This page has been archived and commenting is disabled.

When A Stock Bubble Goes Horribly Wrong And Hyperinflation Results

Tyler Durden's picture


Perhaps the most amusing and curious aspect of this entertaining summary of the Mississippi Bubble of 1720, the resulting European debt crisis (the first of many), how bubble frenzies are as old as paper money, the man behind both - convicted murderer and millionaire gambler, John Law, what happens when paper money's linkage to gold is broken, and how everyone loses their wealth and hyperinflation breaks out, is who the source is. The New York Fed. Perhaps the Fed-employed authors fail to grasp just what their institution does, or have a truly demonic sense of humor. In either case, the following "crisis chronicle" highlighting how banking worked then, how it works now, and how it will always "work", is a must read by all.

Crisis Chronicles: The Mississippi Bubble of 1720 and the European Debt Crisis

Convicted murderer and millionaire gambler John Law spotted an opportunity to leverage paper money and credit to finance trade. He first proposed the concept in Scotland in 1705, where it was rejected. But by 1716, Law had found a new audience for his ideas in France, where he proposed to the Duke of Orleans his plan to establish a state bank, at his own expense, that would issue paper money redeemable at face value in gold and silver. At the time, Law’s Banque Generale was one of only six such banks to have issued paper money, joining Sweden, England, Holland, Venice, and Genoa. Things didn’t turn out exactly as Law had hoped, and in this edition of Crisis Chronicles we meet the South Sea’s lesser-known cousin, the Mississippi Bubble.

Who Wants to Be a Millionaire?

John Law was an interesting figure with a colorful past. He was convicted of murder in London but, with the help of friends, escaped to the continent, where he became a millionaire through his skill at gambling. Like South Sea Company Director John Blunt in England, Law believed that a trading company could be leveraged to exchange the monopoly rights of trade for the ability to make low-interest-rate loans to the government. And like Blunt, in 1719 Law formed a trading company—the Mississippi Company—to exploit trade in the Louisiana territory. But unlike Blunt or the South Sea Company, the Mississippi Company made an earnest effort to grow trade with the Louisiana territory.

In 1719, the French government allowed Law to issue 50,000 new shares in the Mississippi Company at 500 livres with just 75 livres down and the rest due in nineteen additional monthly payments of 25 livres each. The share price rose to 1,000 livres before the second installment was even due, and ordinary citizens flocked to Paris to participate. Based on this success, Law offered to pay off the national debt of 1.5 billion livres by issuing an additional 300,000 shares at 500 livres paid in ten monthly installments.

Law also purchased the right to collect taxes for 52 million livres and sought to replace various taxes with a single tax. The tax scheme was a boon to efficiency, and the price of some products fell by a third. The stock price increases and the tax efficiency gains spurred foreigners to Paris to buy stock in the Mississippi Company.

By mid-1719, the Mississippi Company had issued more than 600,000 shares and the par value of the company stood at 300 million livres. That summer, the share price skyrocketed from 1,000 to 5,000 livres and it continued to rise through year-end, ultimately reaching dizzying heights of 15,000 livres per share. The word millionaire was first used, and in January 1720 Law was appointed Controller General.

The Trickle Becomes a Flood

Reminiscent of a handful of florists failing to reinvest in tulip bulbs as we described in a previous post on Tulip Mania, in early 1720 some depositors at Banque Generale began to exchange Mississippi Company shares for gold coin. In response, Law passed edicts in early 1720 to limit the use of coin. Around the same time, to help support the Mississippi Company share price, Law agreed to buy back Mississippi Company stock with banknotes at a premium to market price and, to his surprise, more shareholders than anticipated queued up to do so—a surprise we’ll see repeated at the apex of the Panic of 1907. To support the stock redemptions, Law needed to print more money and broke the link to gold, which quickly led to hyperinflation, as we saw in our post on the Kipper und Wipperzeit.


The spillover to the economy was immediate and most notable in food prices. By May 21, Law was forced to deflate the value of banknotes and cut the stock price. As the public rushed to convert banknotes to coin, Law was forced to close Banque Generale for ten days, then limit the transaction size once the bank reopened. But the queues grew longer, the Mississippi Company stock price continued to fall, and food prices soared by as much as 60 percent.

To make matters worse, there was an outbreak of the plague in September 1720, which further restricted economic activity—in particular, trade with the rest of Europe. By the end of 1720, Law was dismissed as Controller General and he ultimately fled France.

Balancing Dispersed Debt Issuance against Central Monetary Policy

One might argue that Law suffered a self-inflicted loss of control over monetary policy once the link between paper money issuance and the underlying value of gold holdings was broken—a lesson that monetary authorities have learned over time. (ZH: they have? where?)  But what if you don’t have direct sovereign authority over banknote issuance or, in more modern times, monetary policy? A challenge that’s perhaps most visible in the Eurozone is how best to balance dispersed, country-specific debt issuance against more centralized authority over monetary policy. In an upcoming post on the Continental Currency Crisis, we’ll see why a united fiscal policy was needed along with the united currency and monetary policies. Could the same be true of Europe? And if so, would a united fiscal policy include Eurozone debt as well as centralized fiscal transfers, or perhaps even collection of taxes? Tell us what you think.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 01/10/2014 - 15:49 | 4320646 Boris Alatovkrap
Boris Alatovkrap's picture

John Law Mississippi Bubble Redux.

Fri, 01/10/2014 - 15:49 | 4320650 Itch
Itch's picture

Is Boris do Russian joke again?

Fri, 01/10/2014 - 15:51 | 4320659 Boris Alatovkrap
Boris Alatovkrap's picture

Q: How many Russian in Soviet Era to screw incandescent bulb?

A: First must get in line to acquire of bulb.

Fri, 01/10/2014 - 15:54 | 4320669 Itch
Itch's picture

Is same for luminous Chernobyl people? 

Fri, 01/10/2014 - 16:02 | 4320695 Boris Alatovkrap
Boris Alatovkrap's picture

You are suggest Chernobyl (or Nukushima) is not screw incandescent bulb because is screw people?

Fri, 01/10/2014 - 18:06 | 4321043 CrazyCooter
CrazyCooter's picture

Ralph Foster's "Fiat Paper Money" book does a really good job going over the whole French fiat bubble (and the US colonial money printing escapades). Curiously, he writes that the Chinese were the first to blow up a fiat, almost a 1000 years ago IIRC.



Fri, 01/10/2014 - 18:38 | 4321096 pavman
pavman's picture

The first to discover America... the first to blow up fiat currency.  China is so always the first... they're probably the first historical revisionists.

Fri, 01/10/2014 - 20:14 | 4321335 Soul Glow
Soul Glow's picture

China is doing everything that everyone else is doing - printing yuan out of thin air based on future revenue, making bad loans, etc - except they're buying gold.

It's because of their gold purchases that will keep them at the top of the trash heap.  Europe has 14k tonnes but they haven't added much if any over the last five years.  The US has 14k tonnes but the running meme is "gold is bad" (thanks Bernanke).  So now China, the USA, and Europe all have about the same amount of gold.

