Guest Post: Ghost Money

Tyler Durden's picture

Submitted by Daniel Cloud of Princeton University

Ghost Money

Some people in Asia burn joss paper, also called ghost money, on the Lunar New Year, to give their deceased ancestors something to spend in the afterlife. Because ghost money doesn’t represent a claim on any actual goods or services in this world, there is no reason for its issuers to exercise any particular restraint, and in Singapore it is possible to find notes issued by the First Bank of Hell, with the mythical Jade Emperor’s picture on the front, in denominations ranging into the millions and billions of dollars. Perhaps we’re counting on this charming tradition to make Asian investors comfortable with the prospect of continuing to add to their holdings of European and American sovereign debt, despite the obvious fact that the money they’ve already lent us is money they’ll never get a chance to spend in this life. 

We, in the West, all think seem to think that a sovereign debt crisis is a problem that can be deferred for a few years. We aren’t going to default or inflate quite yet, not for a little while still, and we think our creditors should be as insouciantly untroubled about what might happen a little later on as we are. To anyone, like China’s central bank, who is irrevocably committed to holding large amounts of our sovereign and quasi-sovereign debt to maturity, however, default or restructuring in ‘a few years’ is default or restructuring that will occur while he is still holding many of the same bonds he has now. It is money he has already lent us that will not end up being repaid.

We aren’t even trying very hard to pretend that we intend to pay it. We’re more or less at the point of no return now, yet a comprehensive reform of Medicare, Medicaid and Social Security, the only thing that could save the US from eventually defaulting on our obligations, is on absolutely nobody’s political agenda, and by design won’t be until after the crisis happens. The people who manage China’s reserves aren’t stupid. They do read the newspaper. If they know, now, that we are headed for effective default or restructuring in a few years, they should write the bonds down now. But if they are worth less, now, than they are trading for, why would they go on buying more of them?  How could they? For them, the sovereign debt crisis is already happening. Every day, they have to decide whether to keep on throwing good money after bad, or lose everything right away.

The rational thing for an investor to do under these circumstances is to price sovereign debt on the basis of its actual risk of effective default. We can debate whether the yields of treasury bills are adequate compensation for the risks associated with holding them. If Europe and/or the United States are at all likely to have a sovereign debt crisis at any point in the next decade, though, the prices of ten year and thirty year bonds are still completely wrong. As there’s absolutely no plausible story about how the growth needed to bring budget deficits down to prevent this is going to be generated – in fact the current plan in Europe is to repeat the mistake of 1931, and actually raise taxes in a depression, a path the US government also seems interested in following – the risk of such a crisis is objectively quite high, and the value of the bonds must be considered significantly impaired, whatever our utterly useless rating agencies say.  A yield of three or four percent is just not adequate compensation for all this risk – not in Europe, not in the United States, and not in Japan, where yields are even lower. But if long-term government bonds were valued as if a sovereign debt crisis at some point in the next decade was as likely as many of us think it is, the European banks, at least, would be in very grave trouble.

The apparent plan, in both Europe and the US, has been to recapitalize the banking system through the ‘carry’ trade, by encouraging banks to borrow short (partly from government) and lend long (largely to government.) Thus, the banks were to be recapitalized by the difference between the rate at which the government lent and the rate at which government borrowed. The government, however, was somehow supposed to not go broke in the process, though it certainly sounds like a bad deal to a naïve ear. (Of course, they are going broke…)

Analyzing the transaction a bit further, we can see that the money the governments lent to the banks, being fungible, was in fact the same money lent to the governments by the banks, so the banks were essentially lending themselves money via the government. This was supposed to recapitalize them, somehow, and to shift the risk of their bad assets to someone else. But who? Who ended up holding the risk? In America, the Fed actually purchased vast amounts of mortgage-backed securities, taking the risks associated with them out of private hands. Where did it go? To the guarantor of the Fed’s balance sheet, the US government. And from there? Into the bond market, which funds the operations of the US government. And from there? Back to banks and private savers, where it started, where it always ends up, meaning that exactly nothing at all was accomplished by the whole expensive cycle.

The same sort of story could be told about every recent government intervention in markets. Risk has systematically been shifted from the banking system to the banking system. It is hard to believe that many banks will actually turn out to have been successfully recapitalized in this way, once the system equilibrates. Without any significant cuts in government spending or increases in taxes (in fact most governments are actually spending more, in the name of stimulus) the only new money available to the government comes from financial markets themselves, so using it to try to rescue financial markets on more than a short-term basis is probably futile.

Simply endlessly printing more money is more likely to lead to catastrophic failure – devaluation, inflation, default, or all three – than to any permanent rescue of the situation. That, in an open economy with large cross-border trade and capital flows, debasing your currency is not a long term solution to any real economic problem is something we’ve known for a rather long time. A one-off devaluation is sometimes useful, but the endless abuse of segniorage has not traditionally been viewed in a very favorable light. Someone will pay in the end; now we are beginning to see who it is. Anyone who holds a lot of sovereign debt is at risk of eventually discovering that it is fairy gold, ghost money, mere joss paper that didn’t ever correspond to any pile of goods and services actually available in this world. (Imagine an endless stream of ships leaving America full of cargo and returning from China empty, as if we were paying war reparations, individual Americans making terrible personal sacrifices to make sure the debt was paid…. The scenario is just so implausible.)

