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Guest Post: How the Paper Money Experiment Will End
Submitted by Philipp Bagus via the Ludwig von Mises Institute blog,
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. In such a system with a constantly increasing money supply and, as a consequence, constantly increasing prices, it does not make much sense to save in cash to purchase assets later. A better strategy, given this scenario, is to go into debt to purchase assets and pay back the debts later with a devalued currency. Moreover, it makes sense to purchase assets that can later be pledged as collateral to obtain further bank loans. A paper money system leads to excessive debt.
This is especially true of players that can expect that they will be bailed out with newly produced money such as big businesses, banks, and the government.
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. Central banks printed money to buy public debts (or accept them as collateral in loans to the banking system) in unprecedented amounts. Interest rates were cut close to zero. Deficits remain large. No substantial real growth is in sight. At the same time banking systems and other financial players sit on large piles of public debt. A public default would immediately trigger the bankruptcy of the banking sector. Raising interest rates to more realistic levels or selling the assets purchased by the central bank would put into jeopardy the solvency of the banking sector, highly indebted companies, and the government. It looks like even the slowing down of money printing (now called “QE tapering”) could trigger a bankruptcy spiral. A drastic reduction of government spending and deficits does not seem very likely either, given the incentives for politicians in democracies.
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:
1. Inflate. Governments and central banks can simply proceed on the path of inflation and print all the money necessary to bail out the banking system, governments, and other over-indebted agents. This will further increase moral hazard. This option ultimately leads into hyperinflation, thereby eradicating debts. Debtors profit, savers lose. The paper wealth that people have saved over their life time will not be able to assure such a high standard of living as envisioned.
2. Default on Entitlements. Governments can improve their financial positions by simply not fulfilling their promises. Governments may, for instance, drastically cut public pensions, social security and unemployment benefits to eliminate deficits and pay down accumulated debts. Many entitlements, that people have planned upon, will prove to be worthless.
3. Repudiate Debt. Governments can also default outright on their debts. This leads to losses for banks and insurance companies that have invested the savings of their clients in government bonds. The people see the value of their mutual funds, investment funds, and insurance plummet thereby revealing the already-occurred losses. The default of the government could lead to the collapse of the banking system. The bankruptcy spiral of overindebted agents would be an economic Armageddon. Therefore, politicians until now have done everything to prevent this option from happening.
4. Financial Repression. Another way to get out of the debt trap is financial repression. Financial repression is a way of channeling more funds to the government thereby facilitating public debt liquidation. Financial repression may consist of legislation making investment alternatives less attractive or more directly in regulation inducing investors to buy government bonds. Together with real growth and spending cuts, financial repression may work to actually reduce government debt loads.
5. Pay Off Debt. The problem of overindebtedness can also be solved through fiscal measures. The idea is to eliminate debts of governments and recapitalize banks through taxation. By reducing overindebtedness, the need for the central bank to keep interest low and to continue printing money is alleviated. The currency could be put on a sounder base again. To achieve this purpose, the government expropriates wealth on a massive scale to pay back government debts. The government simply increases existing tax rates or may employ one-time confiscatory expropriations of wealth. It uses these receipts to pay down its debts and recapitalize banks. Indeed the IMF has recently proposed a one-time 10-percent wealth tax in Europe in order to reduce the high levels of public debts. Large scale cuts in spending could also be employed to pay off debts. After WWII, the US managed to reduce its debt-to-GDP ratio from 130 percent in 1946 to 80 percent in 1952. However, it seems unlikely that such a debt reduction through spending cuts could work again. This time the US does not stand at the end of a successful war. Government spending was cut in half from $118 billion in 1945 to $58 billion in 1947, mostly through cuts in military spending. Similar spending cuts today do not seem likely without leading to massive political resistance and bankruptcies of overindebted agents depending on government spending.
6. Currency Reform. There is the option of a full-fledged currency reform including a (partial) default on government debt. This option is also very attractive if one wants to eliminate overindebtedness without engaging in a strong price inflation. It is like pressing the reset button and continuing with a paper money regime. Such a reform worked in Germany after the WWII (after the last war financial repression was not an option) when the old paper money, the Reichsmark, was substituted by a new paper money, the Deutsche Mark. In this case, savers who hold large amounts of the old currency are heavily expropriated, but debt loads for many people will decline.
7. Bail-in. There could be a bail-in amounting to a half-way currency reform. In a bail-in, such as occurred in Cyprus, bank creditors (savers) are converted into bank shareholders. Bank debts decrease and equity increases. The money supply is reduced. A bail-in recapitalizes the banking system, and eliminates bad debts at the same time. Equity may increase so much, that a partial default on government bonds would not threaten the stability of the banking system. Savers will suffer losses. For instance, people that invested in life insurances that in turn bought bank liabilities or government bonds will assume losses. As a result the overindebtedness of banks and governments is reduced.
