Tuesday, December 27, 2011

Dollar Replacement Project takes huge step forward - Japan chooses China

Huge news this week: Japan and China announced direct currency swaps, completely bypassing the USD/FRN. Additionally, Japan agreed to buy and sell Chinese bonds, essentially monetizing the Chinese government debt on the international market. (See summary article here http://www.businessweek.com/news/2011-12-27/japan-turns-activist-on-reserves-as-global-economy-rank-slips.html)

Obviously, this is WAAAY bigger than Chinese-Russian agreements. Japan's economy is huge and powerful (what, number 3 in the world, I think), and they used to be considered a staunch American ally.

Effects of Dollar Replacement

When the USD is no longer used as a reserve trade currency:

--all those "international dollars" will come back to the U.S. shores, unleashing a wicked huge inflation.
-- Additionally, foreign manufacturers will no longer need to dump goods on the US market to earn trade dollars, meaning things will no longer be sold here as cheaply (even ignoring the effects of the inflation).
--Finally, the US will have to balance its budget(s), since foreigners will no longer need to recycle their trade dollars by purchasing bonds

Needless to say, it is difficult to calculate the effects on the US economy if we have to balance our trade account and balance our federal budget. Then throw in the difficulties of fighting a huge currency inflation, and paying off a huge debt.... yikes

Initiating a currency devaluation seems like a good solution, but don't count on our moneyed powers to do that. As always, Jubilee remains the best solution, but the Debt Masters would rather stay on top, even if that means riding everyone else into the ground...

Monday, November 28, 2011

Using rich foreigners to prop up housing costs

It boggles the mind how much power the "real estate industry" has over media and government. Congress is considering passing a law that would attempt to drive up housing prices by luring foreign purchasers into the market! (see: http://www.eastvalleytribune.com/arizona/article_ff5515c2-17ba-11e1-96e1-001cc4c002e0.html)

The one-sidedness of the news articles on real estate topics is disturbing. The publicity given the so-called real estate crisis is the biggest example of this media bias. In reality, of course, a decrease in housing costs is anything but a "crisis", it is a blessing for the people and the economy!

The only ones who benefit from high land prices are members of the original Rentier class, the economic parasites known as land owners, as well as all of their parasitic cronies, including especially the used-house salesmen (who euphemistically refer to themselves as real estate agents).

Low land prices, and fewer restrictions on land use, are the basic planks of a sensible land policy that benefits society as a whole.

The Reformed Capitalist policy regarding land is three-fold:

-- eliminate financing of land purchases,
-- eliminate absentee ownership of land, and
-- eliminate arbitrary land-use restrictions (especially separating commercial and residential activities)

The end-goal of these policies is to create greater prosperity and freedom for all, by eliminating the economic parasitism surrounding land ownership and control.

Monday, November 14, 2011

Monetary reform and alternatives - join the Lawful Bank movement

The Lawful Bank is an application of the concept of "worker-owned businesses" to the financial world.

Worker-owned businesses are the wave of the future, because by eliminating parasites from the business process (the "passive owners"), businesses can operate at lower costs. Operating at a lower cost is the bottom line in the survival of the fittest economic world, and thus, over time, worker-owned businesses will outperform and eliminate the parasitic passive-investor businesses. In their own words:

"By signing up to The lawful Bank you will (in due course) avail yourself of the benefits of membership of this unique monetary and banking system, the essence of which is to distribute to the people the grotesque profits being skimmed by greedy bankers from the nation’s economy. "

"There are no investors to satisfy and no high flying executives on million pound/dollar salaries or city slickers on astronomical bonuses. Our system plays no part in casino banking. TAMS is both safe and cost effective and serves the interest of the sovereign aspirations of individuals."

"TAMS is a mirror image of the existing monetary system – it is tried and tested... but with a crucial difference in that there is an entirely different approach as to where the profits are delivered. In the existing system, the profits go to investors, and the people running the bank - with our system the profits are distributed to our members."

One of the fascinating innovations of the Lawful Bank is the way it leverages the power of fractional reserve banking for the INDIVIDUAL:

"A positive credit system – for every £1 of cash deposited, each member creates £10 credit in their account. This credit (created by the system) on the back of the cash deposited is the property of the member and thus not a debt to the member. This will provided streams of credit to the system – and not debt."

Check out the Lawful Bank webpage at http://lawfulbank.com/HomePage

Wednesday, November 2, 2011

Salon calls for Jubilee Year

The first element in Salon's proposed policy agenda (called a New Declaration of Independence, here http://www.salon.com/2011/10/31/a_new_declaration_of_independence/singleton/) is a Jubilee Year of debt forgiveness, especially focused on student loan debt. Couldn't agree more.

The biggest problem with Salon's proposal is the way it gets sidetracked with a Leftist cultural agenda, especially its calls for "Takle Climate Change", "End the Drug War" and "Full Equality for the Queer Community".

In order for massive and structural systemic change to progress, a broad-base coalition will need to be built, based on the principles of economic Populism. Populists can form a majority coalition against the elite, IF they leave "cultural" issues off the table.

Throwing in "Leftist" cultural issues that have nothing to do with economic reform are only going to ALIENATE conservative Populists, and keep the movement from growing.

Tuesday, November 1, 2011

Cris Sheridan calls for the Jubilee Cycle

Writing in Financial Sense, Mr. Sheridan points out the end result of the massive overhang of debt in America: "The Inevitable Jubilee" (http://www.financialsense.com/node/6783).

It is amusing to read him quote the CEO of Goldman Sachs, Lloyd Blankfein, claiming they are doing "God's work" by putting everyone in debt: “We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle.”

The truth about the "virtuous cycle"

In fact, bank lending has nothing to do with a virtuous cycle. The expansion of credit into any market drives up prices. The banks, which enable this spike in prices, then profit even more by skimming their parasitic profit off the top of the credit-inflated transaction, making it even more expensive.

The healthiest, most affordable, and least distorted markets are those which are devoid of credit, as they are immune to speculation and "investment bubbles". There are far better ways to coordinate capital creation and accumulation than investment banking.

An excellent read, quoting Sheridan:

National debt is a cancer. It starts out small and then multiplies. Eventually, it reaches a point where it can’t be ignored, spreading itself through every layer of the economy until it threatens the life of its host.


In light of the similarities between then and now, some prominent names are beginning to warn that the only cure for our troubling situation is some form of massive debt relief, or Jubilee—a biblical commandment given to Israel to wipe away all debt every 50 years and start with a clean slate.


Unfortunately, what most people seem to miss, is that the original notion of a Jubilee was never intended to be applied after society has been enslaved by debt. It was meant to prevent such a scenario from ever occurring in the first place. Regardless, whether a society chooses to voluntarily rebalance its scales or not, eventually the invisible hand of the market will step in and balance them for us. Perhaps politicians should be wary of that point and take the necessary steps while certain options still exist. Let's not forget, there is already rioting in the streets.

Monday, October 31, 2011

Overcoming the flaws in Capitalism – an outline for Reform

This is difficult topic because our cultural programming tells us that Capitalism = Freedom. We are also hardwired to be suspicious of any “government interventions in the market”, and we have entire schools of great thinkers telling us that “the free market knows best”.

Who could be against Freedom, right? However…. The question I am addressing is the “rules” that underlie our “free” system.

First of all, we can dispense with the intellectual fiction of “government vs free market”. The so-called “free market” is entirely dependent upon the laws that are created and enforced by government. The government establishes the rules of the economic game, that is just a fact. The only question is, “What rules shall we have?”

Complaints about “government intervention” are nothing more than the attempt to avoid rule changes by those who are advantaged by the current rules. If you are ideologically opposed to “market intervention”, because of some philosophy (such as Libertarianism, say), then you are simply brainwashed. [The definition of brainwashed is being taught to willingly support a political position that is contrary to your own self-interests.]

The crucial question of Ownership & Private Property

One of the key flaws of the current capitalist laws is the way profits are channeled to legal “ownership groups”. Absentee owners provide the clearest demonstration of this principle, as people who have literally nothing whatsoever to do with the economic process nonetheless receive the lion-share of the profits.

Clearly, there is no “natural law” basis for absentee ownership. In the natural world, such relationships are known simply as parasitism. Legally, they are a vestige of the conquest and exploitation of the feudal system, in which armed conquerors took legal possession of the land, informing its inhabitants that could “share the wealth” or be put to death.

A key feature of Reformed Capitalism is declaring null and void any practice of “absentee ownership”. You are either directly and intimately involved in the productive process, or you are not, and if you are not, you have no right to share in its profits. “Passive investment” is a legally-sanctioned oxymoron, and it should be done away with.