When the respected treasuries fail to auction their debt, the fiat currency system will fail and gold will be ushered back into the limelight to save the system.

Sat, 01/11/2014 - 10:10 | 4322488 HoofHearted
HoofHearted's picture

The US claims 8k tons of gold, but it has never been audited. If the US has 14k tons, it is likely because it is not returning Geramny's gold to the Germans...

Fri, 01/10/2014 - 19:29 | 4321223 Wile-E-Coyote
Wile-E-Coyote's picture

Chernobyl light buld does not need a filament.

Fri, 01/10/2014 - 16:32 | 4320769 Boris Alatovkrap
Boris Alatovkrap's picture

Q: What is length 200 meter and is eat potato?

A: Citizenry in Moscow wait in line to buy meat. 

Fri, 01/10/2014 - 18:23 | 4321074 spinone
spinone's picture

Boris, I look forward to your Russian shtick.  Having a few good Russian friends, I have to say you're dead on.

Fri, 01/10/2014 - 18:38 | 4321098 Peter Pan
Peter Pan's picture

Woman in line in Moscow waiting to buy bread when she hears someone break wind 100 metres further back. She leaves her place in the line and goes up to the man, looks at him in the eyes and asks, "where did you buy the beans?"

Sat, 01/11/2014 - 10:15 | 4322491 HoofHearted
HoofHearted's picture

A friend of mine lived in Moscow during Soviet times. We were in Paris, and a line was forming someplace. Pavel went to join the line, then hesitated. I asked why he went to get in a line when he didn't know what it was about. He told me, "In the Soviet times you always got in a line because there just might be something at the head of the line that you could spend your rubles on."

I got a better understanding of bubbles that day.

Sun, 01/12/2014 - 04:06 | 4324332 Boris Alatovkrap
Boris Alatovkrap's picture

They are to sell bubbles in Paris!? Soap bubble or maybe champagne bubble? Even stupid Russian is not fool to spend good money on bubble.

Fri, 01/10/2014 - 17:07 | 4320903 Confundido
Confundido's picture

No bubble redux, Boris. Unlike John Law, the Fed has drones and algos to stabilize shocks.

Fri, 01/10/2014 - 17:13 | 4320921 Kinskian
Kinskian's picture

Mississippi John Hurt Redux...

Fri, 01/10/2014 - 20:45 | 4321440 Buck Johnson
Buck Johnson's picture

Very much so, and we will see it.

Fri, 01/10/2014 - 15:49 | 4320648 Itch
Itch's picture

Why aren't there more feminist articles on ZH? 

Fri, 01/10/2014 - 15:52 | 4320662 Boris Alatovkrap
Boris Alatovkrap's picture

Woman is like shrub... ZH is for hater of shrub.

Fri, 01/10/2014 - 15:59 | 4320685 Itch
Itch's picture

Woman is shrub because she is survivor no?

Fri, 01/10/2014 - 16:03 | 4320700 Boris Alatovkrap
Boris Alatovkrap's picture

? Zerohedge is website for fellowship of male bonding (in manly way) of mutual dislike for shrubbery, no?

Fri, 01/10/2014 - 16:12 | 4320721 Itch
Itch's picture

No! Russian pig! Zh should be feminist news source. 

Fri, 01/10/2014 - 18:43 | 4321108 NIHILIST CIPHER

Itch       Well, I have been waiting for this for a while now, the  onslaught of the feminist blathering. Hitlery's big chance to be overlord is almost upon us and we will be hit with a shitstorm of loud mouth feminazi's saying it's TIME for a woman to wreck the country. (what's left after the darkman is finished) Please go back to Huffpoo and keep that chatter over on a site that will listen to you. 

Sat, 01/11/2014 - 11:44 | 4322604 Itch
Itch's picture

We're comming for ya! You're going to respect women, whether you like it or not. If you dont like it we're going to cut your ball sack off and feed it to your kids. 

Fri, 01/10/2014 - 16:50 | 4320841 AG BCN
AG BCN's picture

Shrubbery is respected gift and and skill it takes to make so in land of my brith. It is problem to find man to maketh shrubbery. One that looks nice, and not too expensive.  

Fri, 01/10/2014 - 18:25 | 4321078 spinone
spinone's picture

I like a well trimmed bush.  Did everyone stop at the bar ont he way home, or just me?

Sat, 01/11/2014 - 17:20 | 4323380 A Nanny Moose
A Nanny Moose's picture


Fri, 01/10/2014 - 17:13 | 4320920 Say What Again
Say What Again's picture

I groom the shrubbery in my household on a regular basis.  I like to see where I'm going -or...

... never mind.

Fri, 01/10/2014 - 18:00 | 4321030 GVB
GVB's picture

SWA, thanks for posting the exponential function link. Few months ago. Needed to thank you one time or another...

Fri, 01/10/2014 - 15:54 | 4320667 FrankDrakman
FrankDrakman's picture

'cause in English, articles are gender-free. If you want feminist articles, you can go get one of the European and/or Communist langwiches.

Fri, 01/10/2014 - 15:58 | 4320678 Itch
Itch's picture

But dont you think ZH has a duty to address the gender inbalance of it's readership? What does this say about American women if you point them towards Europe for an alternative news source? 

Fri, 01/10/2014 - 16:00 | 4320690 Boris Alatovkrap
Boris Alatovkrap's picture

Itchy, you are miss smart funny linguistic humor! In many latin language, article must to match noun in "gender".

Exit question, if same sex is marriage, which article is use for which spouse?

Fri, 01/10/2014 - 16:05 | 4320704 Itch
Itch's picture

Boris wear cape of jelly, impenetrable is question.

Fri, 01/10/2014 - 16:27 | 4320758 Boris Alatovkrap
Boris Alatovkrap's picture

You are refer to Boris back "nipple" problem?! Boris is not cover, but is expose proudly, even is shave for better visibility!

Fri, 01/10/2014 - 16:20 | 4320740 Terp
Terp's picture

The correct articles are designated according to who is "top" and who is "bottom" in fag marriage.


Fri, 01/10/2014 - 16:23 | 4320748 Boris Alatovkrap
Boris Alatovkrap's picture

TMI - "Too many informing"

In Russia, there is no gay man (maybe gay woman is sometime okay).

Fri, 01/10/2014 - 16:39 | 4320801 Fuh Querada
Fuh Querada's picture

of course you know the Russian word for "relaxation":

" AT DICK " !

Fri, 01/10/2014 - 17:01 | 4320888 Itch
Itch's picture

There is no gay man because there is no toilet roll. If you let the west introduce toilet roll into your country the place will be full of latent homosexuals, like Putin.

Fri, 01/10/2014 - 17:51 | 4321010 Boris Alatovkrap
Boris Alatovkrap's picture

You are too much mix metaphor, but greater offense is libel talk of manly Putin. You are draw line!

Fri, 01/10/2014 - 17:57 | 4321023 dynomutt
dynomutt's picture

Statements like that have caused some in the past to be served VERY spicy soup.