Any of the seven options, or combinations of two or more options, may lie ahead. In any case they will reveal the losses incurred in and end the wealth illusion. Basically, taxpayers, savers, or currency users are exploited to reduce debts and put the currency on a more stable basis. A one-time wealth tax, a currency reform or a bail-in are not very popular policy options as they make losses brutally apparent at once. The first option of inflation is much more popular with governments as it hides the costs of the bail out of overindebted agents. However, there is the danger that the inflation at some point gets out of control. And the monopolist money producer does not want to spoil his privilege by a monetary meltdown. Before it gets to the point of a runaway inflation, governments will increasingly ponder the other options as these alternatives could enable a reset of the system.
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What a load of crap. Allow me to simply the current situation for you; "When fraud is the status quo, possession is the law.
The applies to any real asset or productive capacity. Hedge accordingly.
Reply accidently submitted twice.
I have no problem with that strategy, but when we're talking about money, we're not talking about strategy. We're talking about trade. Even as lousy as the dollar has been managed, my cost of using it in trade is negligible. My cost of holding it as something of value averages about 4% a year and is now gaining dramatically and that's unacceptable. But it doesn't have to be that way. With a properly managed MOE inflation is zero and transaction costs are zero.
The only properly managed MOE is an unmanaged MOE. Period.
If something can be managed by a robot, can it be called "unmanaged"?
You don't understand this very interesting subject; you should study it; I'm sure you'd find it interesting. The constraint you imagine does not exist.
Is it too complicated for you to succinctly describe here? People who propose gold as a standard always stop the discussion exactly with such a reply. I have never ever seen it go further. I have studied "it" thoroughly. I have searched for "it" thoroughly. I have never turned "it" up yet. Will this be the time? The constraint I describe exists. It costs nearly an ounce of gold to produce an ounce of gold. The value of gold will always be fairly close to the cost of acquiring it ... and mining is a way of acquiring it. Refute "it".
The value of gold will always be fairly close to the cost of acquiring it ... and mining is a way of acquiring it. Refute "it".
There is some confusion because of a lack of DEFINITION OF TERMS. So I will first address part of your thesis and then define mine, and following that make the case.
Mining is a way of acquiring Gold. Yes it is "a way". But I do not mine and yet I have some Gold. How did I acquire it? I transacted for it. I traded for it.
Mining is the activity which increases the supply of Gold. Yet the supply of Gold grows at a similar exponential rate as that of the World's Population. Thus there is relatively no problem with Gold being subject to a Price Inflation or Price Deflation as the new Humans will have, on average, the average demand upon total World Resources.
This is the Basic Supply-Demand Relation.
If Supply Increases or Demand Decreases then one has a Price Deflation.
If Supply Decreases or Demand Increases then one has a Price Inflation.
However if Supply Decreases at the same rate as the Demand Decreases, OR, Supply remains Constant while Demand remains Constant, OR, Supply Increases at the same rate that Demand Increases then one has acquired the proverbial Sorcerer's Stone...PRICE STABILITY.
Why am I interested in PRICE STABILITY?
PRICE STABILITY is FOUNDATIONAL for HONEST and FAIR TRADE. Honest and Fair Trade fosters TRUST as I know that I am not going to be cheated. Trust spawns the necessary CONFIDENCE that one needs to operate in an Economy with freedom from fear of exploitation.. From the FOUNDATION true growth and advancement can be REALIZED by all parties involved in Trade.
AS AN EXAMPLE ON HOW THIS WORKS...
I will not willingly enter into a trade where someone loses. If I can not provide my Goods and Services free from Deceit or Fraud then that Trade will be abandoned. Cheating another person is immoral.
If I am buying...let's say...Gold...then I will offer a competitive bid for the product. If the person likes my bid and they generally do then they take my CASH in trade for the Gold. I win because I get the Gold that I want. They win because they get my Currency that they want. It is a Win-Win transaction. Profitting from the trade is built in to my bid as I perform a Service (recycling Scrap Gold) and I provide a Good (US Currency). They win as they can use that Currency for most anything which they choose whereas they could not use the Scrap Gold.
I will let them know up front what I am paying. I let them know what percentage I am paying. My scales are Fair and calibrated to industry standards.
That is the only type of deal to enter into.
Likewise, when selling Gold, I do not sell bunk. My buyer is up front with me. We have enjoyed a good and trusting relation over the past Decades. Because of that my experiences have been PROFITABLE and fulfilling.