Macroeconomic policy in the developed world makes equally little sense. Ben Bernanke apparently only knows one trick, Keynesian stimulus with quantitative easing, which he advocates as the proper response to any situation – terrorism, a tech bubble, a banking crisis, a currency crisis, fiscal insolvency, Y2K, a Martian invasion, you name it. The problem is that, this time, we also apparently only ever seem to have considered one scenario, one possible world. The stimulus was supposed to work. The developed economies were supposed to bounce back strongly in a year or two. Apparently the probability weighting we attached to this particular scenario was one hundred and one percent.

Historically, many economists have been skeptical of the efficacy of Keynesian stimulus. Certainly, it’s no magic bullet. If there is something fundamentally wrong with your economy, if there are unsustainable imbalances or supply-side shocks, Keynesian stimulus can’t magically cancel all the pain you need to go through to correct the real-world problem. If you’re already spending more than you have, Keynesian stimulus will only make things worse. If your problem is that new technology has made many workers’ skills obsolete, Keynesian stimulus will not make the technological change go away. The idea that Keynesian stimulus could have prevented the Great Depression is a science-fiction story about parallel worlds; there’s no real-world evidence for it at all, we should take it just as seriously as any other plausible fiction. So it would have made sense to give some weight to the possibility that the stimulus might not work, the possibility that the depression would drag on.

In that possible world, the world that, as it now turns out, happens to be the actual one, borrowing as much as we have in the last two years to ‘tide us over’ will turn out to have been a very dangerous thing to do. Without a strong recovery in employment and tax receipts, large deficits will continue into the indefinite future, even though we’re already rapidly approaching a level of debt that is unsustainable.  Default, devaluation, inflation, or all three are becoming inevitable. And a world in which the United States is effectively bankrupt is going to be a chaotic one, as we cut the only significant military force left in the world back to levels that will make it impossible for us to play our current role of guardian of the world’s security. We’re all in; absolutely everything is now in play.

It was unbelievably reckless to bet the future of the whole world on the forlorn hope that state policy could overcome economic reality, but that’s what we’ve all done, and the current Treasury Secretary seems desperate to have us continue. Presumably the decision was made on a business-as-usual basis, by consulting constituencies and considering appearances.  Suicide, but sober, responsible, thoroughly canvassed suicide, with all the stakeholders having a finger on the trigger. The rapidly approaching catastrophe should finally allow Bernanke to definitively displace Victor Geraschenko, who presided over the agonizing collapse of the Soviet economy, as the worst central banker in history.

The main Western response to all this – to the fact that we’ve borrowed vast sums of money from the Chinese and other people, some of whom are much poorer than ourselves, and don’t actually have a plan that would let us pay all of it back – seems to be to feel anger at China for having put us in the position of being able to default on them. Somehow, we all manage to construe this situation as them having nefariously acquired power over us while we weren’t paying attention, even though in fact it’s the creditor, not the debtor, who gets hurt most in a default. But that’s idiotic, it’s the sort of justification people used to give for persecuting Jews.

When you borrow a lot of money from someone, if you’re a certain unpleasant sort of person, when they ask for it back, you find some excuse to not pay them, some reason why the whole situation is an unreasonable imposition on your patience, thereby absolving yourself from the guilt you ought to feel for having cheated someone who trusted you. Apparently that’s what the West has become, a whining, self-righteous deadbeat who thinks everyone else ought to pay for his luxuries and throws a temper tantrum when he is asked to give back any of the money he’s borrowed. We’ve all become Homer Simpson, and we don’t know whether to resent or laugh at the pitiful schmucks who actually expect us to take responsibility for our own choices.

Should the Chinese people be angry about all this? Yes, probably, but not at the West. These things happen, and it’s not the job of the American voter to take care of ordinary people in China. That’s the responsibility of the Chinese government, so if citizens of China are annoyed at the situation, it’s the incompetence, or speaking a little more accurately the heedless folly of their own government that should annoy them. The Communist Party lent the Americans the money, so it’s the Communist Party who’s to blame if the gamble has not paid off.

What were they thinking when they did it? Contemptible things.

Everyone in China can agree on the goal of restoring that nation to what Chinese people see as its rightful place in the world, a position of paramountcy, or at least equality, that will undo the humiliations of the last two centuries. The question is how to get there. What Mao tried would never have worked. If you want to master a skill which you currently lack and which someone else has, you watch what they’re doing, and learn how to do it their way, first, before trying to make up some much better way of your own.

What the Chinese Communist Party is trying now is a little better, but not much. Having first tried the thirteen-year-old’s method of completely ignoring everything everyone knows about how economic development is done and making up some imaginary way of doing it on the basis that it’s emotionally satisfying, they’ve now moved on to the seventeen-year-old’s method of taking a casual glance at what the other people are doing and supposing you’ve mastered it because you’ve seen a tiny part of it, without ever really bothering to find out how hard it actually is or whether the methods you’ve seen are appropriate ones for your situation. Actually, your reckless teenage way is better… until it kills you, that is.

Having failed definitively with Maoism, the CCP decided it ought to blindly imitate whatever it was that had worked for the other Asian economies. If export-led growth with the developed world as the primary market had worked for Singapore and Taiwan and South Korea, presumably it would work for China as well. The problem is that ‘presumably’.

