Wednesday, May 30, 2012

Sovereign Bonds at all time lows across the world - Deflationary Wave

Bond yields across the globe dropped to record lows yesterday. U.S. Treasury yields fell to an ominous all-time low.   Beyond the U.S., German bunds and U.K. 10-year gilts fell to record lows too.  Finnish, Swedish, Australian, Canadian, Japanese, and Swiss yields fell to historical bottoms as well.   Yields on Spanish and Italian debt rose, reflecting their default risk.

The Forbes article goes on to worry about the upcoming time when the Fed begins to unwind its position.  Methinks that day shall never come, at least willingly.  If markets will be crushed by the Fed action, logic indicates that the Fed will not take that action. 

Clearly, the hammer poised above the US dollar is rising higher and higher, but the fact is, it will not fall until something else is capable of taking the USD's place.    It is not looking like it will be the Euro.

Thursday, May 24, 2012

Bank Profits back to 2007 levels, lending down to 1984 levels

Bank profits now back to 2007 bubble-year levels, despite the grinding economy.  Well, not really despite of it, in fact, banks are helping cause it!  For, you see, banks are not lending money into the economy. 

Total lending is down to levels last seen in 1984!  As the WSJ puts it: "Net loans equaled just 70% of total deposits in the first quarter, according to the Federal Deposit Insurance Corp.'s quarterly banking profile released Thursday. That is the lowest level since 1984."

This quarter's numbers also provide a window into the obscene banking profitability model:  for every dollar they lend out, they gain 62 cents in profit.    Not a bad racket, eh?  That is like a 62% interest rate earned on every loan!    Earned, not charged, as it is earnings, pure profit.  Obviously, they must be charging a much higher rate, to cover all their costs.    That, my friends, is the magic of compound interest!  Ha    Plus various and sundry charges and fees, of course. 

The math is pretty straight forward.  Total profit: $35.3 billion.  Total lending: $56.3 billion.   For every $1.00 they lent out, they gained $0.62 in profit.   Good time to be a banker.,0,3994281.story

Decoding Interest Rates - What does bonds at 0% mean?

We see today in Germany what we saw in the US starting a couple years ago: big investors throwing their money in 0% (zero percent) bonds.  The press calls it a "flight to safety", but this is really bad news for the economy.   It doesn't just scream deflationary depression like the real-time price indicators I mentioned a couple articles ago, it is tangle proof of deflationary depression. 

After all, why would anyone invest in a zero percent bond?    It is a reflection of the fact that everything else is falling in value.   When EVERYTHING else is deflating, just holding even at zero percent looks pretty good.   Conversely, if there is anything worth investing in, no one will take a zero percent bond. 

In short, big money going into zero percent bonds is proof of monetary deflation and economic depression.   More generally, low interest rates are a sign of low demand for money, which prevails in poor economic conditions. 

This is a chronic condition among economies mired in debt.  High debt loads turn an economic contraction into a deep depression.  This effect is due to the mechanics of widening circles of forced liquidations/fire sales, to pay off old loans while asset values are falling, as well as widening circles of bad credit, credit destruction, and credit risk. 

This is the exact time when central banks should be intervening with cash infusions to short circuit the deflationary spiral, but oddly enough, the Fed Reserve is not talking about it publicly.   I guess that is mainly because it is a European problem right now.  The ECB should be doing something, but all talk is on austerity and currency breakup instead. 

Of course the best solution would be to cancel the debts outright, totally breaking the back of the debt-deflation process and allowing the economies to reset. 

Tuesday, May 22, 2012

What is the Money Illusion?

The current concept of the Money Illusion means that people think in terms of the nominal value of money, rather than its real value.  However, the truth of the Money Illusion goes much deeper than that.  The truth of the matter is that real value of money is nothing at all.  In short, the illusion is that money has any value at all. 

Seeing beyond the Money Illusion, we realize that money is nothing but a trick to gets us to cooperate.  Money is both the stick and the carrott, in that it inspires both the fear and the greed to get us motivated.

