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Guest Post: Currency Wars: Debase, Default, Deny!

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Submitted by Gordon T Long of Tipping Points

Currency Wars: Debase, Default, Deny!

In September 2008 the US came to a fork in the road. The Public Policy decision to not seize the banks, to not place them in bankruptcy court with the government acting as the Debtor-in-Possession (DIP), to not split them up by selling off the assets to successful and solvent entities, set the world on the path to global currency wars.

By lowering interest rates and effectively guaranteeing a weak dollar through undisciplined fiscal policy, the US ignited an almost riskless global US$ Carry Trade and triggered an uncontrolled Currency War with the mercantilist, export driven Asian economies. We are now debasing the US dollar with reckless spending and money printing with the policies of Quantitative Easing (QE) and the expectations of QE II. Both are nothing more than effectively defaulting on our obligations to sound money policy and a “strong US$”. Meanwhile with a straight face we deny that this is our intention. 

It’s called debase, default and deny.

Though prior to the 2008 financial crisis our largest banks had become casino like speculators with public money lacking in fiduciary responsibility, our elected officials bailed them out. Our leadership placed America and the world unknowingly (knowingly?) on a preordained destructive path because it was politically expedient and the easiest way out of a difficult predicament. By kicking the can down the road our political leadership, like the banks, avoided their fiduciary responsibility. Similar to a parent wanting to be liked and a friend to their children they avoided the difficult discipline that is required at certain critical moments in life. The discipline to make America swallow a needed pill. The discipline to ask Americans to accept a period of intense adjustment. A period that by now would be starting to show signs of success versus the abyss we now find ourselves staring into.  A future that is now significantly worse and with potentially fatal pain still to come.

Unemployed Americans, the casualties of the financial crisis wrought by the banks, witness the same banks declaring record earnings while these banks refuse to lend. When the banks once more are caught with their fingers in the cookie jar with falsified robo-signing mortgage title fraud, they again look for the compliant parent to look the other way. Meanwhile the US debt levels and spending associated with protecting these failed (and still insolvent institutions) are so out of touch with US de-industrialized productive capability that the US dollar is falling and forcing countries around the world to devalue their currencies in a desperate attempt to maintain competitive advantage. So much for the “strong dollar” mantra we heard endlessly for years from every US Secretary of the Treasury that needed foreign investment to fund our deficits. Like second rate powers, our word is no longer our bond.

The fork in the road which we chose has resulted in:

  1. massive public debt levels that can never realistically be expected to be paid back,
  2. Financial markets that are disconnected from fundamental historical values,
  3. A global banking industry that can best be described as fragile and is realistically insolvent if the accounting games were to be removed.

I think most would agree that massive public, private and consumer debt levels are a central problem to the current global predicament. We also however need to appreciate that these massive debt build ups have also allowed the over-building of production capacity. We have global supply that is now outstripping demand.  The output gap in the US alone would require a theoretical -7% Fed Funds Rate according to the Taylor Rule (6)

EXCESS CAPACITY

The currency wars are being fought because global players are being forced to fight for a piece of the global demand pie that is growing at a slower rate (a first derivative problem) versus the capacity presently available and coming online. The Asian buildup of production capacity is nothing short of startling but it is premised on a free spending and 70% consuming US economy. A slowdown in the US and a weakening US dollar are major threats to political and social stability in the Asian export economies. Everything in the mercantile, export led Asian economies must be done to avoid this. The facts however are that there are no longer sufficient jobs in America to support past and present levels of consumptions. The middle class in America is quickly becoming extinct and with it the ability to famously ‘shop till they drop’.

What are the US politicos to do?  The well recognized Michael Hudson asserts in Why the U.S. Has Launched a New Financial World World War:

“Finance is the new form of warfare – without the expense of a military overhead and an occupation against unwilling hosts. It is a competition in credit creation to buy foreign resources, real estate, public and privatized infrastructure, bonds and corporate stock ownership. Who needs an army when you can obtain the usual objective (monetary wealth and asset appropriation) simply by financial means? All that is required is for central banks to accept dollar credit of depreciating international value in payment for local assets. Victory promises to go to whatever economy’s banking system can create the most credit, using an army of computer keyboards to appropriate the world’s resources. The key is to persuade foreign central banks to accept this electronic credit.
    
U.S. officials demonize foreign countries as aggressive “currency manipulators” keeping their currencies weak. But they simply are trying to protect their currencies from being pushed up against the dollar by arbitrageurs and speculators flooding their financial markets with dollars. Foreign central banks find them obliged to choose between passively letting dollar inflows push up their exchange rates – thereby pricing their exports out of global markets – or recycling these dollar inflows into U.S. Treasury bills yielding only 1% and whose exchange value is declining. (Longer-term bonds risk a domestic dollar-price decline if U.S interest rates should rise.)

 

What is to stop U.S. banks and their customers from creating $1 trillion, $10 trillion or even $50 trillion on their computer keyboards to buy up all the bonds and stocks in the world, along with all the land and other assets for sale in the hope of making capital gains and pocketing the arbitrage spreads by debt leveraging at less than 1 per cent interest cost? This is the game that is being played today.”