Export-led growth works well in a world where the price elasticity of demand for the exported goods is effectively infinite, where any decrease in costs will always lead to an expansion in sales. Even in a world like that, though, sooner or later the very development it brings about will put upward pressure on export prices. So even in a world where the first condition continues to hold indefinitely, sooner or later it will be necessary to switch to growth driven at least partly by domestic demand. But large countries like Japan and China are bound to run into another barrier as well. Eventually their exports will become so big relative to the economies they are exporting to that people in those countries will not be able to afford to continue increasing their purchases of the exports at the same rate year after year. A country the size of Singapore can afford to ignore the limits of their customers’ purchasing power. But both Japan in the ‘80’s and China in the last decade found themselves having to lend their export earnings back to the countries they were exporting to, to keep the growth in exports going.

Once you get to this point, it should be obvious to the exporter that he is never going to get paid back at today’s prices. (Where would the money come from?) The importer is likely to try to avoid bankruptcy by forcing a revaluation on the exporter, which is politically easier for him than persuading his own voters to adopt the necessary austerity measures would be. The exporter, seeing this risk, will frantically try to switch over to an economy based on domestic demand. Whether or not he can do this depends on the condition of his political system.

If, in the course of the economic development that has already ensued, a rising middle class has already forced or is in the process of forcing meaningful democratic reform, there is some hope for a successful transition to a fully developed economy, because then there is the right setup for a consumer society with things like actual independent trade unions to force wages up in the face of resistance by employers, and a real social safety net that meets the needs of actual, powerful voters. Taiwan and Korea are examples of places that have started down this path, apparently successful transitions to genuine developed country status. Or if the exporting country is tiny, like Singapore, so that it can basically be run as a multinational corporation that happens to own some territory, it may be able to go on functioning parasitically in the interstices of world civil society. But if the country is big, if one Party – call it the LDP, call it the Communist Party, call it what you like – continues to enjoy a monopoly of power, if the economy is still extensively planned, if the education system is still all about indoctrination rather than creativity, and in general if the exporting country continues to be the sort of place in which the nail that sticks out gets hammered down, then the attempt at a transition is likely to fail. In Japan we see a very mild version of what this can mean. Other failed attempts to reach true modernity have ended in much worse ways. The collapse of the Soviet Union comes to mind. When the revolution of rising expectations encounters an obstacle it can’t get past, ugly things begin to happen, and many of the gains captured at an earlier stage in the process can easily be lost.

In China’s case, it should have been obvious, at the beginning of this whole game, that the country’s sheer size made imitating Singapore or South Korea a dubious proposition. A market that is effectively infinite from the point of view of a country that has a population of a few millions can’t be expected, by a rational person, to have the exact same quality from the point of view of a country with more than a billion people. You’re going to run into the limits of your customer’s ability to pay at a much earlier stage in the process. This means that per capita GDP will be much lower when you have to try to make a transition to a consumer society. A low per capita GDP implies a smaller middle class as a fraction of the population. That means you are less likely to already have, or be constructing, anything like a real democracy.

In Japan there are cultural obstacles – basically, an expectation of loyalty unto death to everything from your political party to your yogurt drink brand – that make a real democracy with frequent, performance-based changes in which party is in power a difficult goal to attain. Japanese people want to endlessly endure pointless hardship; it’s who they are, they don’t have much else. When Japan finally met its crisis, when it was necessary to stop exporting and hammering down nails and start inventing and encouraging individualism, it balked at the fence, and has never really recovered.

China may have better cultural equipment for democracy – Chinese people certainly like to argue, and democracy is working, to some extent, in Taiwan. But, given the country’s massive size and the low level of development at which the crisis would inevitably have to occur, it would have been wise of the Party to start developing the capacity for intensive economic growth and a consumer society as quickly and thoroughly as they could. Letting Zhao Ziyang conduct democratic reforms instead of massacring all those students at Tiananmen would have been a good start. India seems to be on a sustainable development path. China could have become more like India, or Taiwan, or South Korea. Instead, the Party has gone as far as it possibly could in the opposite direction, in the direction of denying Chinese people basic human rights like free speech and free assembly. Instead, it seemed better to them to lend the money Chinese people should have been spending on the pursuit of their own happiness to a bunch of deadbeats in the West who were never going to pay it back, just so they and their children and grandchildren could avoid the inconveniences associated with things like elections and strikes and writs of habeas corpus. The result of the Party’s actions is that the country is woefully unready for the economic and societal transformation it must now make.

The Chinese government has trouble seeing all this. People in the Party think they understand the modern West, because they’ve visited the Louvre and met a few western people, but actually they don’t, they don’t know it at all, any more than most Westerners do. They don’t seem to know very much of its actual history, for one thing. Their laws are supposed to prevent them from even inquiring into that, to force them to blindly believe whatever Marx and Mao believed. Consequently, Chinese leaders have a one-sided, partial, idiosyncratic, obsolete, shallow understanding of the modern West. They are all physiocrats, but don’t even know that there is such a word. They don’t really seem to understand what modernity is, or what it requires, or how it is connected to freedom. That’s a significant weakness, because it means that they haven’t actually bothered to inquire very deeply at all into the thing that’s most material to their country’s ultimate fate.