Journalists learn to be careful what is Putin.

Fri, 01/10/2014 - 18:08 | 4321049 Boris Alatovkrap
Boris Alatovkrap's picture

Spicy, but unstable.

Fri, 01/10/2014 - 18:25 | 4321079 dynomutt
dynomutt's picture


Fri, 01/10/2014 - 18:38 | 4321097 Boris Alatovkrap
Boris Alatovkrap's picture

Very Nutrinoitional!

Fri, 01/10/2014 - 18:08 | 4321048 blindman
blindman's picture

more too many informed in home russia protested
“I Was My Own Person Again”
By Masha Gessen
The women of Pussy Riot made meaning out of a horrific
experience in prison. Now, they’re launching another
protest movement in Russia.
"“Every correctional institution is a totalitarian state in miniature.”
Maria Alyokhina"

Fri, 01/10/2014 - 18:12 | 4321057 Boris Alatovkrap
Boris Alatovkrap's picture

Pussy Riot is not support of Russian Citizenry, but is offensive in religious scents. You are attack church, you are attack religious belief, you are no better than Stalin and Mao. Maybe little jail time is good for member of Pussy Riot. There are difference between legitimate and sophomore protest.

Fri, 01/10/2014 - 18:32 | 4321083 blindman
blindman's picture

what is boris think of journalist in dual
citizen camping russia and usa with gay marriage
and adoption child leaving russia to fear from
'going to prisons for lifestyle when olmypics
to be ended soon, not mentioning homeland
to be taking children for retraining fear.
As a gay parent I must flee Russia or lose my children
Draconian new laws brand homosexuals second-class citizens in Putin's regime
does boris see her in a spy uniform?

Fri, 01/10/2014 - 18:45 | 4321110 Boris Alatovkrap
Boris Alatovkrap's picture

Dear Mr. Man,

You are write exceeding long sentence, so please patiently wait Boris:)

Before Boris is answer, you are explain how gay man is become parent. This is medical miracle and maybe Russia is must rethink gayety if can produce offspring. 

Joke to the side, Boris is not desire violence on gay people, or forcibly removal, but proliferation of gay style of family is problematic in Russia Society. Great Republican president Bill Clinton is make smart policy when "don't ask is don't tell" and then citizenry can to make own decision. Boris is not anti-gay, but is anti-coercive-government, gay or strait.

... but what is Boris know!?



Fri, 01/10/2014 - 19:15 | 4321183 blindman
blindman's picture

mr. man means no disrespect to boris
thinking and ways. gayety style can
import babies into family all over
the world. some fill up dumpster with
swaddled young one then live anyway and
need gayety parent of some kind.
maybe in russia?

Fri, 01/10/2014 - 20:29 | 4321406 CharlieSDT
CharlieSDT's picture

Those chicks are so lucky to be let out.  They should probably shut the fuck up now.

Fri, 01/10/2014 - 20:33 | 4321415 rubiconsolutions
rubiconsolutions's picture

"Boris is not anti-gay, but is anti-coercive-government...."

Hmmm. From his writings I think Boris may be libertarian. Has anyone seen Boris and Ron Paul in the same room? Just saying.


Fri, 01/10/2014 - 19:10 | 4321167 walküre
walküre's picture

Have to downvote you. Stalin and Mao were right to suppress the churches and stop indoctrination with fairy tales. As for the rest, it was garbage and millions died. Yada yada.

West and Western culture flourished because people were indoctrinated and made to believe in fairy tales. It's easier on the mind when people can hold on to a concept of a reward after death. Makes it easier for them to live with grim reality of shitty life because they're promised a better life once they pass.

Look, Boris. Commuists made everyone take the red pill. Americans and the West gave their people the blue pill. The West won with billions of ignorant people.

There's more to it but imo a pussy riot is a sexy thing. Germany has their own form of pussy riot.

What would you do as Cardinal when faced with this?

She is god. Says so right on her tits.

Settled now, isn't it?

Sun, 01/12/2014 - 13:50 | 4324813 TheReplacement
TheReplacement's picture

That is just about the most retarded thing I've ever read.  I want my time back.


The intellectual dishonesty in forcing people to not believe in something so they can be free...  you are an absolute idiot.

Mon, 01/13/2014 - 09:50 | 4321085 Random_Robert
Random_Robert's picture

"“Every correctional institution is a totalitarian state in miniature.”
Maria Alyokhina"



Where everyone is treated equally

Where everyone gets 3 meals per day

Where everyone has a roof over their head

Where healthcare is free

Where only those with badges posess guns (and billy clubs, and handcuffs)

in other words:  Liberal PARADISE.

Fri, 01/10/2014 - 16:04 | 4320702 dwayne elizando
dwayne elizando's picture

Financial and market commentary really have nothing to do with gender. Find a blog about feminism if that's what you desire.

Fri, 01/10/2014 - 18:15 | 4321061 Sabibaby
Sabibaby's picture

I always enjoy the boob avatars and sometimes I click links simply because there's a fine woman on the front page.

Fri, 01/10/2014 - 19:19 | 4321195 Winston Churchill
Winston Churchill's picture

Not so sure with American though ,especially here in the South.

Fri, 01/10/2014 - 16:19 | 4320739 Itch
Itch's picture

Jesus, that really opened my eyes Jim. I was caught up in gender politics there for a whie, but thats kind of nailed it for me. Thanks man. How do people become so confused with this shit?

Fri, 01/10/2014 - 16:25 | 4320754 Future Jim
Future Jim's picture

The goal of Elites is to keep us out of touch with reality, and they set up perverse incentives. That is What is Wrong with the People

Fri, 01/10/2014 - 16:31 | 4320768 NOTaREALmerican
NOTaREALmerican's picture

Re:  That is What is Wrong with the People

The peasants worshiping the "Elite" is what allows societies to form.   

The sociopaths at the top manipulate the dumbasses into dying "for the group" and the enrichment of the sociopaths.

Fri, 01/10/2014 - 16:41 | 4320808 Itch
Itch's picture

"The peasants worshiping the "Elite" is what allows societies to form."

This is some heavy shit. It's a like a structure vs agency dilemma; on one hand we have the elite's planing everything, and on the other we have the peasants worshipping that shit. Watch the government don't hear you talking like that, they might call you a terrorist! 

Sun, 01/12/2014 - 13:42 | 4324824 TheReplacement
TheReplacement's picture

It's an amazing concept that you might have elites for peasants to worship before you have societies.


WTF with the unthinkers today?

Fri, 01/10/2014 - 16:45 | 4320824 mayhem_korner
mayhem_korner's picture



The peasants worshipping the "Elite" is how societies degrade.  They do not form that way.

Fri, 01/10/2014 - 16:50 | 4320826 Future Jim
Future Jim's picture

"The peasants worshiping the "Elite" is what allows societies to form. "

I think we can have even more robust societies given a purely voluntary system. You could call it anarchy, but strong institutions based on purely voluntary transactions would naturally exist for security, arbitration, media, insurance, roads, couriers, money, etc. Reputation and competition for profit make it all work.