The existence of money is not even necessary to the function of the economy.  Just imagine what would happen if all money disappeared tomorrow: all cash, all plastic, all bank balances, everything, just magically erased.  What would happen if everyone's wallet was completely empty, and every bank vanished?   Most people agree, if it happened in the real world, human civilization would pretty much end rapidly in a violent conflagration.   

But... what if.... instead of going Mad Max in collapsing economy... what if everyone just PRETENDED they were exchanging money.  You go to the store, the cashier pretended to ring you up.... and you pretended to giver her money.  You buy items from your vendors, and pretend to pay their invoices...  Your clients pretend to pay you...  so on and so on. 

In other words, what if everyone just went on doing what they normally do, but WITHOUT the MONEY???  Viola, Mad Max apocalypse averted!  If everyone would just fulfil their role in the economy as if money didn't matter, in truth, money wouldn't matter, and the economy would go on quite nicely without it. 

Of course, the average listener objects, if you could just "pretend" to pay for stuff, why would you work?  Well, yeah, that is the rub, human nature.   Stands to reason, some people would shirk off and refuse to work, and if enough people did it, the economy would collapse. 

But my point is not to suggest a model for a real-world working "cashless" economy.  Rather, I just wanted to give a concrete example of the true depth of the Money Illusion.   The fact is, money is totally unnecessary to the function of a real economy. 

If people could just be trusted to do something productive everyday and give it away, we could totally dispense with money.  THAT is the Money Illusion, the idea that money is anything necessary or worthwhile at all.  In reality, it is just a big trick to get us to work together and limit our consumption.   If we could agree to work together and limit our greed CONSCIOUSLY, we wouldn't need money. 

Arguments about the Type of Money

The Money Illusion also manifests in our arguments about what TYPE of money to use, especially among the Austrians, who have an irrational attachment to the use of gold as money.   What really matters when it comes to defining our standard of living is our overall level of PRODUCTIVITY.  The type of money we use is complete incidental, and the only argument we should have about money is how to make it facilitate the highest level of communal wealth. 

This is where the Austrian gold-fetish is revealed at its most primitive.   A solid, stable, tangible FORM for money is all-important to this strange mindset.   Whether it is most condusive to the creation of social wealth is totally irrelevant to the Austrian; the most important thing is its constancy, its permanency.

Ironically, it was the rise of the limited Money Illusion that proved the death knell of the modern gold standard.   Modern workers in the early 20th century fought hard for union power, higher wages, and guaranteed contracts.   All of these were totally incompatible with the operation of the gold standard, which required constant deflation of wages and prices (as greater productivity was piggy-backed into the static supply of money).  Workers, however, would not be contented with falling nominal wages, even if they were assured that it was part of the natural process of economic balancing under the iron discipline of the gold standard!  Deflation and mass unemployment are not a good combination in the modern, urban, industrial economy, and thus ended the gold standard era.

This is why Austrians are viewed as kooks and cranks in the modern economic milieu.   Everyone ELSE sees through the Money Illusion and is discussing the advanced theories of wealth creation and social stability, EXCEPT the Austrians.  It is like trying to make Christmas plans with someone who insists you have to be in bed at midnight for when Santa arrives.  Or trying to make travel plans with someone who insists you can't travel too far across the ocean because the earth is flat and you don't want to go off the edge, do you???   I mean, really, there is nothing you can do with such a person but ignore them and go about your normal plans despite their irrational beliefs.   Which is exactly how Austrians are treated. 

In the end, Austrians are left alone in the corner, muttering about hyperinflation causing the collapse of the economy.   We just pity the poor chaps, totally locked in to their irrational beliefs, unable to see through the Money Illusion.    They honestly can't separate the collapse of a currency with the collapse of the economy itself, and are totally flummoxed trying to imagine that money is just a tool to be used for the social good.  The very idea is offensive to them!

Mainstream economics is hardly better.  In fact, it is probably even more odious, being used to obfuscate, beguile, and confuse the public, through a massive smoke screen of jargon and faux-complexity, serving only to mask the exploitation of the masses by the parasitic Money Elite. 

Thursday, May 17, 2012

Real-time economic indicators screaming deflation

The average person gets their economic news from the backwards-looking statistical reports.  However, there are a number of real-time economic indicators that can tell you what is going on right now, before the "official reports" come out telling you what happened two months ago.  