If they had, they would know that the project of developing economically without acquiring any unwanted human rights in the process is an inherently self-contradictory one. In the history of the West, the rights came first, and much of the scientific and economic progress was a consequence of those rights. Places like Athens in the fourth and fifth centuries B.C.E., and the Netherlands in the sixteenth and seventeenth centuries have been the cradles of both political freedom and the developments in mathematics, science, law, philosophy, and other subjects that gave us the modern world.  There is good reason to believe that this is not an accident. A properly realized modernity is necessarily free. No dictatorship, no single-party Leninist state, has ever made it all the way to a sustainable, competitive modernity without a democratic transition.

We Westerners tend to coddle and patronize people outside the West, telling them comfortable, multi-cultural, relativistic lies, humoring their Marxism or Ming restorationism or whatever crazy obsolete thing it is they are working with because we don’t expect anything better from barbarians. Let me now violate this quaint custom by being perfectly clear with the Chinese people. You’re no threat to us, in fact you deserve our pity. We both seem to be in trouble now, but the difference between us is that we will adapt and recover, and you will not. We will throw our current leaders out, eventually, and replace them with less incompetent ones, but you can’t do that. Your leaders have failed you once again, yet you have no more ability to get replace them than you did with the Dowager Empress or Chairman Mao. You will never make it to the point of being a serious rival for America this way. You are trying to compete with a formidable opponent with one hand tied behind your back, merely because your leaders don’t trust you to make your own decisions about where to strike.

This difference is not one between Chinese and Western culture, though that’s what your masters want you to think - it is the difference between free people and serfs. (Chinese culture involves playing the gu qin and writing poetry with a brush; the single-party Leninist state has nothing at all to do with Chinese traditions, being a recent Western invention.) It is simply impossible to both ban the teaching of Plato and Locke and have a truly developed economy or a genuinely modern society. That can work for a little while, a decade or two, but not for the generations and centuries required to really catch up. People who pretend otherwise are not really your friends. The West got to where it is by being what it is, and many revolutions against the dead hand of tradition were required in the process. Ideas matter, so freedom matters. To believe in a third way between freedom and slavery is nothing but a form of cowardice, a failure to come to grips with what’s really necessary. Freedom is frightening. So are you men, or mice? Do you really expect that a timid, trembling, obedient mouse will ever rule the world, will ever take real power away from the people who dared to tame the lightning, and travel to the Moon?

In fact, despite its façade of capitalism and modernity, the Party is still making Mao’s mistake of acting first and thinking later. Lending a lot of money to people who will never pay you back is only a symptom of the underlying folly – you have to believe in something that isn’t true to believe that such an insane project is going to work out in the way you want it to, and any fixed untrue belief will eventually injure you somehow. It’s easy for the Party to maintain that sort of belief in the face of inconvenient evidence, because anyone who advances another point of view can be sent to a work-camp. So modern China is a sort of suicide machine, a train to nowhere with no emergency brake. It is deliberately designed to prevent the passengers from being able to avoid a crash. Not only does the Party espouse false beliefs, it seeks to prevent Chinese people from forming their own, true beliefs in the light of all the available information. Now it turns out it has had them all working long days these last many years just to pile up credit with the Jade Emperor. And who’s down there in Hell, spending it all, no doubt on dancing girls and lavish banquets, and laughing uproariously at your present difficulties? Perhaps the Great Helmsman himself, with Jiang Qing pouring out the wine….

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rosiescenario's picture

Giving away my age....that reminds me of my parents' friends who papered a 1/2 bath with German bonds...those were issued of course prior to WWII...any resemblance to current ones is a mere coincidence...

John McCloy's picture

Dylan Ratigan Reports: More money was spent investigating Blagojevich than investigating bankers.


william the bastard's picture

Although I'm not surprised, I'll bet he spent 109500 words to say what you did in 12.

Treeplanter's picture

And they cut short the investigation before the White House could get thoroughly ensnared in with Blago's crimes.   It cost so much cause they had to protect the Loser in Chief. Someone should investigate Fitz.  The government is not seriously going to investigate Wall Street, they are partners in crime.

masterinchancery's picture

Operation coverup, and many in Chicago have figured it out.

Great piece on China and the T-bond!

CashCowEquity's picture

ghost money? i thought you said goat money...

Mitchman's picture

Bravo!  It is long past time that someone pointed out that the Chinese political system will crack as its economy expands and wealth is distributed into the hands of its people.  People with money in their pockets are not going to attend the Party military shows and are going to want to choose their own laws.  Hear, hear!

Treeplanter's picture

Totally agree.  Clear thinking and excellent writing.  

Apostate's picture

This is a beautiful essay. It also probably violates Princeton's code of conduct by casting aspersions on non-Whites, but whatever. 

Much of what he says about the Chinese could also apply to America.

Revolution, bitchez?

mikla's picture


This is a beautiful essay.

Yes, deep, and surprisingly refreshing.

Much of what he says about the Chinese could also apply to America.

Completely agree.  Of course, his point is that the US culture is *not* the Chinese culture -- the US will do the right thing after exhausting all other options.  In this case, it means US Federal default and a Constitutional crisis, before the people actually get their heads out of their butts.