[Obviously, doing away with all manner of passive investment schemes will introduce large changes in the way business is done. Many people will wonder if business can be conducted at all under those conditions. This is a natural reaction people have when they face the unknown, when the rules of the game have changed. I will address these very real question in a subsequent essay, limiting my concern here with first principles only.]

The essential communality of Profit

In our current system, “ownership” implies both “control” and “reward”. The reason why the system I am detailing is called Reformed Capitalism, not going by some other or new name for an alternative economic system, is that the essential coupling of “private ownership” and “control” of Capitalism is still being maintained.

However, one of the central reforms of Reformed Capitalism is in redefining the scope of “reward” that accompanies “ownership”. Specifically, in recognition that all profit is essentially communal, Reformed Capitalism rejects the idea of “unlimited reward” for private ownership. Rather, private ownership conveys the privilege of limited reward.

The essential communality of profit is a recognition that all profit is built upon our common heritage of natural resources as well as the combined efforts of masses of people throughout time. It is a recognition that no one creates profits on their own, but depends upon hosts of others who are also doing their part.

This host of contributors includes not just the hired workers in that specific business, but all their suppliers and partners, including the people who make the computers, desks, pencils, airplanes, cars, phone lines, roads, etc that make economic activity possible, PLUS the police, teachers, firemen, judges, engineers, social workers, technicians, hospital staff, soldiers, nurses, etc that keep the social order running smoothly, not to mention all the people in the past who “tamed the land” through their hard work and dedication and who built up the capital base upon which all of our economic efforts are made.

In short, because of the fact that all profit is social and communal, no individuals will be allowed to monopolize profits under the legal fiction of ownership. Profits will be shared, by law, first with the workers in the specific business, secondarily with society as a whole. Extremes of individual profit-taking will be legally eliminated. This aspect of economic reform is not actually that radical, being partially implemented by a progressive income tax, although the scope and power of such taxation would be increased, especially to focus on parasitic economic activities such as financial trading and banking.

Friday, October 7, 2011

Real Estate Collapse Causes and Lengthens Economic Depression

This is not a conclusion of ivory-tower academic researchers, this is the common sense on exhibit in The Guardian's financial pages, read it here http://www.guardian.co.uk/business/2011/oct/02/underwater-mortgages-america-could-sink-without-trace.
The author quotes the IMF as recommending partial debt cancellation to get the economy going again, and brings up the Objection #1 to any Jubilee plan: the "moral hazard".  
I think it is funny how the "moral hazard" objection always gets trotted out when you hear anything about debt forgiveness, but you never seem to hear "moral hazard" mentioned when they are discussion bailouts for banks.... Funny how that works, isn't it? 
Choice quotes:
The stagnant housing market continues to erode families' wealth and saddle them with ever more unpayable debts.
It's unlikely to deliver a permanent solution to the economic malaise unless the housing market can be stabilised and the legacy of mortgage debt resolved.
The underlying problem in the US housing market is that the debts run up in the years of plenty will be a millstone around the neck of the economy for many years – and may ultimately be impossible to repay.

Even the IMF, hardly known as a champion of aggressive government intervention, said in its latest world economic outlook that Washington should try to find ways of writing down the value of some of these overblown loans.

"The large number of 'underwater' mortgages poses a risk for a downward spiral of falling house prices and distress sales that further undermines consumption and labour mobility," it warned,

Each of these [proposals to write down debt] would be controversial, and they carry a risk of "moral hazard": the fear that reckless borrowers will in future feel they can take on eye-watering loans and assume the state will bail them out. But the alternative may be years of stagnation.


Tuesday, September 27, 2011

More Mish on the failure of Monetarists and Austrian economics

Clearly, the path forward in economic theory involves the incorporation of Minski's models of debt.  Unfortunately, the group that has a lot of insights to add otherwise, the Austrians, make themselves irrelevant with their doctrinal stances vis-a-vis the gold standard and constant ravings about "fiat money". 
I find it illuminating that even Mish is fed up with their illiteracy regarding real economics, as on almost every other measure, he is an ideologically pure Libertarian.  Read for example his recommendations at the end of the article quoted below.  Mish would essentially institute a Libertarian Utopia (canceling drug laws, wage laws, union powers, tariffs, foreign wars, etc). 
Mish also mentions the K-wave cycle, the long wave cycle of debt-caused depressions.  I would like to point out that the Jubilee cycle of debt cancellation would perfectly eliminate the K-wave cycle of debt depressions. 
Since even Mish highlights the fact that the problem is high debt levels, it is telling that he does not make the obvious call for debt cancellation.  All of his recommendations would work to get the economy going strong, but none of them would directly address the debt problem.  Basically, Mish's pure brand of Libertarianism prevents him from recommending the violation of any contracts, which most people think debt cancellation would involve (my Jubilee plan pays off debt payments through electronically-issued checks, in other words honoring the debt, not cancelling it).   
the rest is a quoting from Mish:
But what has occurred as a result of Fed and Government "solutions" again is a classic macro deleveraging cycle response - a devalued currency and negative real interest rates has driven investors into inflation hedge assets such as gold, oil, ag assets, etc. at the margin. As opposed to having achieved the stated goal of fostering employment growth, credit creation and raising aggregate demand, etc., Fed QE has essentially succeeded in raising the cost of living in a cycle characterized by generational labor market and direct wage pressure among the middle and lower class wealth demographic.
As discussed above, monetary stimulus negatively affects the real economy for the temporary benefit of the financial economy and Wall Street. The tradeoff was not worth it except through the perverted-eyes of Wall Street.

Telling action in bank stocks says the limits of helping Wall Street may have even run out.

Many point to excess reserves as a sign of future inflation. I point to excess reserves as a sign of failed Fed policy. Commentary from Austrian economists shows they fail to understand how credit even works.

The idea those excess reserves are going to pour into the economy in a 10-1 leveraged fashion is simply wrong. Banks do not lend when they have excess reserves. Banks lend when they have credit-worthy borrowers, provided they are not capital impaired.

It is time Austrian economists finally wake up to this simple economic truth.

Economists of all sorts stick to failed models.
  • The Monetarist currency cranks want more monetary stimulus even though it is counterproductive
  • The Keynesian clowns simply will not admit end-game constraints
  • The Austrians for the most part either ignore credit or incorporate failed models of credit expansion into their theories.

Each camp points the finger at the others as to why the others are wrong. Ironically, none of the camps seems to understand the combined mechanics of debt-deflation, deleveraging, and attitudes.

Monday, September 26, 2011

Monetarist theory of deflation is dead, dead, dead

Occasionally you will still see some libertarian-leaning web site quoting Friedman,  "Inflation is always and everywhere a monetary phenomenon."
This has lead to a great deal of anticipation in the last few years for an extreme bout of inflation, as the Fed Reserve has continued to print out new money to capitalize the otherwise-insolvent banking industry. 
Popular economic theorist Mike Shedlock has a great article concerning how both the Monetarists and the Austrians have been subject to numerous false inflation calls because of their theory of money.  Quoting Mish:
Although the Keynesian and Monetarist economists have missed the boat on what is happening and why, Austrian minded folks who fail to understand the importance of credit and how little the Fed can do to revive it have blown the call as well.....
Focus on Money Supply Alone is Fatally Flawed

Deflation is about credit, it is also about attitudes that govern the demand for credit.

As I have stated many times over the years, and as stated above in the Contrary Investor, there is nothing the Fed can do to force businesses to expand or banks to lend.

That point explains why Austrian economists who focus on money supply alone have failed and will continue to fail.

Until consumer demand returns, businesses would be foolish to expand. Unfortunately, the Fed's misguided easing policies have stimulated commodity speculation thereby increasing manufacturing costs, while simultaneously clobbering those on fixed income and reducing final consumer demand.  http://globaleconomicanalysis.blogspot.com/2011/09/bernankes-waterloo-midst-of.html
In other words, the key element in our modern economy is the debt demand/credit supply, which is much larger and more influential than the strictly-money supply. 
The current economic catastrophe is due to a Deflationary Depression, caused by real-estate speculation, i.e., the build up of a debt bubble based on the monetization of real estate.
The best cure for this type of Debt-collapse Deflationary Depression is to liquidate the bad debt as quickly as possible.  Unfortunately, our public policy today is the exact opposite of that. 

