A Long
Economic Winter Ahead
Comments (6) New
Blog
Strong in Asia: A Long Economic Winter Ahead Posted, Saturday, July 10, 2010
1:12 am It gives me pleasure to inform you that your article
“A Long Economic Winter Ahead” has got more than 10,000 reads on
my site. Raja (Pakistan) New
Print Money
Posted, Thursday, July 8, 2010
11:52 pm Why in the world should governments that have the
lawful authority to print their own debt free money and spend it into
existence for infrastructure borrow money from the private bankster cartel at
interest instead? This question was
asked by Gerald Graton McGeer of Graham Towers in 1933 when the corporation
called CANADA went bankrupt. Many people are looking at creating their own
debt free currencies to replace the joke that is our current monetary policy. People everywhere are learning that banks create the
"money" they lend out by book keeping entry - it's not even money -
it's just credit that is not even valid consideration (see Jerome Daly court
case) for the loan. CANADA's debt is fraudulent and it's no wonder there is
such an interest in abandoning the SIN and getting back to frreman staus
under Common Law instead of being a debt slave to a corporation under
Admiralty Law. You might be right about the coming hard times but there is no
way to fix this sytem that guarantees perpetual debt and a certain percentage
of default. Laureen
__________________ Answer by R. T.: In economics, unfortunately, nothing is free. Governments do not produce much in the form of usable goods and services. Therefore,
when they do invest in roads or other infrastructures, they have to tax
people's incomes or borrow their savings to finance these projects. Sometime
they borrow abroad. If they don't and try to print fake savings, as some
underdeveloped countries try to do sometimes, inflation and even
hyperinflation ensue. One has only to look at the country called Zimbabwe,
whose economy is presently in complete collapse. You imagine that if governments and their central
banks could create real economic prosperity just by printing money, all
countries of the world would be rich. This has been tried time and again and
that led to economic disasters, economic dislocations and poverty. Banks do not create money. They create credits, i.e.
short-term loans that are guaranteed by an on-going production of real goods
and services which have to be repaid and erased when such goods and services
are sold. Think about a farmer who borrows in June to finance his operations
and who repays the bank in September when his crop is sold. Similarly, financial institutions advance
longer-term loans and serve as intermediaries between savers (who do not
spend all their incomes) and investors who borrow the savings and spend them
in their place. There is no new money created then; only a transfer of
savings between different entities. In such an economy, there is no inflation
since the quantity of money is revolving all the time and does not exceed the
value of what is being produced. However, a government can create inflation, i.e. decide
to impose an implicit tax on the holders of money (legal national currency),
when it borrows directly from its central bank with no intention to repay the
loan. The rest of the economy (producers, workers, retirees, etc.) is then
taxed with a loss of purchasing power in received money incomes. Governments
do that in time of war. But to prevent inflation from going through the roof,
they then impose price controls and rationing of goods. The inflation is
suppressed for a while, but it reappears with a vengeance when prices are
unfrozen. That happened after World War I and World War II and will also one
day happen again. New
SPP and Militarization
Posted, Thursday, July 8, 2010
5:23 pm The Security and Prosperity Partnership (SPP) may
have gone underground, but as the burial of a scheme that became superfluous
when its true objectives were realized or secured via such other means as the
re-institutionalization of the 'bushwhacked' economy, rollback of civil
liberties and personal freedoms in the name of 'security', militarization and
subordination of local police forces, and other Corporatist accomplishments
of the Red and Blue sock-puppets of the BushBama Maladministration. John New
Reality vs Fraud
Posted, Thursday, July 8, 2010
4:29 pm I've just read "Debt
Deflation: A Long Economic Winter Ahead" You note that: "The higher the debt mountain
relative to the real economy, the more serious is the following economic
meltdown," and "The first consequence is excess
capacity and falling asset prices." Indeed. ...What does "falling asset prices" mean? Literally it means: the measured value of assets
shrinking. OK? Price is the measured value of a thing. Price describes the value of a thing in terms of the
unit of account. When prices fall this is because the unit of account
has inflated. A unit of account which is seriously unstable -
prone to inflation and deflation - is a very poor unit of account. Why is it that we have a serious problem with
prices? Because we have a serious problem with the unit of
account. Why do we have a serious problem with the unit of
account? Because we have allowed the unit of account to
possess the concrete dimension which it abstractly describes and measures. No bona fide unit of
account possesses the concrete dimension which it abstractly describes and
measures. A metre does not itself have
length. You cannot store length in a metre bank. A hectare does not itself have area. You cannot
store area in a hectare bank. A litre does not itself have volume. You cannot
store volume in a litre bank. Likewise, a dollar does not itself have value. But we can store value in dollar banks. That's
fraudulent! We seem to have become transgenerationally
habituated to the fraudulent concept that wealth/value can be stored in a
unit of account. The fraudulent concept is backed by the "dismal
science" (sic) called "Economics" in its dogmatic premise that
money is a store of wealth/value; and is enforced by legal tender laws. Now we are in a predicament where "the real
economy" is dwarfed by a "mountain" of debt in the form of
trillions or quadrillions of abstract units of account. Should we perhaps consider the possibility of
according "the real economy" its true value; and likewise for the
"mountain" of mostly fraudulent debt? That would require a systemic change to deal with a
systemic problem. Alan _________ Answer
by R. T.: I am afraid that you are confusing the absolute
price level and relative prices. The value of a currency is related to the
absolute price level and a rise in the absolute price level means that the
currency should sooner or later depreciate vis-a-vis other currencies
according to the purchasing power parity theorem of currencies. However, some goods or some assets may see a drop in
their relative prices depending on the kind of imbalances that exist in
demand vs supply. Too much supply and the relative price falls; too much
demand and the relative price rises. With assets or investments financed with too much
debt, debt liquidation means that such assets or investments are sold, thus
increasing the supply, thus putting pressure on prices. That's what happened
and is still happening with people foreclosing on their home investments.