Unlike our government and its cronies, a company that did anything its customers did not like would quickly go bankrupt (in a few months) - unless it could print its own money, which it could not do unless it had monopoly on printing money ...

Fri, 01/10/2014 - 16:33 | 4320780 Itch
Itch's picture

Nice one. I will need more time to read it all though because it takes a while for ideas like these to sink in. 

Fri, 01/10/2014 - 17:25 | 4320953 NotApplicable
NotApplicable's picture

I'll be directing more than a few people to that blog post, as every single social problem I discuss with someone ends up with me stating "you have to follow the money." Which, of course, always ends up at the Federal Reserve. Which, of course, they don't understand.

The only way I've managed to get through to people is to put it in terms that anyone can understand. Which, is the Fed's "Magic Checkbook."

I simply ask, "If you had an infinite checkbook, what couldn't you buy, and thus ultimately undermine?"

Fri, 01/10/2014 - 17:39 | 4320981 dick cheneys ghost
dick cheneys ghost's picture

to really get a party started........tell people that banks are borrowers, NOT lenders

Fri, 01/10/2014 - 19:24 | 4321206 walküre
walküre's picture

The elite makes and defines PC.

PC redefines that UP is DOWN, that LOW is HIGH and that EMPTY is FULL

Brainwashing and indoctrinating 2 generations so far. The transition is almost complete.

Cultural Revolution par excellence.

My chickens have more common sense than most people out there. When people don't know their ass from their elbow anymore unless they've been told, they won't know to step away from a cliff and go back, instead going forward and falling to their death.

Fri, 01/10/2014 - 16:29 | 4320762 NOTaREALmerican
NOTaREALmerican's picture

Re:  How do people become so confused with this shit?

Don't forget tho, the manipulation come from both sides.

The Blue Team is for the females; the smothering mommy party.   The Red Team manipulates the males with their kick-ass daddy macho-fascist bullshit.

The Red Team loves Big-Ag, Big-MIC, Big-Road, Big-Water, Big-Airport, Big-Energy, Big-Fin, Big-OldFart, Big-OldFartHealthcare, Big-AntiDrug, & Big-PoliceState.   Big-MANLY socialism.   

And, there's a very simply reason why "the male Team" thinks Snowdon is a traitor.

Fri, 01/10/2014 - 17:28 | 4320955 Future Jim
Future Jim's picture

The leadership of both teams can be described as "interventionist" a.k.a. progressives. For example, neocons are just Republican progressives.

American Progressivism = Liberal Pretense + Fascist Motivation + Interventionist Policy


American Libertarianism = No Pretense + Liberal Motivation + Non-interventionist policy.

Sat, 01/11/2014 - 02:55 | 4322204 Incubus
Incubus's picture

Pretty much the realization I had.  Thank goodness there's the internet and I haven't let my life be ruined by some woman.

They want you to to become legally binded to them so that you raise their cuckolded offspring.


Reactionary response:  they can give up the goods, but I'm not giving up my life.  No broad is ever putting a ring on me.

Fri, 01/10/2014 - 16:02 | 4320698 Winston of Oceania
Winston of Oceania's picture

Quit scratchin at that t's gettin all red...

Fri, 01/10/2014 - 16:17 | 4320719 q99x2
q99x2's picture

ZH already has Trannies, Pomos, Bernankes and SFFCCCKS so feminists probably be ok.

Fri, 01/10/2014 - 16:39 | 4320800 B2u
B2u's picture

I am  scratching my balls as  I ponder this question....hey....I gotta find me a woman....

Fri, 01/10/2014 - 16:53 | 4320859 Itch
Itch's picture

Stand your ground buddy...she has to find you.

Sun, 01/12/2014 - 13:37 | 4324808 TheReplacement
TheReplacement's picture

Maybe for the same reason there aren't any articles about masculinity...  It just ain't like that.

On the other hand, if women had ever done anything of consequence in the past we might see articles about them.  Looking forward you will see Janet Yellen material but it will be in the same vein as Bernanke, not good.  See, no sexism at all, either way.

Fri, 01/10/2014 - 15:54 | 4320663 Grande Tetons
Grande Tetons's picture

When a stock market bubble does not pop and price stability is achieved. 

Anybody, have an example? Anyone....anyone...Bueller....crickets. 

Fri, 01/10/2014 - 16:55 | 4320868 disabledvet
disabledvet's picture

If you mean "when a stock market bubble bursts and there is a price stability" here are two: The Knickerbocker Crisis and the collapse in 1987. Obviously we had a gold standard during the Knickerbocker "so bailout your own damn ass out" was the Government's view...especially after the Government kept trying to tell Morgan that there were serious problems. (He went on a cruise to Italy instead.) The Government gave up a loan...but only AFTER these stupid clowns cleaned up their act first. (that did not happen this time.) 1987 was an interesting collapse too...over 20 percent in just a couple of days...starting on Friday. That time we actually had an economy to bail out the market so even with that collapse the market actually finished flat on the year. The collapses in the early 90's in the Mexico and SE Asia which led to LTCM being bailed out also not only "maintained price stability" but actually created pricing power. (Prices were in fact quite high in the 90's.) Oil prices had collapsed in 1986 and this led to the S&L there was some blow back in Wallie World in 1987...but nothing that an EXCELLENT Treasury team couldn't handle. The important thing to remember about the whole Law thing is the constant need for war funding in France at that time. They called what Law did a "scheme" but in fact he was being used by Louis XIV'th (the "Sun King") to do something that really was France's massive conquests. To my knowledge that is the first recorded hyperinflation in financial history...and it led to some very real fears at the time that the Monarchy was in grave danger (as it ultimately would be.) the USA is "cloud cuckoo-land" because we're a "guns for hire" people. we're all for organized violence..."just as long you keep it over there." Not that the Germans needed any help but the USA was a lot more ready for World War II than pretty much anyone believed possible because we'd been selling weapons of war for some time. We also had/still have a history of VERY powerful Secretary of States who "keep abreast of things" (mainly to keep trade routes open for commerce...but also arms control negotiations and now basically running point on the entire Middle East. And more to your point we actually did have a sustained inflation in the 1970's...but it never became a "hyper-inflation." we're not even close to anything like that now. default risk however has been I have been talking about in these here parts...and in various forums...foe many years now. I would argue "default risk" has been greatly enhanced by taper (just the word of it caused Detroit to collapse) but hey...none of us here are privy to the "machinations" as they say. in the meantime the securities business has been spectacular...going on THIRTY years now!...but that's even above my pay grade to explain (IPO's, LBO's, secondary offerings, "sweet hearth deals") so generally i just leave it at that. every State in the Union could go bankrupt and it probably wouldn't bother Wall Street too much right now. The market actually rallied furiously this Fall when it look like "Government" as knew it was over. Speaker Boehner did the first recorded "power move" i can ever recall in Republican Party history when he supported their "mad dash" into what turned out to be an awesomely correct view on Obamacare ("bag of wind")...but then did a General Schwarzkopf on their right wing ass during the budget thingy. As far as I'm concerned he can play the rest of his life playing golf with his bud's after that move. This US military and the policy planning folks dealing with this Middle Eastern catastrophe look like a VERY dangerous coiled snake to me. "that will clear out unemployment as we all know it" if that thing takes charge of We the People. For the time being it's all about the build out of the Littoral Fleet and a new bomber...but that's about it so far as I can tell. this ACA thing is a DEVASTATING blow both to me personally (i was very much looking forward to it), to the American people...and obviously to the Democratic Party. given that they have a "psycho wing" over there...well, lets just say i've been on the other side of the aisle on that one "and that's a whole lot scarier." So to answer your, as long as Napoleon was winning battles the French economy was just fine.