Monday, September 12, 2011

Marketwatch's Bret Arends calls for national Jubilee

Bret Arends is the latest to publicly call for national Jubilee.  He sells the idea as a parallel to bankruptcy, and highlights the way in which excessive debt prevents economic activity, thus actually harming the economy and making us all poorer. 
His article is also very good for directly answering many of the objections to debt-cancellation.  He does not, however, present a practical plan for debt cancellation, just the need to do it. 
As far as I know, I am still the only one who, following an analysis of the debt-based problem, has put forth a realistic and simple plan for accomplishing it.   Please help spread the word.  The need for Jubilee is reaching a public-awareness critical mass.   We need to transition the public mind onto the ease of doing it. 
The Jubilee Solution is simplicity itself:
1) The federal government issues electronic checks to pay off all debt.
2) The banking reserve ratio is raised by a proportional amount to soak up the liquidity (trapping the extra money in the banking system). 
Viola!   All debts cancelled, the economy reset for takeoff. 
Debt cancellation, without violation of contract, without inflation. 
Here is his description of how the debt overhang prevents economic activity:

We have tens of millions who cannot repay their debts. But they are all trying to. That sucks huge amounts of money out of the economy. And that means these people cannot function properly as consumers or workers. That's the reason people aren't coming into your restaurant. It's the reason people aren't taking your yoga class. It's the reason they haven't hired you to redo the kitchen.

And so tens or hundreds of millions of perfectly responsible business owners and employees are also suffering from this slump. That's the reason we have a shortage of demand. That's the reason no one is hiring.

Even worse: People who are underwater on their mortgage, but who do not want to default, cannot move to where the jobs are either. They are stuck with their home.

You want to break this logjam? Try Chapter 11 for the nation. Massive defaults. Clear the decks, clean the books.


Tuesday, September 6, 2011

John P. Hussman calls for (partial) Jubilee

Hussman points out the fundamental choice now facing government policy makers: defend the money-ed powers, or defend the common good.  So far, of course, our gov't has been in the pocket of the financial parasites, and I don't see much prospect of change until a people's populist party rises up to challenge the current system.  But here is Hussman's analysis:

The global economy is at a crossroad that demands a decision - whom will our leaders defend? One choice is to defend bondholders - existing owners of mismanaged banks, unserviceable peripheral European debt, and lenders who misallocated capital by reaching for yield and fees by making mortgage loans to anyone with a pulse. Defending bondholders will require forced austerity in government spending of already depressed economies, continued monetary distortions, and the use of public funds to recapitalize poor stewards of capital. It will do nothing for job creation, foreclosure reduction, or economic recovery.

The alternative is to defend the public by focusing on the reduction of unserviceable debt burdens by restructuring mortgages and peripheral sovereign debt, recognizing that most financial institutions have more than enough shareholder capital and debt to their own bondholders to absorb losses without hurting customers or counterparties - but also recognizing that properly restructuring debt will wipe out many existing holders of mismanaged financials and will require a transfer of ownership and recapitalization by better stewards. That alternative also requires fiscal policy that couples the willingness to accept larger deficits in the near term with significant changes in the trajectory of long-term spending.

We cannot simply shift to a high-level equilibrium (consumers spend because employers hire, employers hire because consumers spend) until the balance sheet problem is addressed. This requires debt restructuring and mortgage restructuring. ... To believe that bondholders simply cannot be allowed to sustain losses is an absurdity. Debt restructuring is the best remaining option to treat a spreading cancer. Other choices are fatal.

Friday, September 2, 2011

Charles Hugh Smith calls for Jubilee

Smith reprints an excellent article on his website, by Zeus Yiamouyiannis, Ph.D., read it here: http://www.oftwominds.com/blogsept11/Zeus-debt-forgiveness-9-11.html
Debt forgiveness simply calls out either the inherent systemic inability to make good on debts or the recognition that debt was produced through fraudulent means. In the present situation, both conditions obtain. There has likely been no point in world history where debt forgiveness has been so comprehensively merited. The only speculation from my point (barring world-wide global feudalism and eternal debt slavery) is whether we will initiate such forgiveness or be forced into it.


Wednesday, August 31, 2011

A sane jobs policy - end foreigner work visas

Good article in the Epoch Times about the details of visa programs that bring in foreign workers to take domestic jobs.    In this time of super-high unemployment, why is this still going on? 
Of course, the answer to that question is obvious: it lowers costs for corporations. 
Read up on the details of the programs.   It is quite amazing that there are no provisions within these programs to protect American workers, or even requiring that corporations prove that domestic workers are unavailable.  The programs are simply blank checks for corporations to undermine domestic wages   
Will Obama's eagerly awaited new jobs policy include this basic step?    We shall see, but his established preferential treatment of corporate interests leaves scant basis for optimism. 
quoting from the article:
The unemployment rate in the United States still hovers around 9.1 percent, yet the U.S. federal government still allows companies to bring in foreign workers under its foreign worker programs with the excuse that local talent is not available.

The most debated programs are the H-1B, H-2B, L-1, OPT, J-1, and B-1 visas, under which a U.S. company can employ a foreign worker for up to six years. Each visa designation addresses a different need, with the H-2B visa allowing a company to bring in a foreign worker who lacks the qualification for a specific job but can be trained within a reasonable time.

During good economic times these programs helped people come to the Unites States, but over the years, and especially during the recent economic downturn, these programs stop Americans from getting jobs because they are lost to foreign workers that entered the country on the above foreign worker programs, according to a 2011 report by the Government Accountability Office (GAO).
"Loopholes in these programs have made it too easy to bring in cheaper foreign workers with ordinary skills, who directly substitute for, rather than complement, workers already in America. They are clearly displacing American workers and denying them both current and future opportunities," testified Ronil Hira, professor at Rochester Institute of Technology, before a U.S. Senate subcommittee hearing in July.

The 2011 GAO report suggested that lax oversight and statutory changes are undermining the original intent and value of the foreign guest worker program. Besides, it has become easy to perpetrate fraud.

"A recent Department of Homeland Security study reported that 21 percent of the H-1B petitions they examined involved fraud or technical violations," said the GAO report.

Over the past years, the programs have been watered down significantly and it gives an unintended competitive advantage to companies that outsource well-paying and high-tech jobs to foreign shores.

"For at least the past five years the employers receiving the most H-1B and L-1 visas are using them to offshore tens of thousands of high-wage, high-skilled American jobs," testified Hira.

read more:

Monday, August 29, 2011

Harvard economist Kenneth Rogoff calls for (almost) Jubilee to defeat the Debt-caused Depression

All analysis is in agreement about the basic macroeconomic problem: too much debt.  The need to write off massive amounts of debt is macro-economically obvious.  Interestingly, Rogoff is facing the exact same stale arguments that I faced years ago when I formulated the Jubilee plan:

Rogoff understands this objection, and doesn't dispute that what he's proposing is on some level unfair. But ultimately, he argues, this contraction is dragging us all down together, and even those lenders and savers will be better off if America's debt overhang is taken care of swiftly. Once that happens, and the economy starts to recover properly, we'll be able to focus on designing better policies that will make us less vulnerable to financial crisis in the future.  "One way or another," said Rogoff, "we're going to be doing things we would not dream we would ever do before this is over."


Now the irony of Rogoff's statement is that he really isn't proposing anything "we would not dream we would ever do".  After all, cranking up a little bit of inflation is hardly world-shaking.  The Jubilee solution is a true example of something that most people have never dreamed. 


The Jubilee Solution

The Jubilee solution is radical in the sense of "creative" and "out-of-the-box", but it actually avoids most of the objections he is facing.

--For example, the Jubilee solution does not defraud any creditors or violate any contracts.  In fact, it is based on the idea of honoring all of them and paying them off.

--Nor would the Jubilee solution cause any inflation, as raising reserve ratios would soak up the potential extra liquidity, trapping it within the banking system.  

Again quoting from the Boston.com article, we see that Rogoff shares the same analysis as myself (and other fringe economists like Steve Keen) of our current economic problem:


It's an argument that Rogoff himself admits is "radical," and one he says he'd rather not be making. But as he sees it, what's holding the country back from recovery is not just a lack of consumer confidence or suppressed demand, as in a normal recession, but an immense overhang of debt: thanks to the collapse of the real-estate bubble, millions of American families owe so much to banks that they're focusing all their energy on paying down their debts instead of spending their money on new investments. There will be no recovery until the painful process of working through that debt is behind us, Rogoff argues.

The full article here http://articles.boston.com/2011-08-28/news/29938939_1_inflation-rate-financial-crisis-economy


Jubilee Solution Summarized

Federal government issues electronic checks to pay off all debt.  Simulaneously raising banking reserve requirements by a proportionate amount to soak up the money.

Viola.  All debts paid, economy reset and primed to soar again.

It is really that simple. 

The only thing lacking is general knowledge of the plan and the political will.  