However, he contrasts that to the land where, "The nail that sticks up shall be hammered down", where they lack the ability and precedent to re-invent their government, nation, and economy after a central collapse.  Both nations may collapse, but the US should do better post-collapse.

Still, the Chinese are not stupid.  We're only talking about China holding $1Tn or so of US bonds (accumulated over decades), from which they are deleveraging *now*.  Good call.  The US printed that much over a six-to-eight month period this year, and will print more than double that over a similar period next year.

China *is* screwed, because they were stupid to loan to the US, and the Chinese ruling party doesn't really care about its people (not that the US ruling class cares about its people either, but the US at least has a lot of imported Blu-Ray players).

Apostate's picture

 Both nations may collapse, but the US should do better post-collapse.

I agree.

However, he contrasts that to the land where, "The nail that sticks up shall be hammered down", where they lack the ability and precedent to re-invent their government, nation, and economy after a central collapse.  Both nations may collapse, but the US should do better post-collapse.

Yes, we have intellectual superiority. The nice thing is that intellectual superiority is non-reliant on population. No matter how many collectivist morons may enjoy positions of power right now - in the long run, those leeches will be removed. The US has many idiots in charge, but at least there is a legacy culture of individualism to build upon.

That is what matters most. Capital equipment is a function of the intellectual structure that supports it. Who the fuck cares if China has all that equipment? If the US changes its socio-political structure, that advantage will erode within months. 

mikla's picture

This also feeds into the "leapfrog" issue regarding technology and manufacturing.  Nobody "re-tools" the "Gen6" flat panel fabrication plants -- it's not worth it.  They just build a new one (different layout, different manufacturing process, different facilities requirements).  A plant goes in for $1Bn, runs for twelve-to-eighteen months, and then is destroyed (or abandoned).  Ditto Gen7, Gen8, Gen9, etc.

Ditto with the steel industry and the automobile manufacturing industry, although the technology change has a longer cycle.  If I were to start a new car company today, I would *not* go to Detroit (for a lot of reasons), but most importantly I would make no effort to re-use a previously established plant (it's all wrong for layout and space utilization for what's needed these days).

So, many (most?) of these industries can re-locate the "next generation" in another nation, and relatively quickly.  In many cases the "new" location has a great many advantages over manufacturing in the "old" location, which is weighed down by previous generation baggage.  In some cases there is an advantage to workers fluent in the nuances of the industry and science, but people are mobile, and much of the time any expertise in technology two generations ago does not help much for the current generation (because the technology is different, so the problems are fundamentally different, so prior knowledge is often not helpful).

It will be a rocky road, but the US can re-invigorate its manufacturing sector if it got motivated (which it is currently NOT motivated).

As an aside, somebody seems unhappy with "unthinkable" talk in this thread and is junking.  ;-))

Itsalie's picture

well summarized - TD should seriously think about sparing us reading such long essays when posters shere can summarise the message in 3 sentences.

Sean7k's picture

This is a beautiful piece of propaganda. Little bit of truth, little bit of policy insertion and a lot of playing off your patriotic american first sensibilities. 

The assertion we are more "free" than the chinese is laughable. That democracy is superior to socialism- excuse me, what exactly is the difference? The tone of the leaderships voice? The willingness to make it sound as if they care?

Note the early insertion of reforming social security and medicare. A program deducted from your pay as a promise of future revenue. A program raided by congress and used to decrease the tax rate at the higher indexes since 1986. 

We may feel some sort of superiority when we are told we are better. That the chinese are barbarians at the gate we will repel with our great culture. Ask the romans how that worked out, when they found themselves surrounded on all sides and they could no longer play one against the other...

Finally, it assumes a us versus them confrontation. The reality? They are all on the same team. There is a reason the trilateral commission organized the world into three coordinated spheres of influence. The elites in each sphere to rule over the production of each in coordination through central banking. 

Never accept what your enemy gives you. 

Tenma13's picture

Interesting additions. I generally agreed with the authors criticisms of CHina, but found him lacking on the closer to home ones. 

 Chomsky has written a great book called 'Manufacturing Consent' (also a film on google video that can be watched) that deals with is this a far far better way  than I every could, but the general idea is that in authoritarian states conformity and obedience are brought via men with guns. In western societies this failed, so the powers that be reverent to manufacturing consent via controlling peoples access to information, framing information in certain light, and ignoring other sources.


 'Cognitive dissonance' wrote an amazing series about self imposed control through conformity and sheepishly following the status quo which would be a worthy addition to the authors useful criticisms.



thermroc's picture

China as suicide machine, awesome, I love this article.

Train to hell versus the ponzi nations. Coming soon to rickety bridge near you.

bugs_'s picture

We need some Spiritual Drawing Rights.

Thanks for the article!

Shameful's picture

And why beholdest thou the mote that is in thy brother's eye, but considerest not the beam that is in thine own eye? Matthew 7:3

A lot of what he has to say is true but he is dead wrong about the West.  We are a corpse that doesn't know we are dead yet.  We are not much more free then the Chinese serfs, we just think we are free.  We also have a one party system, but our politicians wised up to dress it up as 2 opposing teams.  We are all part of the same compost heap.