The chart to the right was published in early spring of this year specifically spelling out that a ‘Beggar-thy-Neighbor’ roadmap lay ahead.

WINNERS & LOSERS IN A CURRENCY WAR

How could I have been so sure when I put this chart together? The realistic fact about wars are that there are winners and losers. These however are not the people on the battlefield. Since Caesar, wars are about money. The winners are those who finance them and the losers are those that pay for them. Rich banking families are well documented to have financed both sides. It matters not much who wins but rather that a war is fought so money is made.

So who actually wins in a currency war?  The answer is found by forensically following the money.

EVERY WAR COMES WITH NEW TECHNOLOGY

The most effective way of following the money is to consider the major new innovations in the financial world. Like all wars the winner is the one who innovates the ‘combat technology’ the fastest.

We need to remember that the financial innovations discovered during and after the financial crisis such as: Collateralized Debt Obligations (CDOs), Credit  Default Swaps (CDSs), Structured Investment Vehicles (SIVs), Special Purpose Entities (SPE’s) and a raft of securitization products were the foundations upon which were built the “Toxic Assets” and the reason for the global financial crisis. The toxic assets were the catalyst which we continuously heard referred to during the crisis which forced the government into massive public debt government spending in an apparent attempt to avoid a financial collapse.

If we examine the latest raft of new weaponry, we can easily see where this is headed, how the money will flow, who wins and unfortunately who loses.

1-    FIAT PAPER BOMBERS - Quantitative Easing

Quantitative Easing is an euphemism for printing money. The US has embarked on a massive untested trial in recklessly printing money.

2-    CURRENCY MISSILES - US$ Carry Trade

Like the hydrogen bomb was to the early atomic bomb, the US$ Carry Trade is to the original pilot Japanese Carry Trade. IF QE are the bombs, then the US dollar carry trade are the missiles that deliver the bombs. With borrowing costs in the US approaching zero, a weakening carry currency and unlimited money creation, we have the perfect carry trade missile that can and will hit any economy in the world.    

3-    REGULATORY ARBITRAGE - Guarantees and Contingent Liabilities

I have written extensively how the financial crisis has served as a vehicle to shift debt obligations from the banking and private sector to the public sector. This has been achieved through government guarantees, the use of balance sheet contingent liabilities and interest rate / currency swaps. It is the battlefield strategy of Regulatory Arbitrage.

 

ARTICLES:     SULTANS OF SWAP: Smoking Guns!, SULTANS OF SWAP: The Sting! , SULTANS OF SWAP: The Get Away!

 

4-      PUBLIC PRIVATE PARTNERSHIPS / PRIVATE FINANCE INITIATIVES – PPP/PFI

The extensive hidden use of Public Private Partnerships & Private Finance Initiatives (PPP/PFI) recently came to light during the European Sovereign debt crisis. This tool has become the guidance system for missile delivery since it allows the conversion of freshly printed fiat paper into real, unencumbered, revenue producing assets.

 

5-     AN UNREGULATED $615 TRILLION – Derivative Swaps

The unregulated, off balance sheet, offshore, non exchange traded, private SWAP vehicle is the ideal vehicle with which to control global financial markets. The Sultans of Swaps now operate much as the Bond Vigilantes did at one time but with different control and much different motives. The growth of the SWAP market in interest rate and currency swaps effectively muzzled and obsoleted the Bond Vigilantes of yesteryear.

ARTICLES: SULTANS OF SWAP: Explaining $605 Trillion in Derivatives!

HOW THE MONEY WILL BE MADE Paper Assets Exchanged for Real Assets

  1. TAKE OVER PUBLIC SECTOR ASSETS – buildings, land, treasuries.
  2. TAKE OVER PRIVATE SECTOR ASSETS - land and resources.
  3. TAKE OVER OF SOVEREIGN TREASURY – transfer of sovereign treasury gold holdings
  4. MAJOR CORPORATE CONSOLIDATIONS  - reduced competition, reduced monopoly laws and emergence of cartels
  5. NATIONALIZATION OF PRIVATE & PUBLIC PENSIONS - government grab of financial assets

REAL WEALTH

The financiers of the currency wars understand that real wealth in its most simplistic essence can only be created by:

  1. GROWING IT
  2. MINING IT
  3. BUILDING IT

Paper money is simply a tool for the trading of wealth. When money is backed by a hard asset then it also becomes a store of that wealth. However that is not the case with fiat currencies. Though Gold is real wealth it does not grow wealth, but rather stores it or protects it from the debasement of paper ‘trading’ instruments. Ideal real wealth is wealth that continues to grow and yet maintains its inherent value. Over the longer term it is usually better to own well managed, unencumbered agricultural producing land, producing mines and production facilities than just the wealth product they output. The Rothschild banking family learned this hundreds of years ago and is the reason why they moved from solely owning gold to energy, mining, agriculture and selective base materials process production.

