Patrick Byrne, the embattled CEO of Overstock.com, had plenty to say in a recent Fortune interview. The outspoken CEO, whose company recently became the first US retailer to accept Bitcoin (beginning later next year) aligns his beliefs with Ron Paul, holds enough gold that if "zombies walked the Earth," he'd be taken care of. Byrne believes "the long-run value of all fiat money is zero," adding that,"we're not going to get rid of the Federal Reserve any time soon, so bitcoin is a step in the right direction."
Bitcoin is rapidly becoming part of the everyday lexicon. Following David Woo's investigation, National Australia Bank's Emma Lawson looks at its creation, use, and quality as "currency," and find that Bitcoin meets most, but not all the conditions required to be a currency. Lawson concludes Bitcoin may not be the most efficient monetary system, given the costs to create, and that the supply set-up can be seen as both an advantage (hyperinflation is not possible) but also a disadvantage (there are conditions which may create deflation). But, if enough people believe in it, and use it, it may be here to stay as a payment system. Simply put, its success (or failure) will depend on establishing trust and adoption.
"The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland; a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank... sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world." - Carroll Quigley, member of the Council on Foreign Relations
It’s like a futuristic film with hoards of evil masses of people, poverty-stricken, living off the land, while the rich and wealthy continue to lord it, served to their hearts content and just raking it in, while the others hardly get enough to eat and drink.
A paper currency system contains the seeds of its own destruction. The temptation for the monopolist money producer to increase the money supply is almost irresistible. We are now in a situation that looks like a dead end for the paper money system. After the last cycle, governments have bailed out malinvestments in the private sector and boosted their public welfare spending. Deficits and debts skyrocketed. So will money printing be a constant with interest rates close to zero until people lose their confidence in the paper currencies? Can the paper money system be maintained or will we necessarily get a hyperinflation sooner or later? There are at least seven possibilities...
We’ve spent the last five decades learning to love our oppression, adoring our technology, glorying in our distaste for reading books, and wilfully embracing our ignorance. Huxley’s vision of a population, passively sleep walking through lives of self- absorption, triviality, drug induced gratification, materialism and irrelevance has come to pass. Only in the last two decades has Orwell’s darker vision of oppression, fear, surveillance, hate and intimidation begun to be implemented by the ruling class. We’ve become a people controlled by pleasure and pain, utilized in varying degrees by those in power. Stay tuned for our modern day Hunger Games after this commercial for your very own Duck Dynasty Chia Pet.
As Mike Maloney forecast in the mid-2000s, the roller-coaster ride continues in world markets and economies. His - so far - spot on projection that "first the threat of deflation (1), followed by a helicopter drop (2), followed by big reflation (3), followed by a real deflation (4), and then followed by hyperinflation (5)," appears to be rotating from stage 3 to stage 4 (as we noted here). However, as Maloney explains in this brief clip, while we have seen great deflations before, in the '30s one-third of the monetary base was backed by gold, now we virtually nothing as "people do not understand the scale of the emergency that's going on right now."
"We are on the eve of a deflationary shock which will likely reduce equity valuations from very high to very low levels.... Each investor must decide for themselves just how close to midnight they want to leave this particular party. The advice of Solid Ground is leave now as it is increasingly likely that one event will be the catalyst to very rapidly change inflationary into deflationary expectations... So perhaps it is global deflationary forces creating a bankruptcy event, somewhere in the world, that is the catalyst for a sudden change in inflationary expectations in the developed world. It can all happen very quickly; and it is dangerous to stay at an equity party driven by disinflation when it can spill so rapidly into deflation... When there is plenty of leverage in the system and any key price starts to decline then a credit event and a sudden change in inflationary expectations are much more possible than the consensus believes. So watch the TIPS, BAA bond spreads and copper if you must, but this analyst prefers to observe the party from outside.... Each investor must decide for themselves just how close to midnight they want to leave this particular party."
