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Submitted by Sandeep Jaitly, Director of Economic Research, Gold Standard Institute, Vienna
Guest Post: Duration And Perpetual Debt (pdf)
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The problem with chasing interest when it hits a certain level is that it run faster than the legs all people are born with.
Especially when there are around five different exceptions on consumer credit. The fact the banks mistook themesleves for the customers in the end. When it's the banks that will meet their end.
Jason DeSena Trennert's "Treasurys and the Danger of Short-Term Debt" (op-ed, Sept. 10) is incorrect and fails to reflect readily available public information about U.S. debt management.
Mr. Trennert accuses the Obama administration of relying on short-term debt to keep interest expense and budget deficits low. His statement that debt maturing over the next three years exceeds 60% is incorrect. The actual figure currently stands at 55% and is declining. This is the lowest proportion that we have seen in more than 20 years.
Leaving aside his figures, Mr. Trennert's general premise is not supported by the actions taken by the Treasury Department over the past 18 months. We have explicitly pursued a strategy of reducing reliance on short-term debt. Over this period, the average maturity of the debt has extended at the fastest pace in history—from 49 months to more than 58 months today. We expect to see this extension continue. Moreover, since May, we have reduced Treasury borrowing capacity by nearly $300 billion on an annualized basis, concentrating these cuts in shorter maturities.
While the current low interest-rate environment has been beneficial to taxpayers as we have moved through this period of elevated borrowing, we have focused our management on debt structure rather than on attempting to time interest rates. By maintaining regular and predictable communication to the market, we will achieve the lowest cost of financing over time.
Demand for our securities remains extremely strong and we expect this to continue. With the economy on a sustainable growth path, we can and will begin to bring down our nation's deficits.
Mary J. Miller
Assistant Secretary, Financial Markets
Treasury Department
Washington
http://online.wsj.com/article/SB1000142405274870337650457549168101125176...
With a straight face, no less.
Good post.
Also mentioning the fact that so much short term debt is dangerous if the tide turns. If the tide turns, they might have a problem funding 50% of the deficit and if that is the case, the FED has to print 6 trillion $ to cover it. Which they will. And thus destroying the dollar once and fore all.
A bunch of broke idiots buying each others debts isn't going to fix anything.
http://www.presstv.ir/program/142939.html
I'm sorry, but to start out a paper saying "in the beginning silver was money." read your adam smith, labour is always the lowest common denominator for money
And labor is stored how?
Great comeback! :-)
Probably the best answer would be "whatever products you created with that labor".
The comeback to which is probably "and how do you keep the eggs you produced from spoiling (leaving out the role of your chickens)?".
Probably the best answer would be "beware falling for the trap of Platonic ideals", especially when discussing concepts that so many predators have reasons to re-define in ways that further their peculiar agendas.
What I always try to point out is... the importance of utterly eliminating every form of "fiction" in the process of trade/exchange/commerce. As long as humans only trade real, physical goods (gold, silver, copper, lumber, eggs, etc) for real, physical goods, the non-productive criminal-predator-sect (often called gangster-banksters herein) cannot become the richest and most powerful scumbags on earth without performing a single productive act their entire lives (just zillions of destructive acts).
Aristotle explained over 2000 years ago why gold is the best choice to be the "most common real, physical good for trade / exchange". His answer is still rather rational.
Strike!
Actually, labor *can* be stored -- in human property that you "own".
I'm not trying to be cute, since I think both points are valid (first "silver" was money, no, first "labor" was money), but the "world's oldest profession" idea is that human labor is convertible to something you want.
The Feudal system fundamentally states currency is human labor. You could actually sell your children, or sell yourself, into servitude to the local Baron (who would give you a plot of land you could work, and in exchange protect you from marauders).
Today, that's being done with the US Federal Government: Students sell themselves into servitude to the Federal Government for "student loans", rack up six-figures in debt (including debts so high they physically cannot be paid off in the person's lifetime), and that person's future labor is claimed by the government (since these debts cannot be discharged in bankruptcy). It's servitude. It's Feudalistic. Humans are property owned by someone else.
True, you can't hold it in your hand, and those darned people may skip the country or die, but as a whole, that capital is literally collateral that can be moved around. So, humans-as-money doesn't work so well for individuals (the scale is too small, and people don't like the term "slaves"), but it works *great* for governments.
What would happen if US citizens found out they and their descendants were pledged by the US Treasury to the (private) Federal Reserve Bank in 1933 as collateral against loans to the Treasury by the Fed? Literally, and legally, the US citizens are the property of the Fed.
[EDIT] Oh, forgot to mention: Humans-as-capital is the way your local "bookie" or "loan-shark" works: You borrowed without collateral, and you'd better be able to make your payments (you are the loan-shark's property until it is paid back, which may never happen.)