Watching for price trends is the best we have available for "real time" economic reports. When clear trends develop, not just daily up and down bounces, but clear trendlines, they are telling us something.  When all of the clear price trends are going in the same direction, we are getting an obvious economic indicator.

Unfortunately, all of the clear price trends right now are screaming contraction, downturn, and deflation. 

Milk - deflating  (
Gas - deflating
Gold - deflating
Stocks - deflating

Chinese real estate - deflating (  This one is especially troubling, because the price of land is usually the bedrock of the banking system.  In American history, land-value deflation after a speculation boom always leads to economic depression. 

European economies - contraction
Chinese economy - contraction

In short, world wide economic downturn.   Add to it the continued budget woes of places like California, which will have to slash its budget, thereby damaging their economy.

Is this the calm before the storm?   It appears that Big Money thinks so.  They are liquidating to cash, preparing for the coming buying opportunities when the markets fall.

Wednesday, May 9, 2012

Economists controlled by the Fed– How the Fed Reserve Bought the Economics Profession

I am left with a number of thoughts after reading this investigative report about the relationship of the Fed Reserve to the field of professional economists (

-- I was surprised at how few experts in the field of monetary theory there are (some 500 in total). I knew people (like myself) who are not only interested in economics, but in the monetary aspects of economics, are rare, but it was surprising to see how few experts exist.

-- Classic case of the problem of “institutional capture” of academy by big money.

For one, the “establishment institution” dominates employment in the field. Thus, everyone in the field has the natural incentive to conform their work to the interests of the establishment. Even aside from direct hiring, affiliation with and approval by the establishment confers status and opportunity within the field. These factors alone probably take care of 95% of the problem of conformity.

For two, the establishment captures all the gate-keeper positions in the field, thereby controlling hiring and advancement. When the majority of department chairs/journal reviewers are employed by the establishment, is there any question whose interests will be advanced throughout the publishing and hiring process?

-- The end result is a classic example of the problems of intellectual conformity. No one with a heterodox opinion is retained, and so, there is no check on the spread of false doctrine. This allows the establishment to be blindsided by unexpected events (such as the market crash of 2008), and leaves it unable to reform or adjust to new circumstances.

-- The Fed itself is not an “end point” or autonomous institution. The Fed itself suffers from institutional capture by Big Banking. Fed chairmen and governing board members are themselves placed in those positions due to their subservience to global banking interests. Thus, pointing out that establishment economists are beholden to the Fed, is the same as pointing out that they are beholden to the globalist banks.

--True diversity of economic theory has to be sought in the time before the Fed captured the profession, circa the 1970s. By all accounts, prior to that time, there was true diversity of opinion in the field, before everyone became “establishment men” beholden to the power of the Fed over their professional lives.

Monday, May 7, 2012

Mutual Credit Organizations on the rise - Interest-free credit creation

Nice article on the strengths and weaknesses of the Swiss WIR, along with the possibilities of the wider mutual credit movement.    JubileeNet is exactly such a mutual credit network, available for free now (   The main problem facing such networks is unfamiliarity and lack of marketing.   The average person has no idea how such things work.  The first step has to be education.  What is also especially important are motivated "kick-starters" who are working to bring other people into trade network. 

The article source:

For eighty years a major not for profit, private currency has been operating in the heartland of Europe. In Zurich, almost next door to the Bank of International Settlements in Basel, there is the WIR, turning over the equivalent of almost 2 billion CHF per year.
By Anthony Migchels for Henry Makow and Real Currencies

WIR was founded by businessmen Werner Zimmerman and Paul Enz in 1934. It was a direct response to the Great Depression. They built on the legacy of Silvio Gesell, whose thinking also was the basis for the famous Wörgl Scrip and today’s German Regional Currencies, like the Chiemgauer.
Silvio Gesell is in fact the Patriarch of what I suggest should be called ‘German Economics’ or ‘Interest-Free Economics‘, the theoretical basis for the anti-usury movement. His analysis of Usury inspired both Gottfried Feder and Margrit Kennedy, two other leading lights of the European anti-usury movement. He also had interesting and much needed ideas about land reform.