[The people in charge of the gov't now, who are the rentier/creditor class, don't care at all about anything but personal enrichment, which the current debt deflation is accomplishing marvelously by liquidating the assets of the masses into the hands of the creditors and cash-holders, i.e. themselves.]




Loss of Manufacturing Equates to Loss of Innovation

Excellent article over at Forbes on why high-tech manufacturing is so important to keep "in-house", yet the standard rules of business lead to the economically-destructive practice of out-sourcing.



Dell accepted the proposal (to outsource circuit boards) because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. On successive occasions, ASUSTeK came back and took over the motherboard, the assembly of the computer, the management of the supply chain and the design of the computer. In each case Dell accepted the proposal because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. However, the next time ASUSTeK came back, it wasn’t to talk to Dell. It was to talk to Best Buy and other retailers to tell them that they could offer them their own brand or any brand PC for 20% lower cost. As The Innovator’s Prescription concludes:

Bingo. One company gone, another has taken its place. There’s no stupidity in the story. The managers in both companies did exactly what business school professors and the best management consultants would tell them to do—improve profitability by focus on on those activities that are profitable and by getting out of activities that are less profitable.

Monday, August 22, 2011

The Truth about the $1.2 Trillion Bank Bailout - government of, by, and for the Rich

First, the amount: 1.2 Trillion dollars.  Quite a sum of money.  To put it in perspective, that is just a bit over $10,000 per household in the U.S.    In other words, instead of bailing out the banks (many of them foreign banks, btw), the Fed could have given over 10K to each and every household in the country to stimulate the economy.
This money wasn't a gift though, it was a loan, so, in fairness, we can't compare it to a "stimulus check" program.   To put it in a personally meaningful analogy, here is what happened:
A Real-world Analogy of the Lending Program 
Imagine that you hit a financial "rough patch" and can no longer generate the cash to pay your bills.   The bill collectors are calling every day, but you don't have the money to pay them, and the bank, seeing what poor condition you are in, refuses to give you a short term loan to cover your expenses. 
In short, your income has fallen and your credit has dried up, and you cannot pay your bills.  You are about to face bankruptcy, forced liquidation, and financial ruin.    
But.... imagine then the Fed steps in, and tells you about a new program they have: you can borrow money directly from them, at around 1% interest.  The only catch is, you need to put up some collateral. 
Your house and your car are already mortgaged, though, so you don't really have much good collateral to lend against.  The Fed says, no problem, we'll let you use "non-standard" collateral.  So you start listing whatever you've got: a couple TVs, your furniture, your DVD collection, your old fridge, whatever.   Amazingly, lo and behold, violating all the standard rules for acceptable collateral, the Fed accepts it!  
So: the Fed lets you write the value of all your junk as collateral on their 1% loans.   You then take their money at 1%, use the money for living expenses, and pay off your bills. 
It's pretty cool, because you pay off your high-interest mortgage, car loan, and credit cards with the low-interest Fed loan.  You are even able to live on the loans during your extended period of unemployment.   It takes awhile, but within a year, you land another job and your finances improve.  You start paying off the Fed loan, and two years later, the Fed loan is paid off.  
That is precisely what the Fed lending program amounted to, although, of course, it was done for the benefit of the wealthy bankers, not for any urban peasant such as yourself.    
Good Thing?  or Bad Thing?
As noted by other analysts, this is a classic case of "Welfare for the Rich, Harsh Capitalism for the Rest."    But, nonetheless, we may ask, was it the right thing to do?  Did it save society from some sort of economic apocalypse?  
The short answer is NO.  Banking and lending are parasitic economic activities, meaning, they do not create wealth.  Keeping them alive is like providing life-support to the colony of fleas on the dog.   Even if you don't understand the economic theories, you can see the results since 2008: years of economic decline and stagnation, incomes falling, inflation and unemployment rising.   
Meanwhile, wealth concentration at the top is at an all-time high.  Hardly surprising, is it, when the official policy is so friendly to the financial elite?
The Alternative - a People's Bailout
Bloomberg notes, the 1.2 trillion dollars is "about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages."     In other words, the Fed could have chosen to bailout homeowners, but chose not to.  
The hardworking people of our country were left in the cold, at the mercy of their creditors in a deflationary depression.  Meanwhile, the creditors themselves, who created the deflationary depression with their reckless and unregulated money and debt creation practices, were fully shielded from the consequences of their destructive actions. 
If this doesn't exactly describe "the failure of democracy", I'm not sure what else it would take....  "Government by the rich, of the rich, and for the rich", exactly describes the dystopia in which we live.  

Friday, August 19, 2011

Venezuela transfers gold, for "international reserves" - End of dollar dominance near

The monetization of gold as international reserve currency under Chinese/Russian control is proceeding according to (their) plan.  The latest signpost: Venezuela's decision to bring their gold out of Western banks, bringing some of it home and putting some of it into banks in Russia and China (Pravda's coverage here http://english.pravda.ru/world/americas/19-08-2011/118801-chavez_venezuela-0/)  
Chavez said specifically that his gold will be used to create international reserves: "We're going to nationalize gold and we're going to convert it, among other things, into international reserves," he said.
Converting gold to international reserves???  That should raise eyebrows among anyone who is using their critical thinking skills.  Chavez is speaking of the future here, because prior to now, international reserves were in dollars, and there was no way to "convert" gold into dollars, except by selling the gold.  
Upcoming Gold-backed International Reserve Currency 
What Chavez is referring to is the ongoing effort of China and Russia to create a new international currency backed by gold.  The gold reserves will be monetized, meaning, they will be used as collateral for the issue of the new currency. 
By the way, this is not a conspiracy theory, as this is not a secret plan.  It is, in fact, spoken of openly by Russian and Chinese authorities.  See, for example, this summary of Putin 2009 speech at Davos http://news.goldseek.com/GoldenJackass/1235063702.php) and Russian President Medvedev unveiled the prototype gold international currency coin in 2009 (http://www.breitbart.com/article.php?id=CNG.4eb2c06b46ea42dece225df0a3ec3799.641).    Heck, Putin has been talking of gold as an alternative to dollars as early as 2005 (see: http://groups.yahoo.com/group/vladimir_putin/message/899). 
For some reason, the Russian-Chinese dollar replacement plan just hasn't made much publicity in Western news sources.   I attribute this partly to a cover up by the Western financial elite that controls the media, and partly to the simple fact that most people are completely ignorant and apathetic about monetary news or issues.  
This ignorance and apathy is unfortunate, because the end of "dollar dominance" will have profound negative consequences on the average American citizen.  As I have said repeatedly in the past, it will entail a massive inflation and economic collapse involving extreme unemployment.
Of course, Russian and Chinese leaders know perfectly well that the end of dollar dominance will have catastrophic consequences on the power of the United States, as the weakened economy is reflected in a weakened military and reduced foreign influence.  That is, after all, precisely why they are doing it! 
Interestingly, we can add Venezuelan President Hugo Chavez as one of the prophets of our current economic doom.  As the Fox story puts it:
"At a summit in 2008, he urged his Latin American allies to begin pulling their reserves out of U.S. banks, warning of a looming economic crisis in the United States."

Thursday, August 18, 2011

AU at all-time high: Thought for the Day

Apropos of an oz. of AU reaching 1830 USD/FRN today:
"Gold is the money of kings, Silver is the money of gentlemen, Barter is the money of peasants, DEBT is the money of slaves."

Tuesday, August 2, 2011

Is American a parasite on the global economy?

Many economically educated citizens are familiar with the idea that inflation is an attack on savers.  Of course, that is true, but in today's economic world, that means American inflation is an attack on the rest of the world, primarily.  Most Americans don't realize that the rest of the world holds their savings in dollars, far more so than Americans save themselves. 
It is difficult to calculate the total benefits that accrue to Americans because the dollar is the international currency.  The primary benefit is that our stores are flooded with cheap goods.  It also means we can run huge budget deficits, and thus rely on government to keep us employed.
Basically, it means Putin is correct: we are living high on the hog, consuming far more than we produce, essentially like a parasite on the productive work of others.  
The primary downside to our situation is that our industrial/productive base gets wiped out by cheap foreign goods.  The high value of the dollar also spurs foreign immigration, because they can make so much more working here than at home.
In all, you can easily see, it is not a good system for Americans.  Bigger government, less jobs, more immigrants, all in exchange for cheap foreign goods...    Jeez, hardly seems like any upside when you look at it like that.
Oh yeah, and lets not forget the Islamic angle: the whole system is predicated on our military support for Saudi Arabia and other oil-rich authoritarian states.  Thus we get flooded with waves of "Religion of Peace" propaganda funded by Arabian wealth, while betraying our democratic and Christian ideals. 
When the Dollar Breaks
Russia, along with China, are working steadily to get off the dollar.   If and when they manage to break the dollar, the American economy will undergo a severe shock.   
When it happens we will see:
-a huge inflationary spike (with possible hyperinflation)
-a massive downsizing of government
-a huge wave of unemployment
We will have to start from scratch, rebuilding our productive economy to earn import trade, rather than just receive it as the beneficiary of being the world's ultimate privileged consumer (trading our paper money and debt for their real goods).  We will all be poverty-stricken compared to today. 
It will happen eventually.  The longer we degrade our industrial capacity, and the more we depend on government employment, the worse off we will be when it finally happens. 