Nice exposition!
After a few more moments of thinking, humans-as-capital (property) is actually pretty common in society today:
The fundamental issue is that the person that "owns" these people is "rich" (has "wealth") in that he has capital assets he can deploy to get what he wants (i.e., "wealth is merely stuff people want").
I'm sure I could think of more (or others could). The fundamental issue is that people that have *nothing* cannot pledge capital, but still want to leverage (e.g., borrow money for something). In that case, the only thing that you can pledge is your future possible earning potential.
In that case, what you pledge is future possible human labor. Because of the risk (e.g., the loan is not collateralized, or is "unsecured"), the "interest" you must typically pay is HIGH.
Remember, when you borrow against your future income, that means you are de-valuing your future income: Your future income is not worth much (to you) because it is not yours. But, you must still get-out-of-the-bed every morning in the future for something that is decreasingly worthwhile (to you), but likely increasingly expensive to you (because of the time-value-of-money for the loan transaction).
Cowboy bunk houses?
I have to agree with rocky, how does one store "work"
Some of the better minds here are still confused on this point. Farmers have stored work in grain bins, wine cellars, and their herds for, oh, at least 10,000 years now.
Not a large point, but this is.
Gold, silver, shotguns, and all durable goods are stores of value. They are not currency because you won't spend them. Neither will I. That's why the gods invented fiat. Here it is in classical form
"Bad money drives out the good." Gresham's Law.
Currency is the least awful crap people are willing to accept in exchange. Now as to why the dollar is still currency, pay your nickel and take your shot.
1 The idiot Arabs still trade oil for it.
2 The whole world is in deep kimchi, also known as up to your ass in debt. Dollars can be used to pay debt.
3 Sabe dios. Only the gods know - but it can't last.
Fine,
1 All fiat currencies, throughout history, have failed eventually.
2 All governments using fiat currencies have been used to fund their own deficits, which causes the currency's inflation.
3 Eventually faith is lost in the currency and everyone quickly moves on to a new one(either a foreign currency, gold/silver or a new currency issued by their government).
Piggybacking off Gresham's law: After bad money drives out the good, eventually good money will drive out the bad(sorry, forgot the name of this law).
Were still in early stages of "loss of faith"-inflation(if you say hyperinflation, people become polarized very quickly). I think of it like bacteria multiplying. If you started with one and it multiplied every hour, at the beginning their numbers wouldn't even be that significant and could be disregarded as taking down the whole system. However, once you double any number enough times it will become undeniable to ignore.
Right now, every single day, new people are becoming aware that the FRN isn't sustainable. Once you lose your faith, it is probably near impossible to get it back without a large systemic change. Once the number of faithless becomes large enough, then you get the dreaded "H" word.
History has repeated this time and time again. It would be interesting to hear the commentary from the faithful just before other hyperinflations and hear how foolish it was that their beloved currency would become worthless within the span of a year.
Oh, and in regards to storing labor. In a giant economy, which is mostly service-based, there would also be massive deflation of the value of labor for those that never really produced anything in the first place. Deflation in terms of gold/silver, obviously.
He would have done better to compare to housing and banking industries, not silver. What a wasted point.
Yeah but the author's still only half right. The oldest known coins were electrum, silver-gold alloy.
Work needs to be put into 2 categories.
1. Capacity
The capability to create something and the resources at hand.
2. Prestations
The goods created already through work.
So to answer your question: You can't store work. Keeping the capacity at level only costs money and is not a activa.
Prestations stop once you write them in the books.
But there if something called "work portfolio" meaning work that needs to be done in the future and is already booked to keep capacity at +- 90% to be profitable. But that one is hard to bring to the bank unless you have it in writing.
OK! To all the above posts about "storing labor":
I was just pointing out to the Mustachioed gentleman that he dismissed an article for some silly reason about silver. He apparently read no further. The use of silver was a convenient vehicle or springboard for the thesis. I get irritated by people who rise above the ordinary in their own eyes by pseudo-intellectual opposition to an obviously studied article.
honestann points out that PMs are a convenient and acceptable way to store one's wealth/labor.
mikla wanders off into an abstract monetary system, useful for consideration and very clever.
kaiserhoff puts a nice polish on the arguments and brings them together.
Hephasteus wins the entire debate: Cowboy bunk houses.
Now, everyone back to work. The water cooler debate is over.
Nice summary.
I'll also add that my "wandering off into an abstract monetary system" ;-)) (e.g., feudal human capital) does not scale well for international transactions.
(The local pimp might be locally "wealthy" because of all his human capital, but he can't buy a tanker of oil with it.)