Fri, 01/10/2014 - 17:35 | 4320967 Grande Tetons
Grande Tetons's picture

To pony up on your analogy, politicians are all a bunch of General William Westmorelands aka lying self interested windbags which belong to the same club. Ergo, no need to cross the aisle lest you are doing it for exercise.  

Price stabilty, I would submit, is not the lack of hyper inflation.  Rather, I wouild suggest price stabilty would be reflected/defined by a rather smooth long term aggregate price chart....which by the way has not existed in the USofA for a little over 100 years. 

I enjoyed your post by the way. No sarc. 

Fri, 01/10/2014 - 19:54 | 4321308 jomama
jomama's picture

holy wall of text, batman!

Fri, 01/10/2014 - 15:53 | 4320664 ebworthen
ebworthen's picture

And it was chicanery like this that ultimately led to the French Revolution.

The FED is King George and his Lobster's encamped in Washington D.C. in a fancy building.

Fri, 01/10/2014 - 17:16 | 4320930 Miss Expectations
Miss Expectations's picture

And it was chicanery like this that ultimately led to the French Revolution.

Probably put some ideas into the Rothschild heads, too.

Fri, 01/10/2014 - 15:55 | 4320666 ShrNfr
ShrNfr's picture

Hey, give John Law a break. He killed the guy fair and square in a duel. Can you imagine Bernanke, Yellen, or Obama in a duel with swords? Me neither.

Fri, 01/10/2014 - 16:05 | 4320703 Boris Alatovkrap
Boris Alatovkrap's picture

Boris is can! Some time is day dream of central bankster class kill in sword duel. Is imagine sabre, katana, broadsword, sometime guillotine.

Fri, 01/10/2014 - 17:13 | 4320919 Miss Expectations
Miss Expectations's picture

Is now easy imagine Boris as Cossack, must to need horse.

Sat, 01/11/2014 - 10:25 | 4322496 HoofHearted
HoofHearted's picture

If Boris is Cossack, weapon is Mosin Nagant. 

Fri, 01/10/2014 - 16:36 | 4320792 25or6to4
25or6to4's picture

Maybe not swords but how about getting all three together with VZ-52 Skorpians? Pay per view anyone?

Fri, 01/10/2014 - 17:54 | 4321014 John Law Lives
John Law Lives's picture


Fri, 01/10/2014 - 15:57 | 4320673 Gringo Viejo
Gringo Viejo's picture

My favorite from the book "Extrordinary Popular Delusions And The Madness Of Crowds" was this quote posted on a stock seller's kiosk in London during The South Sea Bubble.

"A most marvelous and profitable undertaking.....
no one to know what it is."

Fri, 01/10/2014 - 15:59 | 4320683 Boris Alatovkrap
Boris Alatovkrap's picture

Is Central Bank commit crime? Is law write to circumvent illegal activity of Central Bank? Is law grant exemption for one party and punish another? Is USA Constitution really guarantee equality protection?

Key mechanism of Central Bank is Re-hypothecation. This is not new. Gold Factor, Money Exchanger, Banker, Government is all ancient time use re-hypothecation for extraction of wealth. Roman mint is mix base metal with precious, Money Exchanger is scrape edges of coin, Gold Factor is issue redemption certificate in multiple, and in masterful fait accompli, Bankster is massively dilute gross domestic product of entire nation while retain all new share. Is Re-hypothecation and conversion of property illegal? Damn to rights, in every civilization country is,...

... except for elite bankster class. USA, if you are constitution, use damn ting!

Fri, 01/10/2014 - 16:56 | 4320863 F em all but 6
F em all but 6's picture

Boris must understand. Constitution is rule, But for every rule there is exception. Brilliant lawyers create multiple exceptions until exception becomes the rule. Indeed exception creates rule and end justifies means. Form over substance new judicial doctrine accepted by judiciary. Is also doctrine widely accepted and practiced by tyrants and cartoon charactors. Foundational principle creating rule lost forever as all is now misunderstood. Constitution now meaningless piece of paper as interpreted out of existence.

William was right. First thing we do. Kill all the lawyers

Fri, 01/10/2014 - 17:49 | 4321006 Boris Alatovkrap
Boris Alatovkrap's picture

Q: AmeriKa political is see what difference between Constitution and Trampoline?

A: Member of political class is first remove of shoe before jump on Trampoline.

Fri, 01/10/2014 - 16:59 | 4320878 NoDebt
NoDebt's picture

As with any tool, one must be skilled in it's use to do anything effective with it.  Sadly, the idiocracy has seen to it that it's just another old, yellowed piece of paper from a bygone era with unreadable hieroglyphics on it (also known as cursive writing, which isn't taught in many schools any more).  As a living document, it's dead.  Our president lays it in front of the door to the white house and wipes his feet on it every time he enters.

I will point out, however, that the ideas contained in it need not be limited to the shores of our country.  If you don't like how things are going where you are, you could always borrow it and use it yourself.  Frankly, I'd love to see another country pick up the ball and run with it from where we fumbled.

Sat, 01/11/2014 - 06:26 | 4322331 JoBob
JoBob's picture

@NoDebt: "Frankly, I'd love to see another country pick up the ball and run with it from where we fumbled."

I would like for the United States to pick up its fumble and get back to the original, written-into-law, Constitution.

Thatthehell is wrong with us, anyway?


Sun, 01/12/2014 - 04:07 | 4324334 Boris Alatovkrap
Boris Alatovkrap's picture

Are we not men? D-E-V-O

Fri, 01/10/2014 - 16:01 | 4320694 ncdirtdigger
ncdirtdigger's picture

When my friends start talking about the stawk market and all their recent gains, I mention John Law and all I get are blank stares. I no longer have the patience to explain things to them.

Fri, 01/10/2014 - 16:07 | 4320711 SDRII
SDRII's picture

9 most terrifying word: I am from the government and I am here to help...

Did you hear that Jens Weidmann, Axel A. Weber ......


US Treasury Secretary goes to Europe..


Germans defend exports as US Treasury's Lew visits Read more here:
Fri, 01/10/2014 - 16:33 | 4320777 GeezerGeek
GeezerGeek's picture

If I represented Germany I would tell Lew this: We can discuss German exports after you return all our gold.