Thursday, July 21, 2011

Ron Paul on defaults and Debt Ceiling Drama

July 19, 2011
The debt ceiling debate is providing plenty of opportunity for political theater in Washington. Proponents of raising the debt ceiling are throwing around the usual scare tactics and misinformation in order to intimidate opponents into accepting more debt and taxes. It is important to distinguish the truth from the propaganda.

First of all, politicians need to understand that without real change default is inevitable. In fact, default happens every day through monetary policy tricks. Every time the Federal Reserve engages in more quantitative easing and devalues the dollar, it is defaulting on the American people by eroding their purchasing power and inflating their savings away. The dollar has lost nearly 50% of its value against gold since 2008. The Fed claims inflation is 2% or less over the past few years; however economists who compile alternate data show a 9% inflation rate if calculated more traditionally. Alarmingly, the administration is talking about changing the methodology of the CPI calculation yet again to hide the damage of the government's policies. Changing the CPI will also enable the government to avoid giving seniors a COLA (cost of living adjustment) on their social security checks, and raise taxes via the hidden means of "bracket creep." This is a default. Just because it is a default on the people and not the banks and foreign holders of our debt does not mean it doesn't count.

Politicians also need to acknowledge that our debt is unsustainable. For decades our government has been spending and promising far more than it collects in taxes. But the problem is not that the people are not taxed enough. The government has managed to run up $61.6 trillion in unfunded liabilities, which works out to $528,000 per household. A tax policy that would aim to extract even half that amount of money from American families would be unimaginably draconian, and not unlike attempting to squeeze blood from a turnip. This is, unequivocally, a spending problem brought about by a dramatically inflated view of the proper role of government in a free society.

Perhaps the most abhorrent bit of chicanery has been the threat that if a deal is not reached to increase the debt by August 2nd, social security checks may not go out. In reality, the Chief Actuary of Social Security confirmed last week that current Social Security tax receipts are more than enough to cover current outlays. The only reason those checks would not go out would be if the administration decided to spend those designated funds elsewhere. It is very telling that the administration would rather frighten seniors dependent on social security checks than alarm their big banking friends, who have already received $5.3 trillion in bailouts, stimulus and quantitative easing. This instance of trying to blackmail Congress into tax increases by threatening social security demonstrates how scary it is to be completely dependent on government promises and why many young people today would jump at the chance to opt out of Social Security altogether.

We are headed for rough economic times either way, but the longer we put it off, the greater the pain will be when the system implodes. We need to stop adding more programs and entitlements to the problem. We need to stop expensive bombing campaigns against people on the other side of the globe and bring our troops home. We need to stop allowing secretive banking cartels to endlessly enslave us through monetary policy trickery. And we need to drastically rethink government's role in our lives so we can get it out of the way and get back to work.

source article http://www.thedailybell.com/2699/Ron-Paul-Debt-Ceiling-Drama

Monday, June 27, 2011

Dollar Replacement Soon - Russia and China non-dollar trade agreement

The entire edifice of the US economy is supported right now by the status of the USD/FRN as the international trade currency.  
When the Federal Reserve Note (US Dollar) loses its privileged trade status, we can expect a massive one-time hyperinflation, I estimate on the order of 300%-500%, as well as a vicious crash in the U.S. economy.
The recent Russia-China trade agreement moves us another big step towards that day. 
Notice that the elevation of the Chinese currency to international reserve status is the EXPLICIT policy of the Chinese government.   Judging by the policies of the Fed Reserve and US Congress, losing reserve status for the dollar appears to be the policy of the American government as well.... 
As reported last Friday:

Russia and China will switch to trade in rubles and yuan to boost bilateral trade and economic cooperation, following an agreement signed between the central banks of both countries, Russian Central Bank Deputy Chairman Viktor Melnikov said on Thursday.

People's Bank of China Deputy Chairman Ma Delun said the agreement would give the two nations the opportunity to increase the value of deals in their national currencies and "help bring them closer to international reserve currencies."

Source article:


Monday, June 20, 2011

Debt Jubilee demonstrated in China

China again demonstrating the principles of jubilee in action.   Previously, they had been raising the reserve ratio to suck money out of the banking system to cut off inflation.  Now they are practicing large-scale debt relief of local governments.  
China has a number of advantages that allow them to accomplish these feats of economic sanity.  For one, they are not ruled by an internationalist banking class.  They are Communist, and they are Nationalist.   Their sole concern regarding economic policy is what is good for their people.    They are living exemplars of the "People First" concept.  Our guiding mantra of "profits first" is anathema to them. 
Therefore they do not have a parasitical rentier class sucking their blood.  If an economic decision is good for the economy, such as debt write-offs, they do it.   Simple, easy.  The only thing preventing us from doing something similar is the domination by the parasites of our economic and political system.
Jubilee Theory in Action
The economic theory is simplicity itself: rather than let bad debt slow down economic development, the government simply cancels the debt or pays it off.   In the Chinese case, it is done in partial steps, with some being written off and some restructured and sold. 
When the government issues the national money, it has total and complete Jubilee power.   The sovereign control of the money supply is, in fact, the greatest power that government has, probably greater than its military/police power.  Certainly greater than its legislative power.  The fact is, he who has the money controls the laws and the military. 
Medieval Concept of Commodity Money
Many people have a hard time "getting" the Jubilee concept, because they still harbor the medieval belief that money is a thing.    In fact, money is not a thing, it is just a trick to get us to work together.   Debt is also a "social illusion" of the same variety.   
The Chinese elite realize this, and they use their monetary power accordingly, for the benefit of the people.  Our elite realize it too, but they use their monetary power for personal enrichment and political control, keeping the people in the dark.  
China's regulators plan to shift 2-3 trillion yuan ($308-463 billion) of debt off local governments, sources said, reducing the risk of a wave of defaults that would threaten the stability of the world's second-biggest economy.   ...

Many analysts see China's pile of local government bad debt as a major risk to the economy, especially as growth slows.

But few see a widespread banking fallout as they believe cash-rich Beijing can step in to soak up losses. Still, the scale of the plan is much bigger than a government move in 1999 to clear debt from the books of large state-owned banks.


Tuesday, June 14, 2011

Refutation of Classic Free Trade Arguments - Vox Day on Hazlitt

Writer Vox Day has begun a formal refutation of the classical arguments for international free trade.  It is a worthwhile public service, as many people are still unaware of the advances in economics which allow us to criticize the classical theories.
His choice of target is one many of us are familiar with: Henry Hazlitt's Economics in One Easy Lesson.   Like Vox Day, I also have fond memories of that book.  I read it as a self-education project when I was 17 years old, while I was a freshman in college.  It is no exaggeration to say that Hazlitt's book provided the foundation of my economics knowledge, and a fine foundation it is.  Unfortunately, the explanation of free trade is out of date, written as it was in 1946 when economic and monetary conditions were vastly different than today, and thus, justly requires amendment. 
Below are my concise summarizations of V.D.'s criticisms.  (You can find the full text here: http://voxday.blogspot.com/2011/06/mailvox-hazlitt-international-trade.html
1 - Hazlitt's theory deals with tariffs as protection from foreign competition, not protection from domestic companies that offshore their production. Thus, the assumption that the primary beneficiary of the tariff is the manufacturer is wrong.  The primary beneficiary is the worker. 
2 - Hazlitt mistakenly assumes that the reduced price for the imported good (if the tariff is eliminated) will go somewhere else in the domestic economy.  If fact, is more likely than ever to get spent on another import. 
3 - Foreign business do not have to recycle their trade-gained dollars back into the American economy; they may just hold on to them, or spend them elsewhere, as the dollar is the international currency of trade. 
4 - It is a mistaken assumption to assume those foreign-held dollars will ever get re-spent into the U.S. economy.  Quoting here, regarding the extended period of time over which the U.S. has run a dollar-shedding import surplus: "35 years and counting is a long time to wait for this postulated inevitable return, and is unlikely to do any good for the worker who lost his job more than three decades ago."
5/6 - It is a mistaken assumption that overall employment will not go down as a result of lost jobs. "There is no reason to assume that the loss of a job in one sector will create any additional demand in another sector, indeed, to the extent there is worker mobility between industries, all the loss of the job in the one sector will do is create downward pressure on wages in the other sector."  
7 - Assuming that cheaper consumer goods pay for lost jobs is a fallacy.  An unemployed worker cannot also be a consumer, meaning, production comes before consumption;


