying field: newspapers and network TV.

The ill-informed tout the liars. We are assured that the liars know what went wrong and will not let it happen again.

Re-read the liars' law. That will give you some indication of how serious the liars were. They are no more serious today.

When they tell you the worst is over, batten down the hatches.
Full article.

Thursday, April 10, 2008

The End Game

The Fed is now considering borrowing from the Treasury (US taxpayers). Were the Fed to have to do this to remain whole, i.e., have the Treasury underwrite the Fed's balance sheet, the US central bank would be de facto insolvent, having insufficient assets to carry out its mandate.

The perceived invincibility of the Fed's ability to reflate is now clearly in question. The Fed's own discussions prove it.

Tuesday, April 08, 2008

The Credit Bubble

Government backing of our debt does not substitute for a sound Economic Structure. And it is the current Structure that is incapable of the necessary economic output to satisfy domestic needs and to generate sufficient exports to exchange for our huge appetite for imported goods and energy resources. Today’s “services”-based economy will no longer suffice. Examining today’s job data, one sees that 93,000 “goods producing” jobs were lost in March after dropping 92,000 in February and 69,000 in January. At the same time, Education, Health, Leisure and Hospitality jobs increased 178,000 during the first quarter. Yet it is more obvious than ever that we need to consume less and produce much more.

Back to the “liquidationists.” It is my view that our economy will require a massive reallocation of resources. We will be forced to create much less non-productive (especially mortgage and asset-based) Credit in the Financial Sphere, while producing huge additional quantities of tradable goods in the Economic Sphere. In our expansive “services” sector, there will no choice but to “liquidate” labor and redirect its efforts. Throughout finance, there will be no alternative than to “liquidate” bad debt, labor and insolvent institutions – again in the name of a necessary redirecting of resources. After an unnecessarily protracted boom, there will be scores of enterprises that will prove uneconomic in the new financial and economic backdrop. “Liquidation” will be unavoidable, policymaker hopes and dreams notwithstanding.

From this evening's vantage point, recent extraordinary government measures to “back” U.S. finance appear likely to delay the adjustment process – what I will be referring to as a “depression.” This reprieve, however, comes with a cost. It will ensure significantly greater damage to the core of our monetary system, as well as requiring a more onerous real economy “liquidation” with the inevitable onset of the more serious phase of the unfolding crisis.
Now take a look at the many short reports supporting that
conclusion in that article.

Sunday, April 06, 2008

Why the emperor has no clothes

It's just a matter of time before everyone knows this.

Then what?
Uncle Sam has reneged and defaulted on up to 40% of its trillion-dollar foreign debt, and nobody has said a word except for a line in The Economist. In plain English that means Uncle Sam runs a worldwide confidence racket with his self-made dollar based on the confidence that he has elicited and received from others around the world, and he is a also a deadbeat in that he does not honor and return the money he has received.
Full article.

Saturday, April 05, 2008

Dominoes anyone?

Fitch said countries that run current account deficits above 10pc of GDP for any length time almost always come to grief. East Asia's debt crisis in 1997 erupted before any state reached double digits. Iceland's deficit is now 16pc of GDP. Latvia is at 25pc, Bulgaria 19pc, Georgia 18pc, Estonia 16pc, Lithuania 14pc, Romania 14pc and Serbia 13pc. The region will need $337bn in foreign loans this year.
Full article.

Here is a little bit more on the topic.

Thursday, April 03, 2008

The Defacto Nationalization of US banks

Privatization of profits, socialization (taxpayer robbery) of losses.

All this on top of the $70 trillion of bummint debt.

Isn't it fun watching the insanity unfold.
The Federal Reserve announced Friday it will auction an additional $100 billion in April to cash-strapped banks as it continues to combat the effects of a credit crisis.

The central bank said it would make $50 billion available at each of two auctions, on April 7 and April 21.

Through the end of March, the Fed has provided $260 billion in short-term loans to commercial banks through the innovative auction process. It also has employed Depression-era provisions to provide money to investment banks.
Full article.