- Russell Napier, CLSA
The economic turmoil in Venezuela has received increasing international media attention over the past few months. Earlier this month, in another attempt to ensure “happiness for all people,” Maduro began to hand out Christmas bonuses, in preparation for the coming elections in December. Although not yet officially in hyperinflation, monetary expansion is pushing Venezuela toward the brink. In such an environment, paychecks need to be distributed quickly, before prices have time to rise; hence, early bonuses. This kind of policy is nothing new in economic history: Venezuela’s hyperinflationary episode is unfolding in much the same way Germany’s did nearly a century ago. Consequently, Venezuela’s economic policy is proving to be another example of Ludwig von Mises’s argument that economic intervention, if left unchecked, leads to complete socialism. As disturbing as the thought is, the difference between the U.S. and other Western economies and Venezuela is merely one of degree, not of kind.
An important question is what exactly is Goldman's motivation for the peculiar gold deal? Does it wish to have access to Venezuela's gold reserves? There area many other innovative ways that Goldman could help Venezuela with its current economic travails that do not involve gold. Were Venezuela to default on the bonds would Goldman become the beneficial owner of Venezuela's gold reserves?
For anyone who still suggests, incorrectly, that Larry Summers was the "wrong" choice for Fed Chairman just because he would promptly end QE the second he was elected as the erroneous popular meme goes, we have one soundbite from his recent Bloomberg TV interview refuting all such speculation: "if you had to say, should we have used this tool or should we not have, I think the answer is overwhelming that we should have." He had some other amusing logical fallacies (including discussing whether the market is in a bubble) all of which are transcribed below, but the best one is the following: "I think it does bear emphasis that the people who were most appalled by it are the people who have been predicting hyperinflation around the corner for four years now and they have been wrong at every turn." And let's not forget that "subprime is contained" - until it isn't. Then again, the last time we checked, the history on the biggest monetary experiment in history - one in which both the Fed and the BOJ are now openly monetizing 70% of gross bond issuance - has certainly not been written. Finally, in the off chance Summers is indeed correct, what history will instead say, is why instead of monetizing all the debt from day 1 of the Fed's inception in 1913, and thus pushing the stock market into scientific notation territory, did the Fed leave so many trillions of "wealth effect" on the table?
How could such a monetary disaster happen in a civilized and advanced society, leading to the total destruction of the currency? Many explanations have been put forward. It has been argued that, for instance, that reparation payments, chronic balance of payment deficits, and even the depreciation of the Papermark in the foreign exchange markets had actually caused the demise of the German currency. However, these explanations are not convincing. Looking at the world today - in which many economies have been using credit-produced paper monies for decades and where debt loads are overwhelmingly high, the current challenges are in a sense quite similar to those prevailing in the Weimar Republic more than 90 years ago. Now as then, a reform of the monetary order is badly needed; and the sooner the challenge of monetary reform is taken on, the smaller will be the costs of adjustment.
Hunting season is off to a good start this week, and I’m not just talking about deer hunting. It seems that former Fed officials declared open season on their ex-colleagues. First, Andrew Huszar, who once ran the Fed’s mortgage buying operation, let loose in yesterday’s Wall Street Journal. Huszar apologized to all Americans for his role in the toxic QE programs. And then today, the WSJ struck again, this time with an op-ed by former FOMC Governor Kevin Warsh. Warsh is a former Morgan Stanley investment banker whose 2006 to 2011 stint on the FOMC spanned the end of the housing boom and the first few years of “unconventional” policy measures. After such a solid grounding in the ways of the Fed and Wall Street, he recently morphed into a critic of the status quo. His criticisms are welcome and we believe accurate, but they’re also oh so carefully expressed. They’re written with the polite wording and between-the-lines meanings that you might expect from such an establishment figure. He seems to be holding back. So, what does he really want to say?
In his parting act, Federal Reserve Chairman Ben Bernanke has decided to continue printing some $85 billion per month (6% of GDP per year) and spend those dollars on government bonds and, in the process, keep interest rates low, stimulate investment, and reduce unemployment. Trouble is, interest rates have generally been rising, investment remains very low, and unemployment remains very high. As Lawrence Kotlikoff points out, echoing our perhaps more vociferous discussions, Bernanke’s dangerous policy hasn’t worked and should be ended. Since 2007 the Fed has increased the economy's basic supply of money (the monetary base) by a factor of four! That's enough to sustain, over a relatively short period of time, a four-fold increase in prices. Having prices rise that much over even three years would spell hyperinflation.
Ben Bernanke is participating in an IMF panel with Larry Summers, Ken Rogoff, and fromer Bank of Israel chief Stan Fischer... Full speech below...