Fri, 01/10/2014 - 17:10 | 4320914 teslaberry
teslaberry's picture

remeber how spanish civil war gold moved to moscow for weapons that never arrived was renamed moscow gold after it was never returned to spain?


lets' just start calling german gold, new york gold. because we won world war 2 and they are never getting that shit back except as settled in dollars . 

Fri, 01/10/2014 - 16:11 | 4320715 kchrisc
kchrisc's picture

See, history doesn't repeat, the criminality of government does.

"Printing leads to the guillotine."

Fri, 01/10/2014 - 16:18 | 4320720 NOTaREALmerican
NOTaREALmerican's picture

There's already (not quite hyper) inflation for those in the top 20%.   

The peasant economy is completely different from the nobility economy.   

What is the price of trips to Europe,  private jets,  yachts,  and all the rest of the top 5% Bling.

It's getting harder and harder for the top 20 to 5% (the wanna-be rich) to actually keep-up with the real rich.

Fri, 01/10/2014 - 16:14 | 4320724 shovelhead
shovelhead's picture

I can't begin to say how gratifying it is to read such a enlightening article that was paid for with some of my wealth stolen by inflation, TARP & QE.

Thanks FED.

Burn in Hell.

Fri, 01/10/2014 - 16:46 | 4320828 GeezerGeek
GeezerGeek's picture

I suspect that Bix Weir would not at all be surprised at such a chronicle coming from the Fed.

Fri, 01/10/2014 - 16:15 | 4320728 rlouis
rlouis's picture

Real people were sent to the Louisianna Territory as colonizers, they were practically abandoned, many suffered and died.  In France, many, many people lost everything in the crash. Nothing like working for psychopaths.

Fri, 01/10/2014 - 16:23 | 4320750 Schmuck Raker
Schmuck Raker's picture

"Tell us what you think." ????

Fuck You Ben/Janet

Fri, 01/10/2014 - 16:31 | 4320765 Socialized Losses
Socialized Losses's picture

Jesus christ Tyler find an editor you idiot.  Tyler you are an idiot.  No doubt you are a financial advisor to some poor sap.


Your first sentence:

"Perhaps the most amusing and curious aspect of this entertaining summary of the Mississippi Bubble of 1720, the resulting European debt crisis (the first of many), how bubble frenzies are as old as paper money, the man behind both - convicted murderer and millionaire gambler, John Law, what happens when paper money's linkage to gold is broken, and how everyone loses their wealth and hyperinflation breaks out, is who the source is."


You tyler spout doublespeak gobbleygook as well as my best financial advisor.  To whom I have lost plenty. Cheers to you you fuckstick. 

Where have the cognisant "Tylers" from years ago gone?

Fri, 01/10/2014 - 16:35 | 4320787 Boris Alatovkrap
Boris Alatovkrap's picture

Dear Mr. Losses

Boris is struggle with read every ZH article, but you are comment incoherent.



(P.S., go and jump in shrub, there is no shrub here!)

Fri, 01/10/2014 - 16:42 | 4320810 mayhem_korner
mayhem_korner's picture



THAT is funny!!!!  Comment incoherent - ROFL!!!

Fri, 01/10/2014 - 16:41 | 4320807 mayhem_korner
mayhem_korner's picture



Mr. SL - you wouldn't want someone smarter than you to take an editorial red pen to your abortion of a post, would you?  'cuz it's littered with that which you project on Mr. Durden.

Fri, 01/10/2014 - 16:41 | 4320809 GeezerGeek
GeezerGeek's picture

Failed the test regarding diagramming a sentence, did you? Can't handle subordinate clauses too well? Try these, perhaps they're more your speed: "See spot run" and "Obama lies". 

Fri, 01/10/2014 - 16:57 | 4320874 StandardDeviant
StandardDeviant's picture

Attempting to parse the Tylers' convoluted complex compound sentences is part of the fun of ZH.

My only small gripe is that there should have been a colon rather than a period after "...who the source is".

Fri, 01/10/2014 - 17:00 | 4320887 Rising Sun
Rising Sun's picture

Someone is angry because their trading account reads zero (as opposed to zerohedge).


You're right Tyler - on a long enough timeline, the survival rate drops to zero - and this guy is pretty close.

Fri, 01/10/2014 - 18:08 | 4321047 Michelle
Michelle's picture

The Tylers of years ago provided detailed forensic analyses on a variety of financial instruments and shenanigans that were over most people's heads. Yes, I remember and miss those days.

The Tylers today provide mostly fear-mongering articles where I can get most anywhere.

What I think most people don't get is that they fail to see that the world's population is too large and urbanized to go back to a 17th century way of life and not a single gov't will willingly support a depression. Simply put, there really wouldn't be any winners in that environment - nobody, including the elites, would want to co-exist on a dangerous planet such as one could imagine. Therefore, we will get money printing, we will have bubbles, we will have distortions. The central planners will do whatever it takes and they are all in cahoots to maintain the status quo.


Fri, 01/10/2014 - 18:47 | 4321115 smartstrike
smartstrike's picture

Yes, many of the articles you find on ZH first appear on Yahoo, a MSM site; that's really pathetic. Yesterday's article on Hitler is a complete rip-off form here:

In order to understand where ZH comes form one must keep in mind that its editors/writers are ex-Wall Steeters. I assume that most of them made fortunes during the last 30-year credit boom cycle, and now lobby for delflation so their wealth does not go poof with inflation and money printing: it's self-interest.

I also agree what you said, there is little that passes  for analytical work like in the past years ie. 2008. For example look at today's article about generational labor force participation and look at the scale. There is a 3% increase by 65-year olds + from 2000 to 2013 from 64 to 67% over 13-years and cooresponding decline for those under 65. The simple explanation is that too few jobs are being created to absorb growing population--that's all. It has nothing to do with any generational shifts.



Fri, 01/10/2014 - 19:53 | 4321302 jomama
jomama's picture

let's see, where else did we find an article on this:


everyone's a god damn critic when they're not the ones putting out the material.

Sat, 01/11/2014 - 00:59 | 4322049 Better_late_tha...
Better_late_than_never's picture

We'd explain it to you, but we're all out of crayons.

Fri, 01/10/2014 - 16:34 | 4320775 begintowin
begintowin's picture

Hey, I got a great deal on a brand new wheelbarrow. Now me and the wife can carry our worthless paper money around whenever we have to shopping!


Fri, 01/10/2014 - 16:46 | 4320827 gmrpeabody
gmrpeabody's picture

You can say that again...

Fri, 01/10/2014 - 16:33 | 4320778 begintowin
begintowin's picture

Hey, I got a great deal on a brand new wheelbarrow. Now me and the wife can carry our worthless paper money around whenever we have to shopping!


Fri, 01/10/2014 - 17:03 | 4320886 debtor of last ...
debtor of last resort's picture

It's not enough to throw food to the ape on top of the rock. Every now and then, he will come down to fuck you.

Fri, 01/10/2014 - 20:07 | 4321347 Musashi Miyamoto
Musashi Miyamoto's picture

The play here is ticker 'UL' I see vaseline sales in our future...