It's only when new buyers will overcome forced sellers that the housing
market will stabilize. I think this will happen next year (2011). There is not much problem with the U.S. absolute
price level and its rise, as inflation is only 2 %. The problem is with the
imbalances in supply and demand, and relative prices in certain types of
assets, including stocks. You are right about the U.S. dollar being a unit of
account. But it is also an unstable store of value beside being a means of
payment. When there is no inflation, that's OK, and the unit of account is
stable and reliable. But with inflation, the unit is a depreciating store of
value. Better for one then to hold T-bills or other short-term financial
investments that earn interest as a compensation for such a depreciation,
while still being relatively liquid, than to hold depreciating cash. Holding
cash is a losing proposition in the long run. Better still to invest the
saving in longer term investments. That's the art of financial
intermediation; transforming one's savings (income not spent) into productive
investments. By the way, economics does not say that “money
is a (stable) store of wealth/value”. Only that some people may want to
consider it a store of value for security or convenience. If one wants a
non-interest bearing asset that is a better store of value, one should hold
gold. Legal tender laws do not oblige people to hold dollars; but only that
if one pays with legal dollars, a transaction is legally concluded. Nowadays,
two parties may agree to finance a transaction using other currencies, since
the U.S. dollar is convertible with most other national currencies. Over the last 30 years, the financial sector has
become bloated and a lot of these debts cannot be repaid with the current
level of income. That's where the danger of debt deflation enters the
picture. The Bush-Obama administrations have spent a lot of
public money in order to prevent the largest U.S. banks from failing.
European governments have done the same thing. This has helped the managers
and owners of these large banks, and it may have averted the complete
collapse of the financial system. However, this has not helped the real
economy much since taxes will have to increase in the future to pay for all
the banking debt that the government has de facto
nationalized and placed in its own books. That's why I think there is a long period of
economic stagnation ahead. New
Living on Capital and Rigged
Markets
Posted, Wednesday, July 7, 2010
1:05 pm Your article resonates with me and the issue keeps
me awake many nights. It matters to me because I have no pension income but
am retired and live on capital that I have accumulated over the decades. I have always bet on the inflation argument to carry
the day since no government wants deflation, because they don't know how to
climb out of the abyss. I believe they will do whatever it takes to inflate
our way out the the problem. In my case I have placed heavy bets on inflation by
accumulating gold for this very reason. I believed rightly or wrongly that
the government will print money till the cows come home to get us out of this
mess. I believe that they will destroy most if not all currencies in the
process and the road will be paved with hyperinflation. Ultimately the G-20
will have the final say in how this finally plays out. In a market where certain well contected corporate
trading desks did not have a losing day in the first quarter tells me that
the markets are rigged. The bond markets are rigged as well as rates are held
artificially low due to manipulation and misrepresentation of financial info
and extensive use of derivatives as a way to control rates and markets. The
remainder of my assets are in cash, not US cash. There seems to be nowhere to
hide. Rick ______________ Answer
by R. T.: I
suppose that you have read my piece about the issue of deflation
of a few months ago. Please
keep in mind that, even if we are not under a gold standard, the gold price
can still go up during a protracted deflation. When the credit mechanism is
broken, it does not matter if the central bank prints a lot of new money. That
new money is hoarded, not lent nor spent, as demand for cash is high during a
deflation. We call that a “liquidity trap”. A central bank can print all the money in the world it wants to,
but if the banks cannot lend it because nobody can afford to borrow it, that
only debases the currency without stopping the deflation. During the 1929-39 depression, the gold price was fixed at $35 an
ounce. However, gold stocks and gold-related investments trended up,
first, because gold was an economic refuge against depreciating
fiat moneys and the lost of purchasing power, and second, because of the
justified fear that after a deflationary period, it is usually followed by an
inflationary period. Since it is possible to have depreciating currencies and
deflation at the same time, i.e. some special case of stagflation, gold price
can go up in such an environment. The bottom line here is that baby-boomer pensioners will be
targeted to lose purchasing power over the next ten years or so as too many
baby-boomers will retire as compare to the overall population. Interest rates
and financial assets will have difficulty rising in such an environment. It can be expected that there will be a political tug-of-war
between the retirees and the unemployed as to the correct public policies to
be followed. New
Marxism
Posted, Tuesday, July 6, 2010
10:49 am As usual, this article is well said and informative.
My own objective is to inform and motivate the
people as to what is required to end this 100 year effort toward marxism. Do
you accept the fact that marxism has never worked? If you do, join us to save
our country before there is blood in the streets. If you don't understand the
Marxist Chain of Command for Treason, most academics do not, let me know. Andrew ___________ Answer
by R. T.: I
agree with you that marxism has never worked as an economic system, although
some religious orders have used it as a sharing mechanism during many
centuries. Our
economic problems are complex and vary from country to country. In the case of
the United States, it is becoming more and more evident that waging
hundreds-of-billion dollar wars that never end and which are financed with
the credit card is part of the problem of the fiscal crisis. I
include a link to my piece about the topic of financial crises
of a few months ago |