Where the Wörgl and the Chiemgauer were/are backed by national (banking) currencies, the WIR goes where nobody before dared to go: it is basically Mutual Credit. Mutual Credit based currencies are nowadays used in Barter organizations world wide. Barter in this sense is a misnomer, they do use a means of exchange but not the national currency. WIR is undoubtedly one, if not the first Mutual Credit facility in the world and most certainly the longest surviving one.

Nowadays WIR turns over a little less than 2 billion WIR (1 WIR = 1 CHF) per year. Because many transactions involve maybe 25 to 50% in WIR while the rest is settled in CHF (Swiss Francs), real turn over generated by WIR is maybe up to three times higher. It has 1 billion of WIR in credit outstanding.

Transactions are settled with the use of debit cards or with their on-line banking system.

WIR is operated for the common good and not for profit. About 62,000 small and midsized businesses participate. There are six regional offices through the Swiss republic.

WIR is especially important during downturns. Deflation and capital scarcity make businesses more creative and more willing to deal with WIR’s limitations.

For our purposes WIR is important because it proves that Mutual Credit facilities have a viable business model. It proves currency can be offered at very low cost while maintaining a prosperous and professional organization over the long term.


Notwithstanding its major achievements, WIR suffers from some significant limitations.

In the first place it is not convertible to other units. This is a common problem with Mutual Credit based currencies. Until recently, the technology was not available. Amazingly, many people are so used to this situation that they do not even consider it a problem. They will claim that non-convertibility is actually a strength, as it forces participants to shop within the network. However, this is a mistake. Non-convertibility damages the liquidity (what it will buy) of the currency and liquidity is everything. As a result, many businesses accept only certain percentages in WIR. This hampers liquidity even further.

Another problem is that consumers are not serviced. Only businesses can participate. This again badly damages liquidity: businesses cannot pay their employees in WIR, for instance.

Just think of what is possible for modern units leaving these limitations behind them.

Money Power Subversion

Obviously, WIR is very important opposition against the Money Power. The Money Power can be expected to keep a keen eye on it and there are serious indications it has been resisting WIR actively.

There is a persistent rumor suggesting the Banks have told WIR that things are fine as they are, but that they should not vie for further growth. This may explain why they have not developed a comprehensive strategy for consumer participation.

Also, in the 1950′s WIR started to price its credit with interest. Even today interest rates are very low, with 1% rates for mortgages, for instance, but still. Interest is an affront to Gesell’s ideas. It hinders circulation, which was one thing very much on Gesell’s mind. The price for credit, even at 1%, is somewhat high for collateralized (and thus risk free) long term loans. It also lessens the power of the message: that interest free credit is not only possible but a fact.

The last few years WIR has been starting to focus on more traditional banking activities, including ordinary loans in CHF.

This has led Thomas Greco, a leading expert on Mutual Credit, to state that the Banking Cartel has probably found a way of getting its henchmen on WIR’s board of directors.


WIR is a leading example for the entire world. It has proven that interest free mutual credit can be offered on a large scale. Its superior management was a key factor to its success: it was not a couple of dreamers that built it, but down to earth businessmen understanding the issues and the solution.

It is not convertible and it has no comprehensive strategy to compete outright on a full scale with the Banking Cartel and yet it turns over billions per year. These limitations can nowadays be solved. Convertibility for Mutual Credit is now possible. A comprehensive strategy including consumers not difficult to devise.

In this way the Money Power monopoly on currency can be assaulted. Regulators, inimical as they may be to these schemes, are left empty handed: there are no laws against Mutual Credit and they are very difficult to develop, especially against determined market players who understand what they are up against.

Even though today WIR seems to have been subverted, it took the Money Power eighty years. It is fully possible for just a few thousand ambitious people world wide to open up their own initiatives and the Money Power could easily become overwhelmed.

It goes directly at the heart of the matter: the Money Power’s control over the money supply and extortion through usury and the boom/bust cycle. In this day and age of deflation and stagflation, additional working capital is desperately needed by small and mid sized firms. Now, more than ever, are they willing to take a chance when they are offered a real alternative.