Friday, June 10, 2011

Populism in the NYTimes: Krugman denounces Creditor Class, (almost) calls for Jubilee

Surprising article (http://www.nytimes.com/2011/06/10/opinion/10krugman.html) by Paul Krugman nailing the cause of our economic malaise squarely on its head: the Rentier Class.  Rentiers is an archaic word for the asset-owners and creditors, the people who don't do any work but profit wholly from money and their ability to drive up prices for things people need. 
A sane society would make their economic activities illegal.  They are economic parasites, living off of the production of others, contributing nothing.   
Krugman calls them out as having hijacked the political process.  Public policy now favors creditors, and the rentier class in general, continuing to squeeze the average worker and small business owner.   As he puts it:
"Consciously or not, policy makers are catering almost exclusively to the interests of rentiers — those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else's expense."
Krugman Calls for Jubilee?
Krugman even admits that debt relief could do a lot to promote overall economic recovery.    Dare we say he is on board with the Jubilee solution?   Reading this quote, it appears he is almost there:
 "But the reality is just the opposite: creditor-friendly policies are crippling the economy. This is a negative-sum game, in which the attempt to protect the rentiers from any losses is inflicting much larger losses on everyone else. And the only way to get a real recovery is to stop playing that game." 
Other choice quotes:
"While the ostensible reasons for inflicting pain keep changing, however, the policy prescriptions of the Pain Caucus all have one thing in common: They protect the interests of creditors, no matter the cost. ... No, the only real beneficiaries of Pain Caucus policies (aside from the Chinese government) are the rentiers: bankers and wealthy individuals with lots of bonds in their portfolios."
How They Maintain Their Power
Krugman offers only the most superficial analysis of how this Rentier Class maintains their hegemony on political power, but he is correct insofar as his analysis goes:
"And that explains why creditor interests bulk so large in policy; not only is this the class that makes big campaign contributions, it's the class that has personal access to policy makers — many of whom go to work for these people when they exit government through the revolving door. The process of influence doesn't have to involve raw corruption (although that happens, too). All it requires is the tendency to assume that what's good for the people you hang out with, the people who seem so impressive in meetings — hey, they're rich, they're smart, and they have great tailors — must be good for the economy as a whole."

Wednesday, April 20, 2011

Oil Futures Speculation and the Spiking Price of Gas

The business pages agree and now even the President is chiming in, although it seems the establishment mainstream press tends to avoid publicizing these discussions.   How can the price continue to rise even when surpluses continue to stockpile? [***see below for relevant news***]  According to the theory of supply and demand, when there is an over-supply, prices are supposed to fall...
Ed Wallace in Business week says "It's no secret that speculators are driving up fuel prices. ...  It's no great mystery who is responsible for higher gas prices. As I and others have written in the past, the biggest culprits are the speculators gaming the futures markets to line their own pockets. We know all that."
Huh, maybe no secret to him, but definitely a secret from most of the American public, who blame oil company greed for expensive gas. 
Even Goldman Sachs is alarmed over the inflating bubble in oil speculation:  "Goldman Sachs advised its clients on Apr. 11 to get rid of their commodities holdings, including oil. The Guardian quoted Goldman's advice as warning: 'The record levels of speculative trading in crude have pushed their prices up so much in recent months that in the near term, risk reward no longer favors holding those commodities.' "
Wallace ultimate pins the blame on the easy money policy at the Fed, which is flooding the world with cheap dollars, enabling and encouraging financial speculators to pump up bubbles in commodities:

"The problem starts with Ben Bernanke, no matter how many of his Fed presidents claim they are not to blame for the high price of oil. The fact is that when you flood the market with far too much liquidity at virtually no interest, funny things happen in commodities and equities. It was true in the 1920s, it was true in the last decade, and it's still true today."

In the end, it comes down to creating big profits for banks at the expense of the American citizens, because banks need the profits to pay off the bailout loans that the fedgov gave them:

"Ben Bernanke doesn't seem to understand that while he is allowing huge profits for banks and investment firms so they can recover massive losses from the financial meltdown, he is intentionally damaging what could be a much stronger recovery with the misery he's causing the average American consumer. Maybe he does understand and just doesn't care. There's always China to blame."

[read the whole of Wallace's article here: http://www.businessweek.com/investor/content/apr2011/pi20110419_786652.htm]


The Law of Supply and Demand Drives Futures Markets Too

The President characterizes the futures contracts as "bets", which is the standard interpretation and justification for these things.  The problem is, the financial elite don't "bet on the market", in the same way that a small dealer is betting when he takes out a futures contract. 

Rather, the financial elite are driving the market, because of the tremendous amount of money they can bring to bear.   When they issue a buy order, the money flows in.   The greater money inflow drives up prices. 

When you have the billions in free money, you can move the market like that.  It is like a money-making machine.  When they issue the sell order, the prices will automatically fall, because they represent such a huge market stake. 

An organized movement to rein in the madness can be found here:

Stop Oil Speculation Now   http://www.stopoilspeculationnow.com/home.aspx

Obviously, financiers should not be allowed to speculate in markets like this.  It should be made illegal, no exceptions, with harsh penalties for those who attempt to profit like parasites on people's need for basic commodities like food and energy.   Only people with legitimate economic interests in a market, i.e. the producers, retailers, and consumers, should be allowed to purchase futures contracts to hedge their financial positions.   


***The oil minster of Saudi Arabia, for example, points to the large surplus in oil production and stockpiles:

"Saudi Arabia's oil minister says the current high oil price is unjustifiable and that speculation over the future oil markets is mainly behind the hike.  Ali Naimi told reporters the lower demand for Saudi oil in March compared to February was a sign of an existing surplus on the global market.  He says large quantities of oil were available as commercial stockpile or surplus production in some oil-producing countries. Naimi spoke after a meeting on Tuesday with Dutch Economic Affairs Minister Maxime Verhagen.  [http://www.businessweek.com/ap/financialnews/D9MMP3LO0.htm]

Wednesday, April 13, 2011

Banks Should be treated as Public Utilities - Thomas Hoenig, KC Fed President

The analysis that banks are public utilities is a very basic and honest one.   Of course they should be regulated as one, as suggested by Kansas City Fed President Thomas Hoenig (http://ca.news.yahoo.com/big-banks-government-backed-feds-hoenig-20110412-112137-434.html).  
The situation with banks is actually worse than with utilities.  Utilities at least provide something of value for the economy.   Banks provide none, they are totally 100% parasitic.  Profit to a bank is a direct loss to someone else. The more profits a bank makes, the more in debt the rest of productive society is.   Growing profits in the banking sector should be looked with alarm, like a growing colony of parasites on a healthy body.  If it is not controlled, the body could die, as we are seeing in our current debt deflationary episode.   Because the economic interests of banks are diametrically opposed to the economic interests of the productive economy, the whole banking sector should be regulated very carefully, with strict caps on usury and profits. 
The Outdated Theory of Banking Utility
The economic utility of banks supposedly resides in their ability to bring together the supply of unproductive capital with the demand of creative business ventures.   Indeed, that logic had value back when money consisted of gold, and the economy suffered from the pressure of constant money shortages.   
However, such a situation no longer applies.  Banks don't make profit because they are agreeing to take on the risks of making loans.   Today, banks make profit from CREATING MONEY through loans.   It is money they never had in the first place, so they certainly aren't risking anything by giving it away.   The money is literally created in the process of issuing the loan.   
Thus, the banks are in a NO RISK position.  If the loan goes bad, they lose nothing, since they ventured nothing in the first place.  If fact, they may gain something, if the loan was secured by some real collateral (such as real estate) and they get to seize and resell the collateral if the loan fails.    The only so-called "risk" they face is if their books get so far upside down that they can no longer meet their deposits, and in that case, the bank is simply nationalized.
The Fractional Reserve Scam
This is the fundamental lie and scam at the heart of fractional reserve lending.  Under the "10% reserve requirement", supposing you have $100, you can lend out $500 to your mom, $300 to your dad, and $200 to your sister, while getting to hold on to the original $100!    This is a far cry from the old days, when banks faced actual risk with a limited and real supply of money. 
Under the old system of real money, if a bank lent out that $100, if the loans went bad, they could be wiped out, along with their depositors.   Note that the gold piece money still existed somewhere.  In other words, society still had as much money, but the particular bank would be wiped out.   This created an iron discipline in the banking system, creating competition in an environment of real risk.   This risk was very real and personal to the bank owners, because it was their personal capital that was at risk if the bank was wiped out.
Perversion of Capitalism
Today, the risk profile has been inverted.  Under the Fractional Reserve System, banks can never actually be wiped out.  At the last resort, the Federal Reserve jumps into the picture, takes ownership of the bank, and creates the money to honor the deposits.   The owners of the bank do not face bankruptcy in this scenario, either, since their personal wealth is shielded away from the performance of the corporation.  
Society as whole might be wiped out by inflation or deflation, but banking deposit accounts will always be made whole, and bank owners face no personal risk.  In other words, in good times, banks make all the profit while taking no real risk.  While in bad times, they are bailed out by the government.  Profit is privatized, loss is socialized.  This is not your grand-daddy's "capitalism". 
That is why banks are essentially agents of the government.  They are not truly private enterprises, facing free and open competition, under the threat of being put out of business and personally impoverished by bad decisions.    Their ability to make a profit is based on a government-protected monopoly in money creation.  If they mess up, the government has to bear all their losses.   Heads they win, tails you lose.   Nice time to be a banker, no? 