FLAWED PUBLIC POLICY DECISIONS ASSURE THE OUTCOME

One mistake after another has been made in an attempt to ‘kick the can down the road’ and avoid the inevitable necessity to restructure the debt. Unfortunately when it is restructured it will be at the expense of the public and not the original parties. The cost to the tax payer will be insurmountable debt and the forced surrender of pubic assets. Public assets that in the future will be charged for by ’Private Banking’ and Special Purpose Entity (SPE) owners.

            => BAILOUTs:  Banks, AIG, GM, Fannie Mae / Freddie Mac

                        => ZIRP

                                    => TARP & ARRA         

                                                => HAMP, Cash for Clunkers etc.

                                                            => Extend & Pretend Accounting

                                                                        => QE I (Buying $1.7B in       
                                                                               (Mortgage & Treasury Products)

                                                                                    => QE II

TIMING

Like a well oiled machine the sequence of events continue to unfold as laid out in my Extend & Preserve article series. The implementation of Quantitative Easing (QE I) and change in GAAP Mark-to-Market accounting treatment ignited the initial rally leg. With further refinements (see EXTEND & PRETEND - Manufacturing a Minsky Melt-Up) it continued until it became evident that the US employment and GDP were not improving in any meaningful manner despite $13T of Spend, Lend and Guarantee initiatives. Then as the polarization of the EU wanting ‘austerity’ policies versus the US wanting ‘stimulus’ measures, the US dollar began weakening and stocks stopped their retracement in June. When Bernanke signaled QE II in August the financial markets were once again ignited and the US dollar weakened further. The financial markets are now propelled by both euphoria and fear of more liquidity being made readily available. It will not end well as we naively get caught in the spider’s carefully laid out trap.

CONCLUSION

An interesting fact is that the US has positioned itself for this war as a result of the spending on previous wars. According to Michael Hudson (5):

“What destabilized the system was war spending. War-related transactions spanning World Wars I and II enabled the United States to accumulate some 80 per cent of the world’s monetary gold by 1950. This made the dollar a virtual proxy for gold. But after the Korean War broke out, U.S. overseas military spending accounted for the entire payments deficit during the 1950s and ‘60s and early ‘70s. Private-sector trade and investment was exactly in balance.

By August 1971, war spending in Vietnam and other foreign countries forced the United States to suspend gold convertibility of the dollar through sales via the London Gold Pool. But largely by inertia, central banks continued to settle their payments balances in U.S. Treasury securities. After all, there was no other asset in sufficient supply to form the basis for central bank monetary reserves. But replacing gold – a pure asset – with dollar-denominated U.S. Treasury debt transformed the global financial system. It became debt-based, not asset-based. And geopolitically, the Treasury-bill standard made the United States immune from the traditional balance-of-payments and financial constraints, enabling its capital markets to become more highly debt-leveraged and “innovative.” It also enabled the U.S. Government to wage foreign policy and military campaigns without much regard for the balance of payments.”

We don’t need to go into the additional costs of the wars in Iraq and Afghanistan, Homeland Security (War on Terror) and military base expansion into 130 countries which have exploded the US fiscal deficits. Suffice it to say that these and all wars since Vietnam are wars that have been conducted without increasing taxes – a historical first which draws little attention or concern.

The present fiat currency system will end based on the strategy of Debase, Default and Deny! It is my opinion that it will be replaced by a system structured on the IMF and BIS’s Strategic Drawing Rights (SDRs) partially backed by precious metals. The question to be asked however is not what will be the replacement for fiat currency, but who will have ownership of the assets after this war ends?  Who will pay the requisite ‘tribute’ that goes to the victors?
 

"Fiat Paper Bombers Spotted Overhead!!”

 


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Thu, 10/28/2010 - 15:23 | Link to Comment Atomizer
Atomizer's picture

Never let a crisis go to waste.

Today's SDR Rate

1 USD = SDR 0.637122

SDR Interest Rate = 0.4%

Special Drawing Right (SDR) Currency Exchange Rate Conversion Calculator

http://coinmill.com/SDR_calculator.html

Thu, 10/28/2010 - 15:25 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

Yeah, good article, but he kinda lost me right here: "Our leadership placed America and the world unknowingly on a preordained destructive path because it was politically expedient and the easiest way out of a difficult predicament."

No, they did it because that was what was best for the Oligarchy.  The bailouts were extortion payments.  Now they want to destroy the US dollar, and inflate their way out of debt.

I agree that 'they' will try to bring in SDRs, but this SHOULD spell the end for the fiat currency experiment, so let us hope they are not able to continue it under a DIFFERENT NAME!

http://psychonews.site90.net

We currently have a series on the Currency Wars, Foreclosuregate, and the Oligarchy.

Thu, 10/28/2010 - 15:44 | Link to Comment Oracle of Kypseli
Oracle of Kypseli's picture

"No, they did it because that was what was best for the Oligarchy"

That is the truth.

SDR's could also be devalued when the leading powers agree. There will always be leakage.

What happened to the "Threat of National Security" when we would no longer control our own currency? And,

What happens if other countries start using dual currencies? 