The German Regional Currency Movement shows that it can be done even today. In Britain, too, many regional currencies are now starting, most recently in Bristol. This unit is not even circulating yet, but already 100 small businesses have signed up. They desperately need additional cash and new customers and Regional Currencies supply both.

It is no use to wait until the Government cleans up its act. It never will. It is completely controlled by the enemy. Private initiative is the only hope we have. In fact, let’s face it: why would children of the One expect to have their lives be run by sugardaddies like Government? Private initiative is all there is.

Private currencies, competing with the Money Power in the market place are the way forward.

The world was conquered by a few ambitious men serving the Adversary.

It is now time for it to be liberated by a few ambitious men serving the One.

“THERE IS NOTHING MORE DANGEROUS THAN PERSONAL INITIATIVE: if it has genius behind it, such initiative can do more than can be done by millions of people among whom we have sown discord.”

Protocol No.5


Regional Currencies in Germany: the Chiemgauer
Mutual Credit, the Astonishingly Simple Truth about Money Creation
Mutual Credit for the 21st century: Convertibility
Financial Warfare 2012: Boycott All Banks
Interest-Free Economics

Saturday, May 5, 2012

Gold Standard Institute admits: gold useless w/o paper trading money -- What are Real Bills?

The latest issue of the Gold Standard Institute ( helps the average confused member of the alt-economics community get to the heart of the matter.     Obviously, the GSI is devoted to the idea of money based on the gold standard.   Naive, Austrian-influenced, amature economists need to understand GSI's position before spouting off about gold as "the only sound money". 

For, you see, the GSI is perfectly upfront about the fact that direct trade in gold is not practical.  As they put it, for example: "Gold on its own cannot support international trade; Bill circulation is essential for a viable Gold Standard." 

The gold standard only works, then admit, when actual trade is in paper.   The paper, which they call Real Bills, is backed by gold, but the paper is essential. 

Real Bills vs Money

Now, the question becomes, what are Real Bills???    Unlike a paper money supply backed by gold, real bills are not issued by a central bank and are not permanent.  Rather, they are issued by private parties, and they have an expiration date. 

They are most like a personal check with an expiration date.  They would say something like "Redeem this bill of sale for $100 worth of gold on July 31st 2012 at XXX Bank".  In practice, that bill could then trade hands among various people right up until the redemption date.    

This is the meaning of Real Bills being "self liquidating".   Unlike a permanent paper money supply, Real Bills are created in response to real economic activity, and are liquidated at the commencement of that activity.  Here is how they describe it: "Bills are drawn against real goods, the goods are delivered, the Bills net out the trade. Then, after doing their job, after being paid off on their due date, the Bills disappear."

The Necessity of a Clearing House

The only thing they left out of their description is the necessary role of a clearing house.  The clearing house keeps track of accounts upon expiration of the bills.  If necessary, on the date when accounts are settled, actually physical gold would then trade hands.  But the whole point of Real Bills is to allow multilateral trades in paper certificates, rather than actual gold. 

The clearning house has to function as the gold storage vault, as well as an accounting service, to clear and pay accounts of settling day.  If Real Bills are drawn on multiple banks, the individual banks would have need of a central clearing house to clear their accounts.  In practice, that would work like the way cheques are cleared by multiple banks. 

Advantages of Real Bills

Because they aren't permanent, Real Bills can't be used to fund speculation.  It is also nice because they don't disrupt the productive economy with the inflationary or deflationary effects of a permanent money supply.   Real Bills are always matched perfectly to the real productive economy. 

Nor are they centrally-controlled.  Real Bills are like a democratically-issued money supply.   People issue Real Bills on the wealth they possess.  Under this system, the function of banks is simply accounting and wealth transfer.   Presumably, the banks are funded on a fee-for-service basis. 

Friday, May 4, 2012

Austrian Economics is propaganda for the Money Elite - reform the Fed, not abolish it

Austrian Economics and its weird obsession with gold as the only "sound money" dominates the discussion of monetary reform in the alt-economics community, and is given major impetus by the platform and candidacy of Ron Paul.   The attraction of Austrian Economics to alt-righters appears to be in its promise of limited government. Theoretically, a gold-standard monetary system would allow us to shove government out of the market and back in its "Constitutionally-limited" box.