Pray tell how about tossing the bad leaders out?  Seems like we are on a 20 year tear of electing total criminals with no end in sight.  At least they can still make things, like steel.  That will be important, because if anyone thinks the world will great our default with kind open arms, then I suggest you follow every Goldman recommendation.

zaknick's picture



The full frontal farcism coming as the scum seek to hold on to their leashes at our backs will be a rude awakening to a lot of rubes on this site.

RockyRacoon's picture

Rubes?  On this site?  Why do you lower yourself to mingle with us rubes?  We bow to your intellectual superiority, and, I assume your stock trading prowess.  Get thee away from this rabble!

Those leashes (sic) feel great on my back.

Gully Foyle's picture



Mayor-"people what do you think we need to do?'
Gerald Broflovski-"uhh...well, we need to find a way to close our town off from unwanted strangers!"
Sheila Broflovski-"Yes! We need a barrier to protect our kids."
*whole town-"rabble rabble rabble rabble rabble"
Randy Marsh-"Wait thats it! A wall! We could build a huge city wall all around south park so that we have complete control over who comes in."
Tweed's dad-" that's not a bad idea."
Sheila-"but who could we get to build it?"
Mayor-"And so we want you to design and build a great wall all around the city."
City Wok's chinese Owner-"I don't build wall. I just order up at shity wok"
Gerald-"we just think that you're the best person to put up a wall. We're sure you've got it in your blood."
Chinese owner-"Ohh I get it! Just because I chinese, you think I build a wall! Damn Bush! I'm not sterytype ok!?!Just because I chinese doesn't mean I go around building wall! I'm just a normal person like all you! I eata rice anda drive reary slow just like the rest of you! I'm not a streytype!"
Sharon Marsh-"please Mr. Twong Lu Kim!
Randy-"Your ancestor put up a great wall that kept mongolians out for thousands of years. We know you can do it for us."
zaknick's picture

"will make it impossible for us to play our current role of guardian of the world’s security."



LMAO   Guardian of world security? You have got to be kidding.  How about world insecurity?

zaknick's picture

fuck the bible thumping, flag waving ignoramus who junked me; you deserve everything that's coming to you and your loved ones for being such an ignorant, useless human being.

RockyRacoon's picture

You realize, of course, that you replied to your own post.  Are we to assume that is actually you who is the "ignorant, useless human being"?

nuinut's picture

Good call zaknick. That was one of several dubious quotes I flagged in that "beautiful essay".

The writer obviously has an addiction to the "holier than thou" flavored kool-aid.

How about:


we’re already rapidly approaching a level of debt that is unsustainable.

Really? How long ago was this written?

Many of the commenters earlier clearly reveal their attitude of American superiority.

No such thing as indoctrination in American schools, eh?


Apostate's picture

Well, how much can you nitpick?

Normally, going to Princeton subtracts at least 50 points from your IQ. It's nice to see that at least some of them are vaguely oriented to reality.

Tenma13's picture

Well spotted.


ROFL, WTF does he think is happening in Iraq/Afghanistan???? Is that his definition of security?


More like instigators of Chaos!

jpk's picture

Great essay.  You've boiled down the folly of our economy in the USA (debt being generated to pay off debt over and over again, creating bigger and bigger crushing mountains of debt for US citizens).  And also our single greatest escape, our ability to reclaim our liberty.  Just wish we were further down the path of recognizing that liberty and personal property was the way out. Instead we're still stuck in the illusion that a central government will solve the problem and that collectivism will make everything OK (when in reality it will take us all down together).

mikla's picture

Just wish we were further down the path of recognizing that liberty and personal property was the way out.

Itsalie's picture

This is even better, a picture summarizes a few thousand words from Princeton's half-blind elites.



zaknick's picture

Bla bla effing bla. This guy is full of it.  "We'll throw out our leaders and recover". Ha! I'd like to see that. The Shadow Govt has been in power (whether demoscum or rethugs) for a very long time in this country. They have murdered many people (Larry McDonald, Sonny Bono, Gary Webb, US Special Forces colonels Edward P Cutolo, Bayard, Rowe, Baker, ex-mil intel Steve Kangas, Danny Cassolaro etc etc) who sought to expose them. This moron sits in cushy Princeton and proclaims the "beauty" of American democracy; if he only knew the dirty, drug dealing, ethnic cleansing, genocidal underbelly of the real PTB in this country. Get ready for full frontal farcism coming to a town near you shortly as the ball of corruption and greed unravels mofos while I mine my gold in free regions of the world where the "govt" doesn't run every effing aspect of life!!


Jingoism passing as "intellectual thought"; how pathetic.


Junk away, unimaginative and captive slaves !!

Ragnarok's picture

The neo-cons are trying to claim the Tea Party, why the fuck don't we just support the god damn Libertarian Party.  It's already national!!!!!!!!!!


The Tea Party has been hijacked by neocons.

ConfederateH's picture

"while I mine my gold in free regions of the world where the "govt" doesn't run every effing aspect of life"

Where would this place you speak of be?  If America is not free enough for you then will have to leave the planet.

nevadan's picture

"...They don’t really seem to understand what modernity is, or what it requires, or how it is connected to freedom. That’s a significant weakness, because it means that they haven’t actually bothered to inquire very deeply at all into the thing that’s most material to their country’s ultimate fate."