Tuesday, April 12, 2011

Don Baker calls for National Debt Repudiation - the Jubilee plan revisited

The irony here is that I was pointing out the necessity of Jubilee two years ago on Seeking Alpha, and I got lots of thumbs down.  Now major articles are being published there agreeing with me (http://seekingalpha.com/article/262724-defaulting-on-debt-is-not-the-end-of-the-world
Jubilee is totally logical and practical.  Debt is killing the economy currently, and it is only going to get worse.  The sooner we declare the Jubilee, the better off our real economy will be.  The longer we wait, the more severe will be the recovery. 
To be precise, the Jubilee plan is different than default.   The Jubilee plan means that all debts are PAID OFF.    The government simply writes electronic checks to pay off all debt.  
Simultaneously, the government raises the banking reserve ratio, to soak up all the extra liquidity. 
The result: the cancellation of all debts, without the violation of any contracts, without any inflation.   
The debt deflation would be over instantly, and the economy could reset.   Jubilee!

Should government be prohibited from borrowing - from the Adam Smith Institute

An article over at the Adam Smith Institute (http://www.adamsmith.org/blog/tax-and-economy/government-should-be-banned-from-borrowing/)   questions the utility of government borrowing.   Clearly, a prohibition on government borrowing should be written into the Constitution as a hard limit on government.
Government borrowing is a moral wrong: no men have the right to set debts upon their children and grandchildren.    It is functionally equivalent to hereditary slavery.  It is wrong. 
The very idea of sovereign powers needing to borrow is absurd.  If you can create new money at will, why would you ever need to borrow?
The practice of government borrowing from banks is simply a scam that the banking elite has perpetrated: it amounts to a permanent transfer of wealth from the nation to the banking elite.   It is functionally equivalent to a tax or tribute payment.   Old habits die hard: the parasitic elite still acts as if it has the right to leech off the nation's wealth.
If government needs extra money, it can just print it out, plain and simple.    The idea of government borrowing from banks is archaic and retrograde, a relic of a previous barbaric age when people believed a nation's wealth was defined by its gold supply.   

Thursday, March 31, 2011

Walmart CEO sees big inflation coming in June

U.S. consumers face "serious" inflation in the months ahead for clothing, food and other products, the head of Wal-Mart's U.S. operations warned Wednesday.
The world's largest retailer is working with suppliers to minimize the effect of cost increases and believes its low-cost business model will position it better than its competitors.
Still, inflation is "going to be serious," Wal-Mart U.S. CEO Bill Simon said during a meeting with USA TODAY's editorial board. "We're seeing cost increases starting to come through at a pretty rapid rate."
Along with steep increases in raw material costs, John Long, a retail strategist at Kurt Salmon, says labor costs in China and fuel costs for transportation are weighing heavily on retailers. He predicts prices will start increasing at all retailers in June.
"Every single retailer has and is paying more for the items they sell, and retailers will be passing some of these costs along," Long says. "Except for fuel costs, U.S. consumers haven't seen much in the way of inflation for almost a decade, so a broad-based increase in prices will be unprecedented in recent memory."
Consumer prices — or the consumer price index — rose 0.5% in February, the most since mid-2009, largely because of surging food and gasoline prices. Core inflation, which excludes volatile food and energy costs, rose a more modest 0.2%, though that still exceeded estimates.
The scenario hits Wal-Mart as it is trying to return to the low across-the-board prices it became famous for. Some prices rose as the company paid for costly store renovations.
"We're in a position to use scale to hold prices lower longer ... even in an inflationary environment," Simon says. "We will have the lowest prices in the market."
Major retailers such as Wal-Mart are the best positioned to mitigate some cost increases, Long says. Wal-Mart, for example, could have "access to any factory in any country around the globe" to mitigate the effect of inflation in the U.S., Long says.
Still, "it's certainly going to have an impact," Long says. "No retailer is going to be able to wish this new cost reality away. They're not going to be able to insulate the consumer 100%."

Tuesday, March 1, 2011

German Economists Recommend National Jubilees

The idea of Jubilee is common sense beyond doubt.  By cancelling debt loads, economies can recover.   The overwhelming approval of the German economics professors confirms it.  
On the larger issue: the idea that sovereign nations need to take out debt is odious.  It is just a trick, a hidden income transfer from the workers of the nation to the banking parasites. 
Nationalization of credit is a sovereign power.  Unfortunately, it has been abdicated in our modern world to the international banking class.   In effect, national governments exist to fund the banking class.  The "floating debt" is a permanent tax paid by the people to the banking elites, who do NOTHING whatsoever of economic value for the country in turn. 
Here is the article:
Almost 200 German economics professors have signed a declaration rejecting current proposals to resolve the eurozone debt crisis, instead calling for a way for distressed countries to declare bankruptcy.

Instead of the collective support mechanism set up last year that could be made permanent in a modified form from 2013, the economists argued it would be better to let countries restructure their debts.

"Restructuring allows the countries concerned to reduce their debt and start over," said the economists.

Monday, February 28, 2011

Food Price Inflation at Record Highs

Notice, this record-setting food inflation is not being driven by supply-demand.  It is a product of our tottering economic/financial system.  As the article puts it: "agricultural commodities are attracting excess liquidity in international markets." 
That means all the extra money printed out by the Fed is being exported as inflation in commodities.   It is exacerbated due to the fact that most foreign nations are "net food importers", not producing anywhere close to the amount of food they need to feed themselves. 
The fact that America is a "net food exporter" means that we have an extra layer of insulation from the food prices rises.  The way we feel about oil prices is the way foreigners feel about food prices: an out-of-control skyrocketing import item.
There is also talk about placing capital controls on food commodities, to help prevent international investors from driving up prices on captive populations.  Of course, only America could do that, as the producer of most of the world's food, and it would involve a major repudiation of free-market principles.  Free-market principles meaning the elite investors can freely drive up food costs as a profit source, well.... maybe that repudiation would be a good thing.  
Certainly it should be the economic policy of any food-importing nation to achieve food sovereignty and gain control over its own food supply.  One major step in that direction would be to place import restrictions or tariffs on food imports, which of course, the international globalist community is fighting against.  
When you get down to brass tacks like this, it is hard not to look at the international economic system as a big enterprise in exploitation and parasitism:
--The advanced economies, with their mechanized agriculture, drive local food producers out of business... 
--Which then forces them to import most of their food... 
--Leaving them at the mercy of their international speculators...  
--International laws are written to prevent any defense against this process...
Without factories to build things, what exactly are they supposed to do for economic development???  Hell if I know...  
I guess if they are lucky (and they keep their wages low enough), some international company will set up a factory there... Meaning that profits will be "internationalized", i.e. extracted into foreign "ownership" hands.  What a clusterfuck!     
The world is living through another major upswing in food prices.
World food prices surged to a new historic peak in January, for the seventh consecutive month, as the FAO Food Price Index reached 231 points, up 3.4 percent from December 2010.
The accumulated increase in food prices during 2010 amounted to 25% relative to the 2009 level.

Price movements are no longer determined only by the basic driving forces of supply and demand: agricultural commodities are attracting excess liquidity in international markets and other factors, far less transparent and constantly changing, such as expectations and appetite for risk, start to play an important role in determining the direction of the prices.