Fri, 01/10/2014 - 17:16 | 4320927 TheRideNeverEnds
TheRideNeverEnds's picture

This article may be more appropriate for 2016/17 after hilary is "elected", the FED is printing a trillion a month, and the dow is trading through 100,000.

Fri, 01/10/2014 - 20:13 | 4321365 Musashi Miyamoto
Musashi Miyamoto's picture

Let me know when I can finally wear my DOW 17,000 merchandise. After that, I'm Not Worried, I'm all in... TWTR BitCHeZ...

Fri, 01/10/2014 - 17:29 | 4320962 q99x2
q99x2's picture

The banks are buying up the entire world with printed fiat currency backed by guns. They won't stop until they own all of it. It is modern warfare against the people of the world.


Fri, 01/10/2014 - 17:35 | 4320974 Catullus
Catullus's picture

Missing from this is Richard Cantillon, one of John Law's partners in the company. Cantillon lent the company money, sold off his shares before the dropped, left the country, and came back after the stock had fallen and was the one who ultimately made out the winner. Basically he sold at the peak of the French currency, as the devaluation from monetary inflation occurred, Cantillon was sitting in British pounds and/or florins while the French crown devalued.

For you gold bugs, Cantillon made a killing copper speculation

Years later, he wrote a essay on economics, the first systematic treatise on the specific subject. He is actually the father of economics, not Adam Smith. The first to write on entrepreneurship (a topic even modern economics students know nothing about), mercantilism, monetary policy, inflation, credit expansion, business cycles, foreign trade, price theory.

Fri, 01/10/2014 - 19:11 | 4321175 withglee
withglee's picture

The most important Cantillon observation was that the closer you get to the center of power, the more money you make and the less you produce (i.e. the money is in money changing and catering to the wealthy). This would suggest if you want to spread the wealth, you have to spread the power ... physically.

Fri, 01/10/2014 - 20:38 | 4321420 Radical Marijuana
Radical Marijuana's picture

Excellent point, withglee!


Fri, 01/10/2014 - 17:45 | 4320991 IridiumRebel
IridiumRebel's picture

Naturally if it was today, gold and silver would shit the bed and go to 800/15 respectively. Yep! Totally normal, unmanipulated markets.

Fri, 01/10/2014 - 17:57 | 4321022 Sick
Sick's picture

Rule from the Shadows - The Psychology of Power - Part 1

I am posting in the hopes that you will watch this video.  This video is very telling and troubling at the same time.  It made me upset and concerned enough to send it to everyone I know or have contact with in the past.  You should watch this to the end and share it with all your family, friends and associates.  This information must get out


Fri, 01/10/2014 - 19:48 | 4321288 jomama
jomama's picture

good piece.

Fri, 01/10/2014 - 18:03 | 4321036 RhoneGSM
RhoneGSM's picture

'nuff said


The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Fri, 01/10/2014 - 18:18 | 4321069 besnook
besnook's picture

now i get it. the problem with a gold standard is it does nothing to prevent bankers from printing money anyway. a gold standard is just a fraud in the making.

Fri, 01/10/2014 - 19:18 | 4321189 withglee
withglee's picture

Notice from the article that John Law had no clue that money was "a promise to complete a trade". He promoted money production without trader involvement. The result was hyperinflation in about 3 years time. Switching to a gold standard suffers the same misunderstanding (i.e. no direct connection between trading and the amount of exchange media in circulation). But in gold's case (and in the case of BitCoins), deflation results ... much to the benefit of the promoters of gold or BitCoins, should they prevail.

Get money right! It's "a promise to complete a trade" and it's created by traders and extinguished when they deliver on their trading promises. If they default, it is recovered through interest collections, thus assuring zero inflation at all times everywhere.

The governing relation is INFLATION = DEFAULT - INTEREST.

Todd Marshall
Plantersville, TX

Fri, 01/10/2014 - 19:24 | 4321203 Handful of Dust
Handful of Dust's picture

great article. I love history and learning.Thanks!

Fri, 01/10/2014 - 19:23 | 4321205 muleskinner
muleskinner's picture

If you had 1,000 ounces of gold in 1900, and say those 1000 troy ounces were 1,100 US minted double-eagle gold coins, each and every one would be worth 1,200 USD fiat funny money, clown bux, but just say it is 1000 troy ounces at 1200 USD current frns, then the worth of those 1000 troy ounces of gold is $1,200,000.00, to the penny, less the premium cost of buying the 1000 ozs of gold, or about 1250 frns.

In 1910, those double-eagles were worth 20,000 gold-backed dollars, US minted eagles, much more collectible, so make it 2000 eagles, and you have yourself some money.  Today, it will cost you 1,200,000 dollars.  Add in numismatic values and the number could soar.

You'll have yourself 2200 ten dollar gold eagles and, if you play your cards just right, they'll be worth something north of 1.2 million dollars, which is really just 22,000 dollars.

Chicken feed for Jesse Livermore.

1 200 000 - 20 000 = 1 180 000.

Hyperinflation has arrived.

Fri, 01/10/2014 - 19:42 | 4321267 withglee
withglee's picture

Inflation (on average 4% while the Fed has been at the helm for 100 years) is a very greedy demon. That small amount, about what we all give up when we buy anything ... because the price of what we buy has to cover the 5% taken by the credit card companies ... eats up value to the compounded tune of over 98% in 100 years. It's about boiling frogs. With a properly managed Medium of Exchange, inflation would be zero ... not 4% ... and trading would be much simpler, as would be wealth preservation.

Fri, 01/10/2014 - 20:27 | 4321405 Radical Marijuana
Radical Marijuana's picture

"... the Fed-employed authors fail to grasp just what their institution does, or have a truly demonic sense of humor ..."

The situation is not either/or, but rather both/and. The crucial characteristic of "Fed-employed authors" is their ability to maintain EVIL DELIBERATE IGNORANCE. That IS "a truly demonic sense of humor!" The saying that Satan is the Prince of Lies can be extended to say that, since the best way to lie is to tell only part of the truth, therefore, LIE BY OMISSION,

Maintaining functional cognitive dissonance is a special kind of mental skill, akin to being able to look at a mirror and yet, NOT understand that everything in that mirror appears BACKWARDS. Obviously, those who understand blowing economic bubbles best are best able to get in an out ... (Like the excellent comments made above regarding Richard Cantillon.) Those insiders who can guess best when the bubbles being blown will pop are able to make the most profits from the BOTH the rides up, and the rides down ...

Anyway, I find that more and more articles on Zero Hedge are stimulating my macabre sense of humour, to laugh at evil, since that is about the only coping mechanism left. The current systems of organized lies, operating organized robberies, continue to fantastically benefit those who best understand them, IN THE SHORT-TERM. Tragically, the longer term consequences of that never make any significant difference to the triumph of each short-term increment of taking advantage of the spirals of frauds.