"...You will never make it to the point of being a serious rival for America this way. You are trying to compete with a formidable opponent with one hand tied behind your back, merely because your leaders don’t trust you to make your own decisions about where to strike."

The last act of a government under threat is to protect itself.  When the inevitable crisis comes rest assured that China has one trump card that we have given them.  They have the ability, at their discretion, to collapse the dollar.  Our debt is our vunerability and our ultimate unraveling.  To think that China can not be a threat to the US economically because they won't have the freedom of the population that drives innovation and a competitve economy does not mean that we can't be brought to our knees.  It may be true that they won't rise to our level but that is not to say that we can't be brought down to theirs.

zaknick's picture

"Our debt is our vunerability and our ultimate unraveling"


 The debt is a symptom, the vulnerability of the US and the reason why the economy is not recovering is the fascist gutting of the productive economy that made America great. It's been going on almost 40 years and the gig is up!

stollcri's picture

Maybe you could throw out some sources. I know that I hate those guys that throw out a link after every third word, but it is helpful when used sparingly. Seriously, you have made some interesting comments. For example, you just said almost 40 years and I may have included LBJ, maybe Kennedy, possibly Ike, and probably Truman. Some people would probably say that most of our nations history has been defined by authoritarian right-wing policies. Maybe you were just talking about the debt.

zaknick's picture



Keep this in mind as well: the "war on drugs" is the fascists' respponse to the "war on poverty". Kangas doesn't go there fearing assassination, hoping his dissent, however sharp, might be protected Constitutional prerrogative but it's all a part of it as well as the credit economy.  I mean seriously, look at the stats; follow the growth of the "financial system" and you'll see it tracks closely with the decline of the middle clas (wages have actually declined since 1975) and America's productive economy.


Here's that asswipe B@sh in the sixties:



Population Task Force

Among Bush's most important contributions to the neo-Malthusian cause while
in Congress was his role in the Republican Task Force on Earth Resources
and Population. The task force, which Bush helped found and then chaired,
churned out a steady stream of propaganda claiming that the world was
already seriously overpopulated; that there was a fixed limit to natural
resources and that this limit was rapidly being reached; and that the
environment and natural species were being sacrificed to human progress.
Bush's task force sought to accredit the idea that the human race was being
"down bred," or reduced in genetic qualities by the population growth among
blacks and other non-white and hence allegedly inferior races at a time
when the Anglo-Saxons were hardly able to prevent their numbers from
Comprised of over 20 Republican Congressmen, Bush's Task Force was a kind
of Malthusian vanguard organization which heard testimony from assorted
"race scientists," sponsored legislation and otherwise propagandized the
zero-growth outlook. In its 50-odd hearings during these years, the task
force provided a public forum to nearly every well-known zero-growth
fanatic, from Paul Ehrlich, founder of Zero Population Growth (ZPG), to
race scientist William Shockley, to the key zero-growth advocates infesting
the federal bureaucracy.
Giving a prestigious congressional platform to a discredited racist
charlatan like William Shockley in the year after the assassination of Dr.
Martin Luther King, points up the arrogance of Bush's commitment to
eugenics. Shockley, like his co-thinker Arthur Jensen, had caused a furor
during the 1960s by advancing his thesis, already repeatedly disproven,
that blacks were genetically inferior to whites in cognitive faculties and
intelligence. In the same year in which Bush invited him to appear before
the GOP task force, Shockley had written: "Our nobly intended welfare
programs may be encouraging dysgenics -- retrogressive evolution through
disproportionate reproduction of the genetically disadvantaged.... We fear
that 'fatuous beliefs' in the power of welfare money, unaided by eugenic
foresight, may contribute to a decline of human quality for all segments of

During hearings on the Social Security amendments, Bush and witness
Alan Guttmacher had the following colloquy: Bush: Is there any
[opposition to Planned Parenthood] from any other organizations or
groups, civil rights groups?
Guttmacher: We do have problems. We are in a sensitive area in
regard particularly to the Negro. There are some elements in the
Negro group that feel we are trying to keep down the numbers. We are
very sensitive to this. We have a community relations department
headed by a most capable Negro social worker to try to handle that
part of the problem. This does, of course, cause us a good bit of
Bush: I appreciate that. For the record, I would like to say I am
1,000 percent in accord with the goals of your organization. I
think perhaps more than any other type of organization you can do
more in the field of poverty and mental health and everything else
than any other group that I can think of. I commend you.



Which is why domestically these are the results of his, and the
other wealthy fascist interests at the CIA's, "drug war":


Feel free to go through the rest of my docs on and you'll get a fuller pic.


Here's another sample:



What_Me_Worry's picture

Really?  Destroy the dollar?  They would be doing the US citizen a grand favor.  The longer the dollar stays in power, the worse off the vast majority of us will be.

uno's picture

Ghost money is a funny thing.  In Buddhism your supposed to detach yourself from material things - the cause of all suffering.  Then they use ghost money to send money to their ancestors in their next lives, of course that will cause more suffering, attachment.  

In China on the day of the dead (when they go to the cemetery to pray for their ancestors) they will burn paper mache cars, paper mache houses whatever to send it to them.  Guess they can use US dollars now. 


Treeplanter's picture

Buddhism exists along side all kinds of folk traditions in Asia.  In Guatemala the Catholic saints also have the names of Mayan gods.  