However, in times past, that local human capital was useful if you went to war (because that's always local -- you physically move your human capital to where the battles are being fought).
Not to mention that the pimp's hos can get fat on him. A different sort of inflation, no?
Ok, I was *so* tempted to post a picture.
But then, I thought better of it.
The following link is an exercise for the reader.
Aargh! If thats what Ho's really looked like, I'd go long flour, because that's what you would have to roll em in in order to find the ....
Mr. Moustache,
You might want to avail yourself of the writings of the Austrian School. While Adam Smith contributed greatly to the understanding of economics, the Austrians corrected a number of his errors, not least of which is: how are prices formed. I think this is what you refer to when you say labor is money (value).
Value is not the same concept as money. And certainly there has never been a time when trade was denominated in labor. People have used salt, cattle, spices, wheat, cigarettes, and of course gold and silver.
Yeah! So there. What the Bear said.
"These are grave problems for sure; however they overcomplicate the issue
unnecessarily and are symptoms of a malign financial system rather than its cause."
only a Kraut can write like this- Sandeep>Kraut> English
"The stock market shall soar not because of exponentially increasing productivity, but because the deposit ‘end-game’ was never allowed to be concluded – nor will it ever be."
Someone sounds long a secret silver mine in Berchtesgaden area.
I keep a hard copy of Friedman near my head when I sleep to protect me from this drivel.
Sandeep is actually an Englishman of Indian extraction.
You know nothing so go get fucked, idiot. And go short the stockmarket while you're at it.
You'd should stop sleeping on hardcovers...it's having a negative effect on your waking thought processes.
Excellent, Rook to h6
Ooops....castled too soon.
As the author points out the first 'bankers' needed a backdrop of unquestioned integrity to practice their 'profession'...at the time they were known as money changers and they set up shop in The Temple.
They were so despised and recognized as leaches that Jesus got into hot water with the authorities for going into the bank...er temple, and 'throwing down their tables'.
Bankers, working with governments, have always been crooks...why should we expect them to change? We know that human nature is one of the few constants throughout history.
BTW, I knew that trouble was looming when Greenspan began allowing the overnight sweeps of demand deposits. That was a big tell for anyone paying attention...but not the only tell.
Both you and the author are mixed up, actually.
Ancient temples did not function as communal savings banks. Ancient people kept their gold and silver in their own safekeeping, often worn on their bodies, sometimes buried in the ground. The money changers that Jesus rebelled against were essentially licensed collectors of temple tribute.
Banking grew from rich families lending out their own coins. Hence the family nature of early banking.
I believe this chap is accurately described the Comex & LBMA. Both are under attack & on fire for their practices. The solution is obvious; buy gold & silver to further add to their burdens & eventual blow ups when confidence turns against fiat currencies.
+1 They can't stand the truth. Commodities seem to be the weakest point in the ponzi right now, but I'm still waiting for the free fall in real estate.
Max Keiser has a good On The Edge with Jim Willie of Goldenjackass.com this weekend;
Part 1
http://www.youtube.com/watch?v=IDuZmmz3dqg&feature=player_embedded
Part 2
http://www.youtube.com/watch?v=5OLyLifIkts&feature=player_embedded
Part 3 http://www.youtube.com/watch?v=MaWi5heq5mw&feature=player_embedded
A friend of mine went long gold three days after Brown sold half of Britain's gold reserves. He's still long!
DavidC
Nice, simple picture of banking schemes that meaningfully extends to our current predicament, nitpicking notwithstanding. I suspect the title will be intimidating to many, who won't even bother reading it. Too bad.
Money as debt (credit) is a fatally flawed system. It MUST be gamed, as human greed springs forth from the primitive part of our brains. AND, it must eventually collapse as it's very existence is based upon the need for constant expansion, and constant expansion is simply contradictory to the nature of all healthy human and non human systems.
The financial system’s asset base is mainly composed of quasi-perpetuity government bonds (without perpetuity funding) and sour paper collateralised by illiquid assets.
It must be appreciated that funding any loan with a funding source that is not of equal (or greater) duration is in effect equivalent to lending out demand deposits.
The natural determination of durations has been so grossly distorted that the only salvation is to nationalise any form of loss. This is only possible under a fiat standard.
By George, I think he's got it!
outstanding paper....thank you mr jaitly.
It's "root," not "route."
Even the term "perpetual debt" is an understatement. It is a debt BLACK HOLE!
Right, so it's deflation back to 1915, or hyper-inflation.
And TPTB won't allow deflation.
That leaves....
The only issue I have with Sandeep's thesis is whether the coffee producers will stand for their product going for a shilling a cup.
Coffee might move into 'backwardation' long before that. The purchasing power of physical notes & coins may increase but that doesn't mean they are more 'money' than before.