Overall, the human species is preparing to destroy itself, due to those who are best at promoting and taking advantage of frauds being in positive feedback loops, which enable them to constantly become more wealthy and powerful, WITHIN the systems of legalized lies, backed by legalized violence, that almost totally dominate what civilization is actually doing. The longer term consequences of controlling what civilization does through fundamentally fraudulent financial accounting systems is foreclosing on the future of the species. However, in each short-term increment, those who benefit from that runaway social insanity continue to be best able to make that spiral spin through more and more insane loops.

Since what actually exists are combined money/murder systems, where the money operates through the maximum possible frauds, while the murder that backs that money up operates through the maximum possible deceits, the combined effects ARE something which takes "a truly demonic sense of humor" in order to appreciate. Indeed, the more I have learned, the worse it has always gotten, and about the only psychological defense mechanisms I have left are to struggle to persuade myself not to care, while I cultivate my macabre sense of humour, to find some relief in laughing at the evils.

Of course, that gets harder and harder to do ... Since the ways that we collectively operate fundamentally fraudulent financial accounting systems, which favour blowing and popping bubbles, which generate the most fantastic profits for those who best understand that, as they are participating, constantly drives those who are becoming more wealthy and powerful within those established social systems to be able to dominate those systems even more, and therefore, even more able to direct those systems towards CONTROL FRAUDS, which tend to overall, eventually, destroy themselves, since civilization as a whole is controlled to base its decisions on Huge Lies, where those who benefit from those Lies are then most able to enforce those Lies, which requires everyone else to accept those Lies, and to operate within those Lies, in order to survive through each short-term increment of that process driving that civilization as a whole towards mad self-destruction.

The vicious spiral of the profit from successful frauds being able to be reinvested in more frauds enables those doing that to continue to dominate the funding of the political processes, while nobody outside of that can effectively compete with them. Therefore, the society as a whole conspires to drive itself insane, and drive itself through bigger and bigger booms and busts, towards its own collapse into chaos, and annihilation. Thus, that demonic sense of humour is full blown nihilism, as a kind of acceptance of the ways that the triumphs of fundamentally fraudulent financial accounting are driving both social polarization and destruction of the natural world, towards their own overall mad self-destruction, due to the paradox of too much successful fraud, controlling what civilization actually does, for too long, which drives that system as a whole towards psychotic breakdowns, as the end product of too much successful cognitive dissonance, and evil deliberate ignorance, for too long.

As I said, after one learns more about this, there are no real solutions that I am aware of, since those who benefit from the financial frauds continue to become more wealthy and powerful, while the collective longer-term consequences have no effective, politically practical ways to actually change that trajectory towards tragedy. The Federal Reserve Board is the result of the methods of organized crime being applied to take over covert control of the government, in order to create systems of legalized lies, backed by legalized violence, on more and more magnified orders of magnitude. Each step along the way, those who are best able to participate in doing that become more wealthy and more powerful, and more able to drive the next step. That the path itself is causing civilization as a whole to base everything it does upon Huge Lies, with severe longer term consequences, which never makes enough real difference to change that happening. ((Indeed, apart from stimulating my macabre sense of humour, I see no other practical benefit from reading Zero Hedge articles. There is never any "actionable intelligence" that makes sufficient difference to the overall tragic trajectory. The only practically possible actions are to try to understand and take temporary advantage of the cycles of fundamentally fraudulent financial accounting, while working towards more honest accounting is relatively worthless and pointless to attempt to do, within those entrenched established systems.))

Sat, 01/11/2014 - 11:51 | 4322619 withglee
withglee's picture

Like an avalanche transistor, the potential builds until breakdown. Be ready to take control immediately after breakdown. But when you take control, be sure you know what you are controlling and how to control it. Otherwise the cycle just repeats.

It's all about trade ... really free and open fair trade  ... fair trade that doesn't take a 2000 page volume to define like NAFTA. Then realize that money is just an efficiency to trading. It stands for "a promise to complete a trade". It is created by traders making trading promises. It is extinguished by traders delivering on those promises. And its integrity is maintained through interest collections equaling the default of irresponsible traders. This "guarantees" that inflation is zero at all times everywhere. It's as good as you can do. It is an actuarial exercise like casualty insurance.

Proper management of money must be done transparently. It doesn't matter who does it. What matters is that the traders understand that they create the money and they extinguish it. And that activity must always be in the open for all to see and moderate.


Sat, 01/11/2014 - 10:03 | 4322482 frank H
frank H's picture

Unfortunetly zero hedge never publshed my article  on the second french hyperinflation episode of the 18th centruy.

Sat, 01/11/2014 - 15:39 | 4322706 withglee
withglee's picture

As Voltaire once said, “Paper money eventually returns to its intrinsic value — zero.”

From your essay, it appears Voltaire didn't know what money was either.

Money is "a promise to complete a trade". It is created by traders making trading promises and extinguished when they deliver on those promises. The France you described was clueless about this.

That money is "a promise to complete a trade" is obvious when you examine trade. Trade is a three step process: (1) Negotiation; (2) Promise to trade; (3) Deliver on promise. In simple barter,(2) and (3) happen simultaneously on the spot. Money allows (2) and (3) to happen over time and space. Thus, money is simply an efficiency over simple barter and functions as an item of barter once created. It stands for "a trading promise".

The Medium of Exchange (MOE) has to be managed, just like casualty insurance has to be managed. It doesn't matter who does the managing. What matters is that proper management is guaranteed. This requires transparency.

With proper management, any trader at any time and in any place can get his trading promise "certified" (i.e. turned into money certificates). The promise is recorded and monitored. We know this process as getting, and performing on, a loan. When the trader delivers on his promise, he returns the certificates and they are extinguished. If the trader DEFAULTs, his defaulted certificates must be recovered through INTEREST collections. This guarantees that INFLATION is zero at all times everywhere. The relation is INFLATION = DEFAULT - INTEREST.

Not all traders are equal. Some are deadbeats. This is where management of money (just like management of casualty risk) becomes an actuarial exercise. With casualty insurance, the job is to match premiums to claims and make money on the investment income.

With management of the MOE, the job is to estimate risk of a trader's default in advance and assess interest accordingly. The job is then to monitor defaults and control to zero inflation. Defaults are the negative feedback. Interest collections are the control. If you are the MOE manager, to be competitive you must be actuarialy sound. And you must guarantee that your control system drives to zero inflation with a very short time constant (i.e. fast enough that no one really notices the imbalance between DEFAULT and INTERST collections).

It should be noted that under proper MOE management, the supply and demand for money are always in perfect balance. It's just a characteristic of a trading promise.

And governments? They are not the managers of the MOE. They are the ultimate deadbeat traders. It is crucial that this be understood.

Todd Marshall
Plantersville, TX

Sat, 01/11/2014 - 16:12 | 4323236 DOGGONE
DOGGONE's picture

Now see this.

The past is dominated by the coming & going of irrationality, see here.
These histories are rarely shown, because the 'system' profits from more ignorance ... Brainwashing uber alles!

Sat, 01/11/2014 - 17:01 | 4323326 The Econ Ideal
The Econ Ideal's picture

Ponzi schemes never end well. We have plenty of them presently. It is a veritable mine field. 

Do NOT follow this link or you will be banned from the site!