That is, of course, the first absurdity. Government which is determined to be authoritarian will do whatever it takes (such as seizing all gold and declaring a new economic order, which has been done before), so obviously a gold-standard has no ability to limit government power. Anyone who publicly suggest that a gold-standard can limit government power should be slapped across the face for their ignorant display of ignorance.

But even worse, Austrians posit the gold-standard as some kind of economic good of its own, in a crypto-religious fashion defining gold as the only "real money", as opposed to all the paper "fiat money" which is thereby ontologically illegitimate. But... If government declares via legal fiat that gold is now money, doesn't that make gold "fiat money"? if you don't think so, you need to review the definition of the word "fiat".  

Or maybe the problem is with the Fractional Reserve system?  Welll......Ooops, it turns out a fractional reserve system could rest quite comfortably on a gold-standard money base. No ontological collision there, sorry. If your mind has trouble grasping this, you need to familiarize yourself with monetary history.

Some seem to imply the ultimate goal should be a full reserve system based on nothing but the possession of bags stuffed with gold coins. The very system that was phased out, what, a millennia ago?   Even under the historic "full reserve, gold standard" systems,  various non-gold means are invented to conduct commerse, such as bills of credit, cheques, silver and copper, etc. The pure "gold-based system" is a complete fantasy.

The real problem is, what then, central banking? But a central bank, in the sense of a bank that does business with the central government, is inevitable, literally impossible to avoid. The government has to put its money somewhere, doesn't it? The banking institution in which the central government places its deposits and makes its withdrawals is by definition a central bank.

Is the problem then that government shouldn't be able to "create money from nothing"! Well, then, I am left wondering, who? Who gets to create the money? Someone creates the money, it must be admitted.
Ah yes, this is where the rubber hits the road, where the naked truth steps out into full light. Austrian economic theory is nothing less that pro-banking-class propaganda.

It is no accident that Austrian theory places such a high rhetorical value on the "sanctity of private property". Their whole argument boils down to the idea that rich people should have the exclusive right to create and profit from money, and they shouldn't have to share it with anyone!

Fortunately, the fact is, there is no reason at all that people should put up with this absurd assertion. It is an offense to common sense to assert that the government should have to pay any private parties to conduct its monetary business.

Government is an expression of the people, for the general benefit of the people, and government is perfectly capable of operating its monetary transactions for the benefit of the people, rather than for the profit of a banking elite. The profits that come from the creation of money, the holding of money, and the lending of money, when done in the name of general government, should accrue to the general populous. In practice, we should have MORE public banking, not less.

Didn't you ever wonder why Austrian economic theory is so well funded? Why it has so many essay-writing and magazine-publishing mouthpieces and gets so much publicity? Austrians would return all the profits of money to the wealthy banking class. The wealthy banking class are more than happy to fund this propaganda which so clearly advances their interests.

General confusion surrounds the internet discussion of "Austrian" alternatives. Another red herring is bandied about concerning "legal tender laws".  In fact, there is no law mandating the use of the USD/FRN. You are free to use any money you want. You are required to pay TAXES in USD/FRN, but that is all. People have "free banking" right now if they want it.

End the Fed?
As for the current Fed Reserve, the problem with "ending" it, according to Austrian recommendations, is that it would return all the profit and power of money control to private banking interests.  

In reality, the main problem with the Fed today is that it is not under enough public control. My critique is that by basing the system on Presidential appointees (and that, only in part), it serves to amplify the influence that the money powers have over government. In short, by buying off one man (the Pres) and a few key other men (committee heads and key confirmation votes), the Moneyed Elite can retain an absolute choke hold over policy and potential reform.
Thus we see the incredible incestuousness of the current climate, in which Goldman Sachs insiders, for example, are simple recycled throughout the system, which, not coincidentally, is used to advance their interests. With policies like "too big to fail" and "zero interest loans for member banks", it essentially results in "Socialism for the rich, harsh capitalism for the rest".

If monetary policy makers were subject to popular approval, it stands to reason they would be more likely to enact policies which benefitted the general populous. I fail to see how that would be worse than now, a situation in which the general population is fleeced for the enrichment of the banking elite