No way out of this mess.

Thu, 10/28/2010 - 16:12 | Link to Comment tmosley
tmosley's picture

Prove it.  Define who the oligarchy is, and what is in their best interests.

I'm not saying you are wrong, but the author is right that it was politically expedient.  Expediency does not necessarily mean that it was not in favor of some class of oligarchs.  That is what politics is, the means by which the wealth of the nations is distributed.

Sure, the oligarchs are looking out for their best interests, but then, so is EVERYONE.  The real problem is that we have here a class of people (politicians) who get to decide who gets what.  Make no mistake, they hold the real power.  They might be friendly to a given group of oligarchs for now, but they will dump them like yesterday's garbage whenever it is convenient.  Lehmen Bros. is an example of this.

Thu, 10/28/2010 - 16:34 | Link to Comment Rasna
Rasna's picture

Prove it.  Define who the oligarchy is, and what is in their best interests.

This is a trick question, right?

Try:

  • Wall Street - Meaning Banks, especially TBTF, Investment and Mortgage
  • Multinational Corporations
  • International Banking Interests who own US Banks
  • Ruling banking families

Wealth and power have no boundaries.

 

 

Thu, 10/28/2010 - 21:08 | Link to Comment chinaguy
chinaguy's picture

+1 - this ain't so deep as a well...

the comment: "Sure, the oligarchs are looking out for their best interests, but then, so is EVERYONE".....is a fool's lament.

Yes, those pesky oligarchs...the ones who control the media, the banks, the government and the military...those pesky oligarchs are looking out for their best interests....and not yours.

You fool. This is documented - public domain information, not some conspiracy theory printed in USA Today. Just keep your head in the sand and let your family and grand children be repeatedly raped. Comfort yourself that your middle class countervailing force is an equal match for TPTB. 

 

 

 

Thu, 10/28/2010 - 22:47 | Link to Comment Clockwork Orange
Clockwork Orange's picture

Prove it? 

You're either a) kidding b) being provocative for your own entertainment, or c) ignorant ... and presumably new here.

The Oligarchy is precisely as listed by Rasna. 

Do you not know about the repeal of Glass-Stegal as orchestrated by Bob Rubin ... who shortly thereafter left to merge a deregulated Citibank together with Travelers and Smith Barney (See how that worked out - ticker symbol "C" ... then check out Bob's earnings over the past decade.)?

Do you not know that 2007's ponzi-orchestrated earnings resulted in record bonuses for Wall-Street ... that is until they were surpassed in 2009 (1 year after the most massive fraud in history nearly collapsed the global economy), only to be surpassed again in 2010?  For all the great work?

Do you not know that the rally from the bottom in March 2009 was spawned by a combination of money-printing generational theft and an accounting change that replaced mark-to-market with mark-to-whatever-hell-you-think-is-a-reasonable-price?  (the reason there were any profits to fund bonuses to begin with)

Do you not know that the risk-to-reward continuum is FUBAR'd totally?  That useless, inefficient, corrupt, sociopathic politicians can screw up every possible decision immensely with no personal consequence whatsoever?  Yet they get benefits that surpass the wildest dreams of the risk-taking private sector?

How about Barney Frank, the sociopathic, vote-buying, communist still being in office? 

Astonishing.

You're in the wrong space, dude.  Try www.disney.com

There you will find either the entertainment you seek or the sand in which you can bury your head.

Thu, 10/28/2010 - 22:57 | Link to Comment espirit
espirit's picture

Concerning SDR's...

1oz Silver = current spot ($USD 24.01)

              = 15.11 SDR's

but 15.11 SDR's = $USD 23.72

IMF math or is this indicative the DX has got to go down?

Thu, 10/28/2010 - 15:16 | Link to Comment NOTW777
NOTW777's picture

“What destabilized the system was war spending."

right, greenspan, MBS, RE bubble, banker fraud, fannie, freddie, wild gov spending, fraud ridden gov social programs,  had nothing to do with it

see article on prop 19

Thu, 10/28/2010 - 15:14 | Link to Comment Rahm
Rahm's picture

and there off... in the 'Race to Debase' they are neck and neck and neck and neck and neck and.....  But wait, out of NOWHERE, Bernanke is pulling out a *OH WOW FOLKS, THIS HAS NEVER SUCCESSFULLY IMPLEMENTED...........

Thu, 10/28/2010 - 15:18 | Link to Comment Cdad
Cdad's picture

In the words of the Dog,

"Let's light this crap candle!"

I still f'n chuckle every time I see those words....

Thu, 10/28/2010 - 15:18 | Link to Comment bozu
bozu's picture

DDD- rating

Thu, 10/28/2010 - 15:21 | Link to Comment youngandhealthy
youngandhealthy's picture

US authorities missed a golden opportunity during the fall of 2008 to rein in the TBTFs. The whole world will be paying for this. It was a huge mistake not to put harsh limits and rules on the TBTFs. Very very sad indeed

Thu, 10/28/2010 - 15:20 | Link to Comment trav7777
trav7777's picture

everyone acts like this is a war.  Brazil is BUYING our currency...China has been for decades.