Furthermore, food markets are more and more intertwined with financial and energy markets, both of which are characterized by greater volatility. Facing these multiple sources of uncertainty, agricultural commodity markets tend to overreact to any changes in the demand or supply projections, as it happened in mid-2010 in the case of wheat.

Although the world produces enough food, global production needs to be gradually increased to keep pace with the growing population. Chronic underinvestment in agriculture throughout the years, in developing countries in particular, made them more vulnerable to risks associated with the new dynamics that rule the world market. Investment in agriculture, which would allow to increase productivity and improve resilience to climatic risks, together with strengthening of rural institutions and better governance of commodity markets, are needed to reduce the incidence of price spikes.

Russia Demonstrates Economic Common-Sense

Russia is providing an example for how sane societies conduct economic policy.    The funny part is, they are doing what America did in the 1980s, in response to the Japanese car invasion.  They are saying, if you want access to our market, you have to open up factories on our soil.  
Of course, China has been doing that for the last 20 years as well, so their economy is booming while ours continues to shrink. 
The iron rule of economics remains the same: production comes before consumption.  If you don't make something, you have nothing to trade.  It is common sense: productive jobs have to come first.    The basis of any sane economic policy has to be providing people with productive jobs. 
Here is the article about Russia:

MOSCOW (Reuters) – The world's biggest carmakers have until the end of Monday to sign up for Russia's latest scheme to entice major players and strengthen its local industry ahead of any future crisis.

Russia was on the verge of overtaking Germany to become Europe's biggest car market before the country's 2009 recession caused annual sales to collapse by half.

A sharp recovery in 2010 -- aided by a government sponsored scrappage scheme -- has revived industry optimism about future Russian growth and prompted state attempts to pin down foreign players to invest and support the domestic industry.

Friday, February 11, 2011

Mortgage Reform set to benefit the Banks - a Jubilee Counter Proposal

The federal government is currently in the position to implement large scale mortgage jubilee, since it has nationalized the organizations that own all the mortgages.  Instead, they are going to modify the rules so that banks will be set for greater profits!  I guess we should not be surprised.  The bankers own the government, so of course they make rules to benefit themselves. See the story here  http://www.cnbc.com/id/41533702
The one thing this article doesn't account for is the fact that, absent government guarantees, the demand for housing goes down, and therefore, the price goes down along with it.    Thus, while interest rates go up, real estate costs actually go down, if government stops subsidizing its purchase. 
Cheaper real estate benefits everyone!  Well, except the parasitic bankers who reap more interest payments on higher-value purchases.   If you have less or no rent/mortgage payment, you have more money to spend in the real economy for goods and services.  Our entire concept of mortgaging residential property needs to change.  The whole system is set up to keep people on a perpetual treadmill of debt enslavement. 
That is the secret reason why real estate is not being allowed to reach its natural equilibrium level, much lower than today.  Expensive real estate overwhelmingly benefits the parasitic banking class.  The last thing they want is for people to be able to buy land without mortgages.   How can the parasites suck their blood if people don't always have to finance everything? 
A good example of a deceptive program that is supposed to benefit the people but really benefits the parasites is the mortgage interest deduction.  It benefits banks to have people take out bigger mortgages!  The government subsidy in effect goes straight to the bank, in the form of higher purchase costs.  The tax payer is just a pass-through vehicle.
Of course, the interest deduction doesn't even kick in until you buy a high value house.  For someone with an affordable mortgage, the standard personal deduction is greater than the mortgage interest deduction.  In other words, the mortgage interest deduction disproportionately benefits the wealthy, with a sliding scale of more benefit the wealthier you are!
A mortgage itself is one of the biggest scams in history!  A typical mortgage pays the bank twice as much in interest as the amount of the original purchase price.   What a scam, huh?   And god forbid you have a downturn in your ability to pay... in the next 30 YEARS of your life....  because then they get the whole property back totally free and can "sell" it again, without having to pay you back a cent that you'd been putting in all those years!    95% of your payments in those first few years goes to interest payments...  95% interest sounds like illegal usury to me!    At least it was before the bankers got the anti-usury laws thrown out...
Non-Exploitative Housing Policy Makes Us All Richer:  Interest-Free Mortgages
The government, as representative of the people, should make their housing policy benefit the people, not the parasite classes. The right to exist on this earth without paying for the privilege is what separates free men from serfs.  Unfortunately, our government works continually for our enslavement, having been taken over by the parasite classes.       
Imagine you didn't have to pay interest payments on your house...   100K house, paying 1k a month... You would pay the thing off in 8.3 years!      If you wanted to pay off that same 100k house in the same 8.3 year period, under a mortgage of 10%, you would have to pay over $1,480 a month!  Even under a 5% mortgage, you would have to pay over $1,225 a month to pay it off in that period.  If you only had $1,000 a month to spend, you would end up paying it over 18 years under a 10% mortgage!    In other word, the bank would skim tens of thousands of dollars off of you. 
Here's the big mind-blowing question of the day: why doesn't government simply provide interest-free mortgages?    Would the country come crashing down if people weren't spending huge amounts of their earned cash on interest payments???  The same free market in housing would still apply, you could still only buy the house you could afford, you could still lose it if you didn't make payments... What would change???  Nothing! Except the parasites would be shut out of the equation!    People who sit around, doing nothing to improve the world or make anyone's life better, just pushing papers around, skimming off the hard work of others... in other words, economic parasites! 
Please tell me one reason why the government doesn't simply issue interest free mortgages???   Along with leaving you more money to spend on the real economy, the best thing about interest-free mortgages is that THEY WOULD KILL THE PARASITES!!!   Not being able to sit around and skim money off other people's accounts, they would actually have to go out and produce something!    Rather than being parasites, being forced to provide some good or service, they would be contributing to the common good, increasing our wealth, making our lives better!     Banking parasitism is not only a drain in and of itself, it is a huge lost opportunity cost.  Supporting parasites make us all poorer!
Other reforms are possible as well, such as a policy of keeping land costs low.  Land ownership statutes could include preventing land ownership concentration, or perhaps providing for homestead ownership as a right of citizenship, maybe actual land giveaways.   If the government represented the people, these are the types of reforms we'd be talking about, not more policies that serve the parasitic banks.   

Wednesday, February 9, 2011

Corporate Loyalty to the Global Market, not the U.S.

Charles Hugh Smith presents an excellent analysis of why the U.S. middle class is being destroyed, at his website here: http://www.oftwominds.com/blogfeb11/corp-jobs-02-11.html
In a nutshell, corporate profits are now increasingly from overseas consumers, almost half of all revenues.  Due to the logic of corporations, being abstract entities whose sole purpose is to deliver profits to shareholders, they have no loyalty to America.   
Yet, amazingly, they are allowed to make contributions to political candidates.  In fact, they have come to dominate the political process, hijacking the national parties so that the government essentially becomes captive to their globalizing agenda. 
As Smith puts it:
The erosion of the American middle class is of little concern for one simple reason: it no longer matters much on the global stage. All that Global Corporate America needs from America is a stable foundation that won't offer up any surprises or spots of bother.
Policy Reforms Needed
Obviously, corporations should not be allowed to make campaign contributions.  This is a basic no-brainer.  Only U.S. citizens should be allowed to make campaign contributions.  Corporations, which by definition, have no loyalty to the U.S. should not be influencing its economic policy.
Corporations should also be taxed differently.  A sliding scale of taxation should apply based on the percentage of U.S. domestic workers.  Perhaps the percentage of revenues from foreign sources should also be taxed at a higher rate.  
Our tax policy should reward domestic businesses, and handicap corporations that offshore jobs. 
There seems to be little hope of reform at this point, as economic elites have utterly hijacked the political process.  As Smith points out, the irony is that increasingly, it is international profits which allow global corporations to exert greater influence on domestic policy:
The concern for domestic jobs is mere political expediency. U.S. corporations are pulling $500 billion in profits from non-U.S. sales, and they hold $1 trillion in stashed overseas profits in various tax havens. All the growth in their revenues and profits are coming from non-U.S. sources. Spending $3-$5 billion on lobbying and campaign contributions is an "investment" with extremely high returns: for that small sum, U.S.-based global corporations make sure the U.S. government and citizenry don't become overly burdensome or obstructive.
Something needs to be done, and it needs to be done now.   We are in desperate needs of a people's political uprising to challenge the unholy alliance that has hijacked our political process.  Unless people start to organize in their own self interest, we will continue to get more of what we are getting: the cancerous growth of poverty.