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:
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 ( 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."