They are ASSISTING us in the devaluation by propping the USD up longer than it should, devaluing themselves in the process.  Win/win for the CBs and big industrialists

Thu, 10/28/2010 - 15:26 | Link to Comment youngandhealthy
youngandhealthy's picture

You know why? Because the printing press is running in top-speed. It is not for fun Brazil, S Korea, are imposing capital control...they don't want any more shitty USD. And in order to bring it down after all this influx they need to "devalue" buy buying the shit.

Thu, 10/28/2010 - 15:28 | Link to Comment TheMonetaryRed
TheMonetaryRed's picture

+1

Of course they are. 

Thu, 10/28/2010 - 15:25 | Link to Comment TheMonetaryRed
TheMonetaryRed's picture

There's not gonna be protectionism. 

There will be trade disputes, certainly, but not protectionism. 

The U.S., Japan and Europe are headed down a monetization road. The other countries are all about strong currencies - SO THEY AGREE. 

Yes, I said "strong" currencies. That's the "Asian Tiger" model. And as a former red, I guarantee you - guarantee - that the Chinese are NOT going to debase. Commies are obsessed with strong currencies. 

Thu, 10/28/2010 - 15:29 | Link to Comment primefool
primefool's picture

By joing their beloved Renminbi to the Dollar at the hip - they have already debased their currency! They dont know what they are doing either. No one has a plan. This is where a Princeton PhD comes in handy - it gives you a belief system ( wrong) but a belief system nevertheless to take action - while the commander in chief - who looks more and more like a middle manager at Sears ( call a staff meeting - Now Guys - we have to Do Something - lets have a conference call, form a sub-commiteee) that kind of "leadership".

Thu, 10/28/2010 - 23:43 | Link to Comment TBT or not TBT
TBT or not TBT's picture

The Deficit Commission or whatever has met, like five times.   One more ought to do the trick.

Thu, 10/28/2010 - 15:26 | Link to Comment primefool
primefool's picture

Today's action is new and unusual. The Dollar is sinking and stocks are Weak. It aint sposed to be dat way!!

Thu, 10/28/2010 - 16:23 | Link to Comment malusDiaz
malusDiaz's picture

As a foreign entity: 

 

Step 1:  Sell your stocks / bonds/ whatever is demoninated in USD (falling 'asset' prices).

Step 2: Buy local currency (to take it home).  Falling dollar.

 

This is how falling asset prices + falling dollar at the same time can happen.

 

 

Thu, 10/28/2010 - 15:26 | Link to Comment Shooter McGavin
Shooter McGavin's picture

I don't know how you could have a system of SDR's partially backed by precious metals.  The SDR concept is just another paper currency controlled by an entity other than the Fed.  A new currency is either backed by precious metals or its not.

Thu, 10/28/2010 - 15:31 | Link to Comment youngandhealthy
youngandhealthy's picture

That would be better....FED sucks

Thu, 10/28/2010 - 16:29 | Link to Comment starfish
starfish's picture

Maybe if US gold gets transferred to the IMF and the IMF pays off the US Debt with SDR's?

Fri, 10/29/2010 - 09:41 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Or maybe the IMF already holds all of the US instruments traded through the DTC as some kind of collateral during the coming collapse? I've read some strange stuff in my day, but this article had me, especially in the end... I'd recommend it, pinch of salt at hand...

http://ming.tv/flemming2.php/__show_article/_a000010-000923.htm

ORI

http://aadivaahan.wordpress.com

Thu, 10/28/2010 - 15:31 | Link to Comment Something Wicke...
Something Wicked This Way Comes's picture

I am going to start a new tin foil etf. In or out mf'ers?

Thu, 10/28/2010 - 15:32 | Link to Comment carbonmutant
carbonmutant's picture

Word from the currency pits is that the big Traders are over printing the trades to push the market in to making a move.

Thu, 10/28/2010 - 15:35 | Link to Comment primefool
primefool's picture

Yeah you can come up with all kinds of monetary schemes - Yap stones, cigarettes whatever . Thing to keep in mind is the money system does not directly create any goods - or- services. It only acts by influencing human behavior - social engineering. The only criterion for success of a money system is if it induces productive cooperative behavior. I think on that basis this system is failing miserably - it is ripping apart social trust and cohesion and global cooperation - it is a Failure. And no new paper shuffling is going to fix it. People will need to figure out things at a more basic level - who are they, what do they want etc.

Thu, 10/28/2010 - 15:37 | Link to Comment primefool
primefool's picture

Yeah you can come up with all kinds of monetary schemes - Yap stones, cigarettes whatever . Thing to keep in mind is the money system does not directly create any goods - or- services. It only acts by influencing human behavior - social engineering. The only criterion for success of a money system is if it induces productive cooperative behavior. I think on that basis this system is failing miserably - it is ripping apart social trust and cohesion and global cooperation - it is a Failure. And no new paper shuffling is going to fix it. People will need to figure out things at a more basic level - who are they, what do they want etc.