DollarMenu's picture

Arrogant attitude; pride rides high before a fall?

This writer overlooks a lot of what has been lost in the west with

regard to choosing leaders, rights of speech and assembly.

Still, it will resonate with those who love a smackdown.

DavidPierre's picture

You need to be very careful as to what you see in the media. Much of it is dead wrong ..."corporate America is sitting on $ Trillions" ... is in much better shape today.

Cash...maybe but look at the debit side of the ledger ... see where the credit side is massively offset.

"Bank are now healthy, stocks are cheap, bonds are a good value and Gold is a bubble"... BULLSHIT...!

Do your digging and use common sense because these outlets will kill you  quicker financially than you can speed-dial your broker...with less conscience than your useless broker ... (if this is possible)!

The moron on CNBC may have misspoken when he said he could see Gold down 30-40% in a week like in 1981... maybe he meant "Dollars"? we have lived through gold down that much many times already.

The bottom line... even though many Gold bulls feel beaten up like red headed step children, Gold and the mining shares have been THE Best asset class since 2000.

The purchasing power saved and gained through precious metal ownership has been "precious" and the best is yet to come.

Wall St. uses the disclaimer "past performance ... future performance... blah blah blah.

Gold bulls have been correct but more importantly for THE RIGHT REASONS!

Owning Gold, Silver and mining shares was not a "lucky guess", it was a position building mission for the completely insane reason that the U.S. was in the process of over leveraging, over issuing Dollars and would ultimately DEFAULT!

This is happening!  As crazy as it seems.

It was not was pure common sense that in today's world is almost as precious and rare as Gold and Silver!

Gold is the exact inverse of a bubble. Reality is the physical is so under owned because of the paper substitutes that have allowed so many to sleep. so well for so long, will not perform.

The TPTB's grand plan of "diverting" demand into empty paper bags to conserve supply will come back to haunt them because word is spreading fast that paper Gold is no better than lead spray painted yellow.



His missive from "The Belly of the Beast"

Helix6's picture

This piece is so stupefyingly wide of the mark that I'm a little concerned about what it says about Ivy-League standards.

"The apparent plan, in both Europe and the US, has been to recapitalize the banking system through the ‘carry’ trade, by encouraging banks to borrow short (partly from government) and lend long (largely to government.) Thus, the banks were to be recapitalized by the difference between the rate at which the government lent and the rate at which government borrowed. The government, however, was somehow supposed to not go broke in the process, though it certainly sounds like a bad deal to a naïve ear. (Of course, they are going broke…)

Well, yeah, but you're treating the government and the banks as if they were separate.  As someone of your background surely must know everything is connected.  Especially everything between the Fed, the US Treasury, and the Banks.  But the fact of the matter is, the Banks can belly up to the discount window for their 0% "loans", which they can then use to buy 10y treasuries and pocket a handy 3% or so risk-free profit.  So it's not like the gubmint has a gun to their heads.  It's all a nice, slick game in which bankers pocket their 3%, the government buys more predator drones to drop on Afghan villages, and US taxpayers are on the hook for the full balance.  The Fed chips in as well, acting as the buyer of last resort at treasury auctions.  It "buys" the treasuries by creating a line item in a ledger and voila, it's "money".

So let's put this neat little scenario in the context of al the blather about Social Security and other benefit programs. 

"... a comprehensive reform of Medicare, Medicaid and Social Security, the only thing that could save the US from eventually defaulting on our obligations, is on absolutely nobody’s political agenda..."

Au contraire, the "entitlements" drumbeat is sounded every day all day.  Nothing is actually done about it at the moment because the programs pay for themselves and a lot of other things besides, like the interest on all that Federal debt held by financial institutions.  But make no mistake, the ultimate goal of the banks that you evidently admire is to strip the social security and medicare benefits accrued by American workers into their own pockets. 

How will they do this?  They're doing it right now!  3% at a time.  Eventually, the government will find itself unable to pay the benefits, mainly due to the interest it is paying on its massive debt, not to mention the billions of dollars that it wastes every week on foreign military adventures.  When the Social Security and Medicare benefits are cut, it's mission accomplished -- The bankers got the money and the workers got screwed.  I take it from this article that you think this is the preferred outcome.

Somehow, I notice that Social Security and Medicare make it onto your slate of financially irresponsible programs, while the government paying bankers for the privilege of using its own money and throwing the money down bottomless ratholes in Iraq, Afghanistan, and 130 other countries around the world don't make it to your list.

I could go on, but you either get the drift by now or you intend to never get it. 

Apostate's picture

I'm not sure how you've "refudiated" the original article.

Nothing is actually done about it at the moment because the programs pay for themselves and a lot of other things besides, like the interest on all that Federal debt held by financial institutions


Somehow, I notice that Social Security and Medicare make it onto your slate of financially irresponsible programs, while the government paying bankers for the privilege of using its own money and throwing the money down bottomless ratholes in Iraq, Afghanistan, and 130 other countries around the world don't make it to your list.

That's implicit in the essay.

Can we at least give this Princeton post-doc credit for not going "full retard..."?

Helix6's picture

OK, I'll cut him some slack.  And I should be more understanding of his point of view.  He is, after all, an investment fund manager, so I should hardly be surprised that he espouses the elite viewpoint.