Thu, 10/28/2010 - 15:38 | Link to Comment primefool
primefool's picture

Yeah you can come up with all kinds of monetary schemes - Yap stones, cigarettes whatever . Thing to keep in mind is the money system does not directly create any goods - or- services. It only acts by influencing human behavior - social engineering. The only criterion for success of a money system is if it induces productive cooperative behavior. I think on that basis this system is failing miserably - it is ripping apart social trust and cohesion and global cooperation - it is a Failure. And no new paper shuffling is going to fix it. People will need to figure out things at a more basic level - who are they, what do they want etc.

Thu, 10/28/2010 - 15:38 | Link to Comment primefool
primefool's picture

Yeah you can come up with all kinds of monetary schemes - Yap stones, cigarettes whatever . Thing to keep in mind is the money system does not directly create any goods - or- services. It only acts by influencing human behavior - social engineering. The only criterion for success of a money system is if it induces productive cooperative behavior. I think on that basis this system is failing miserably - it is ripping apart social trust and cohesion and global cooperation - it is a Failure. And no new paper shuffling is going to fix it. People will need to figure out things at a more basic level - who are they, what do they want etc.

Thu, 10/28/2010 - 16:50 | Link to Comment hambone
hambone's picture

Who are the good guys and who are the villains?  Who do we support?  Are we the evil upon the world now attempting to debase and default on our obligations to repay creditors (America = subprime borrower who took out double, triple our homes value to live an opulent lifestyle but now we ain't gonna pay that ridiculous loan back...America to world, you got jingle mail).

Thu, 10/28/2010 - 15:48 | Link to Comment hambone
hambone's picture

Dup

Thu, 10/28/2010 - 15:47 | Link to Comment KillTheFed
KillTheFed's picture

Here comes the land grab.  Wreck the currency and set-up a global one through the IMF or BIS.  Goodbye sovreignty, hello World Government.  At least the enslavement will be on the surface in seen in the light of day.

Thu, 10/28/2010 - 16:47 | Link to Comment doolittlegeorge
doolittlegeorge's picture

Land redistribution?  i don' think so. democrats are no dummies.  they set up this humongous entitlement known as "doctor care" in order to keep state governments under the thumb of a shockingly unpatriotic if not outright anti-patriotic albeit small part of the federal set.  in a word "power."  the so called "industrialists" haven't mattered for decades although the "media" is only now cracking its knuckles as they expose piecemeal everthing that goes on in our highly exposed political people's lives.  CNN itself went right into the Senator's office via laptop and Google" on the air in real time.  If that's not a direct threat against a United States Senator I don't know what is and if i were that Senator I would have come on air and told Anderson Cooper that myself.  Needless to say "the media's idea of national security includes dumping Anderson Cooper's Haitian story line and looking the other way as a cholera empidenic breaks out in Haiti while they are under our care."  In short "the media's power player numero uno" so keep watching them as though they're not watching you and everyone else for that matter.  The biggest holders of cable tv interests?  The politicians themselves though most are former and "among the billionaire class." (this is especially true in Ohio.) More to the point "money as mere ownership" is clearly and suprisingly for this site "limiting."  In the mfg'ering space "the money is in the making" and still is and needless to say "it is honest money."  And when talking media or transports "it is in the moving" as well.  When talking tranports "ownership" is clearly defined save for "when moved through the United States Postal Service" whereupon your item is then owned by the United States Government to do with as they see fit.  When moved "through media" it is "owned" by the "media mogul" which clearly "he does as he sees fit."  Spying on citizens of course is illegal.  Needless to say "the government understands this as well and is spying on the media first and foremost."  In other words "simply spooging it over to the internet, Cablevision, doesn't change the felonious conduct" if that is what is going on of course.  Now excuse me while i return to "the art and honesty" that is a simple Hollywood movie and music from that greatest of gifts from the 80's:  a compact disc and with what may be the only honest real time media left in our world: professional sports.

Thu, 10/28/2010 - 18:16 | Link to Comment Psquared
Psquared's picture

There is a lot of information there to read and digest. But his opening paragraph grabbed me by the short hairs. I think I agree with the thesis. They nationalized FNM and FRE, but they failed to seize the banks. By treating the gangrene in the toes they neglected the infection in the foot and leg which has now spread to the kidneys and liver and threatens the heart.

Thu, 10/28/2010 - 19:32 | Link to Comment flaunt
flaunt's picture

How about instead of accepting some damnable IMF currency solution we demand free market money?  Why should we allow any government to tell us what we will and will not accept as currency?  If you want to use gold, use gold, if you want to use a roll of charmin toilet paper, have at it.  People aren't totally stupid... If they have a stake in the game and freedom to choose they will use reliable currencies and reject all others.  The monopoly on currency must be broken during this cycle of destruction.

 

 

Thu, 10/28/2010 - 19:46 | Link to Comment moofph
moofph's picture

"It will not end well as we naively get caught in the spider’s carefully laid out trap."

...thanks Gordon...and i agree.

Thu, 10/28/2010 - 19:48 | Link to Comment Gloomy
Gloomy's picture
Japan Risks Being `Totally Behind' in Fighting Deflation as Fed Gears Up

The Bank of Japan’s inflation forecast shows it won’t meet its own guidelines for price stability, a prediction that signals policy makers haven’t pumped enough cash into the economy.

 

From Bloomberg

Thu, 10/28/2010 - 20:34 | Link to Comment Pseudo Anonym
Pseudo Anonym's picture

The Rothschild banking family learned this hundreds of years ago and is the reason why they moved from solely owning gold to energy, mining, agriculture and selective base materials process production.

The closer to the heart of the problem you get, the fewer comments. Have you noticed that? Do you dare to say who these hofjuden are working for? That's what I want to know.

Thu, 10/28/2010 - 21:04 | Link to Comment tony bonn
tony bonn's picture

very good...

"Though Gold is real wealth it does not grow wealth, but rather stores it or protects it from the debasement of paper ‘trading’ instruments. "

not entirely so. see antal fekete on the real bills doctrine. gold is far more important than a store of wealth.

Thu, 10/28/2010 - 21:17 | Link to Comment TheGreatPonzi
TheGreatPonzi's picture

"Though Gold is real wealth it does not grow wealth, but rather stores it or protects it from the debasement of paper ‘trading’ instruments. "

When everybody around you gets poorer while you don't, you get richer. Gold does not indeed produce above-average returns in normal inflationist times, but solely stores value ; though, in the case of hyperinflation, it makes you richer relatively to other people.

Thu, 10/28/2010 - 21:21 | Link to Comment gwar5
gwar5's picture

Debasement of the USD and defacto default is just our way of saying to the world, "we still love you", and is a lot more polite than just saying "we're not going to pay you back".

I was saying in 2009, the democrat congress is spending money like someone who is intentionally maxing out all the credit cards in a frenzy like someone who is just about the file for bankruptcy. Wuzz right.

Thu, 10/28/2010 - 22:04 | Link to Comment JimboJammer
JimboJammer's picture

95 %  of  americans  in totally  IN  The  DARK   on  this  banking

crisis /  gov.  debt.   I  go  to  parties  and  bring  this  up....

nobody  is  up  on  it....  The  Average  American  has only 1 oz.

of  Silver  and  no  Gold ...  just  cash  in  the  bank...

Thu, 10/28/2010 - 22:04 | Link to Comment JimboJammer
JimboJammer's picture

95 %  of  americans  in totally  IN  The  DARK   on  this  banking

crisis /  gov.  debt.   I  go  to  parties  and  bring  this  up....

nobody  is  up  on  it....  The  Average  American  has only 1 oz.

of  Silver  and  no  Gold ...  just  cash  in  the  bank...

Thu, 10/28/2010 - 22:05 | Link to Comment JimboJammer
JimboJammer's picture

95 percent   of  americans  in totally  IN  The  DARK   on  this  banking

crisis /  gov.  debt.   I  go  to  parties  and  bring  this  up....

nobody  is  up  on  it....  The  Average  American  has only 1 oz.

of  Silver  and  no  Gold ...  just  cash  in  the  bank...

Thu, 10/28/2010 - 22:07 | Link to Comment JimboJammer
JimboJammer's picture

95 percent   of  americans  in totally  IN  The  DARK   on  this  banking

crisis /  gov.  debt.   I  go  to  parties  and  bring  this  up....

nobody  is  up  on  it....  The  Average  American  has only 1 oz.

of  Silver  and  no  Gold ...  just  cash  in  the  bank...

Thu, 10/28/2010 - 22:07 | Link to Comment JimboJammer
JimboJammer's picture

95 percent   of  americans  in totally  IN  The  DARK   on  this  banking

crisis /  gov.  debt.   I  go  to  parties  and  bring  this  up....

nobody  is  up  on  it....  The  Average  American  has only 1 oz.

of  Silver  and  no  Gold ...  just  cash  in  the  bank...

Thu, 10/28/2010 - 22:07 | Link to Comment JimboJammer
JimboJammer's picture

95 percent   of  americans  in totally  IN  The  DARK   on  this  banking

crisis /  gov.  debt.   I  go  to  parties  and  bring  this  up....

nobody  is  up  on  it....  The  Average  American  has only 1 oz.

of  Silver  and  no  Gold ...  just  cash  in  the  bank...

Thu, 10/28/2010 - 22:07 | Link to Comment JimboJammer
JimboJammer's picture

95 percent   of  americans  in totally  IN  The  DARK   on  this  banking

crisis /  gov.  debt.   I  go  to  parties  and  bring  this  up....

nobody  is  up  on  it....  The  Average  American  has only 1 oz.

of  Silver  and  no  Gold ...  just  cash  in  the  bank...

Thu, 10/28/2010 - 22:07 | Link to Comment JimboJammer
JimboJammer's picture

95 percent   of  americans  in totally  IN  The  DARK   on  this  banking

crisis /  gov.  debt.   I  go  to  parties  and  bring  this  up....

nobody  is  up  on  it....  The  Average  American  has only 1 oz.

of  Silver  and  no  Gold ...  just  cash  in  the  bank...

Thu, 10/28/2010 - 22:07 | Link to Comment JimboJammer
JimboJammer's picture

95 percent   of  americans  in totally  IN  The  DARK   on  this  banking

crisis /  gov.  debt.   I  go  to  parties  and  bring  this  up....

nobody  is  up  on  it....  The  Average  American  has only 1 oz.

of  Silver  and  no  Gold ...  just  cash  in  the  bank...

Thu, 10/28/2010 - 22:17 | Link to Comment New_Meat
New_Meat's picture

I think that is a record.  Congrats, Jimbo.

Thu, 10/28/2010 - 22:46 | Link to Comment Clockwork Orange
Clockwork Orange's picture

Prove it? 

You're either a) kidding b) being provocative for your own entertainment, or c) ignorant ... and presumably new here.

The Oligarchy is precisely as listed by Rasna. 

Do you not know about the repeal of Glass-Stegal as orchestrated by Bob Rubin ... who shortly thereafter left to merge a deregulated Citibank together with Travelers and Smith Barney (See how that worked out - ticker symbol "C" ... then check out Bob's earnings over the past decade.)?

Do you not know that 2007's ponzi-orchestrated earnings resulted in record bonuses for Wall-Street ... that is until they were surpassed in 2009 (1 year after the most massive fraud in history nearly collapsed the global economy), only to be surpassed again in 2010?  For all the great work?

Do you not know that the rally from the bottom in March 2009 was spawned by a combination of money-printing generational theft and an accounting change that replaced mark-to-market with mark-to-whatever-hell-you-think-is-a-reasonable-price?  (the reason there were any profits to fund bonuses to begin with)

Do you not know that the risk-to-reward continuum is FUBAR'd totally?  That useless, inefficient, corrupt, sociopathic politicians can screw up every possible decision immensely with no personal consequence whatsoever?  Yet they get benefits that surpass the wildest dreams of the risk-taking private sector?

How about Barney Frank, the sociopathic, vote-buying, communist still being in office? 

Astonishing.

You're in the wrong space, dude.  Try www.disney.com

There you will find either the entertainment you seek or the sand in which you can bury your head.

 

Thu, 10/28/2010 - 22:57 | Link to Comment vainamoinen
vainamoinen's picture

Brilliant Piece!!! Thanks to Gordon Long for his ongoing analysis and to Tyler for keeping us posted.

tmosley: The question of "who are the oligarchs" is an important one.

Let me ask you this. Do you know who the wealthy, high level players are in your own community or county. The reason I ask is that I believe that most people cannot answer this question - but they might mention local politicians or socialites because they see their names in the local paper. These public "personalities" are not the hidden power in a community - whatever their perceived political or social clout.

 

Because of the nature of my employment I happen to know, after many years in the game, who these individuals are locally and I can guarantee you that the average person does not know who these people are or that they even exist. You seldom read about them in the paper and they maintain a very low profile in the community - except when they are doing charitable giving or some such thing and, even then, their is little fanfare.

 

Why? The answer is obvious. It is best way for them to pursue their self interest in a way that draws the least attention to themselves. This is the best way to generate and maintain great wealth over time - hidden from the prying eyes of the press and public. This is how the high level games is played and everyone in that game knows it. Either they have learned it in their own lifetime (these are the smart ones) or, better yet, they have been bred to it for generations.

 

I don't deny the Bill Gates types in the world. But, the "dudes" at Enron thought they could get into the high game too. They blew it because they didn't understand it - and, quite possibly, they got used by those in the background. I don't know.

 Just as an example I would have you do a search on youtube for Evelyn Rothschild and watch a couple of his interviews. What do you see?

A kindly old gentleman who is just the nicest person in the world - and who got out of the dreary and boring banking business years ago. And keep in mind while watching you just may be seeing one of the most - if not the most - wealthy person in the world - far beyond the riches of Gates or Buffet.

A perfect example of the game at the highest level!!!

Now tell me. Who are the local oligarches in yout community?

Are you sure?

Maybe you need to take another look at Evelyn Rothschild - - -

 

vainamoinen

 

 

Fri, 10/29/2010 - 06:10 | Link to Comment shortus cynicus
shortus cynicus's picture

Real power isn't only about money. Real power is ability to kill without punishment, or even without any evidence of crime.

That's why Assassins took control over huge territory without conquering it.

But they could not threaten Greeks and Romans, because they were democratic.

In Democracy there was no single person to be assassinated !

That why, I suppose, real power belongs for secret agencies. Wealthy people are mortal, so they must pay secret services for securing them and securing their earnings. But history learns, that people securing you, in a long term take control over you - let take Russian revolution as one example.

 

Thu, 10/28/2010 - 23:01 | Link to Comment vainamoinen
vainamoinen's picture

post script:

tmosley - my previous comments are not intended to offend - just to inform.

think about it.

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