The next problem is rectifying the inherent confusion of Price, Cost and Value.
Let us first define what VALUE is NOT so we can properly define that which VALUE IS.
First Value is NOT a Price. However Price may be one of the attributes of Value.
Next Value is not a "cost". Cost is definitely not an attribute of Value as a Cost is a liability rather than an asset.
You must agree that Assets are valued whereas liabilities are not.
So what is value? As it concerns Money the Value is a measure of the PURCHASING POWER of the Currency. (In this case the Currency is Gold.)
As Gold is not naturally subjected to Price Inflation it can generally serve as a good store of Value. Of course this is only true when the price is not subject to manipulation, by selling Paper for which no Gold Exists. Again the Price Manipulation is a form of dishonesty, which fosters a lack of confidence and trust, which will doom any chance for a stable Economy, which leads to regression, rather than progression, and subsequent collapse.
When Gold is used as money, a CURRENCY, then most personal acquisition of Gold will be through TRANSACTION and TRADE for it.
If I am to create a more efficient method of extracting Gold or create a more efficient means of refining Gold then the cost of Production declines. The added efficientcy will be added to other productivity as not everyone is in the business of Mining Gold. The Gold, acting as a Currency, will be VALUED in comparison to how many Goods and Services which can be acquired through trading it for Goods and Services, and NOT THE LIABILITY OF THE COST OF PRODUCTION.
You compare Apples to Oranges when you declare that the VALUE is tied to a Liability which I refuted when I declared that Liabilities are not VALUED.
When Gold is used as money, a CURRENCY, then most personal acquisition of Gold will be through TRANSACTION and TRADE for it.
Can you really write all those words and still miss the point and fail to make your own point? There isn't enough of gold to stand for all the transactions, in-process trades, and savings going on in the world. There is only about 6 billion ounces of the stuff and it only takes about an ounce of gold resources to create a new ounce of gold. If the "value" (resources it can command) is much larger than the "cost" (resources you must deploy) of acquiring it, then you have a huge profit opportunity in digging for gold or grinding up computers to reclaim gold.
I am careful to put the cost of acquiring a new ounce of gold in terms of an ounce of gold. Then I don't have to deal with price, value, cost, and exchange rate arguments. I can deal with the relative resources required to acquire an ounce by mining to the resources you can acquire with that newly mined ounce. Those two things must always be in balance or you have a flawed trading premise.
Next, people proposing "backing" a Medium of Exchange (MOE) with gold are saying there is free exchange of the MOE for gold and gold for the MOE. This means there is a potential of everyone demanding gold for their MOE at the same time. With only one ounce per person on earth, and with that ounce valued at less than $2,000, and with the cost of mining new gold or grinding up computers for old gold less than $2,000 per ounce, an ounce can be assumed to have a value and a price and a cost of less than $2,000. Your long response calls this "apples" and "oranges". It's not. It's plain simple logic.
You do seem to grasp the concept of supply and demand. Fine.
Make an MOE be backed by gold and you will wildly change the demand for gold ... probably by several orders of magnitude. Thus, gold would be worth maybe $2,000,000 per ounce when used in exchange for things like missiles, houses, cars, groceries, fuel, etc. But that doesn't change the fact that you can exchange an ounce of gold resources to acquire a new ounce of gold through mining or computer grinding. Make an ounce of gold mean $2,000,000 and you will immediately drive everyone to mining and computer grinding.
You (and others) praise gold for its ability to "track" the growth of population. But is doesn't ... 1849 is just such a case. And the fact that Germany cannot get its hands on its own gold is a case of the opposite color. You don't want a MOE based on such perturbations. Further, even if gold did track population growth (and trade and wealth growth), wouldn't gold be worth $2,000,000 today instead of less than $2,000 if this automatic "tracking" was really working and useful? Would France have demanded gold from Nixon instead of his Federal Reserve Notes?
I can agree that value and cost and price are not equal ... but they will always be close to equal. They certainly will never be unequal by three orders of magnitude.
Can you not make your case succinctly without all those references to prices? I did so by doing my illustration ounce for ounce. Please try again ... and do it without mentioning price. Do it all in ounces of gold since that's what you're proposing as the MOE. And begin with two obvious knowns. (1)You can exchange about 1oz of gold for resources to acquire a new ounce of gold either through mining or computer grinding. This is because about an ounce per person on earth is all that is needed to do that. And (2), today you can exchange an oz of gold for about the same amount of stuff that you can exchange $2,000.
Change one of those givens and you must change the other proportionally.
Shit I've thrown out loads of old computers. Should I have ground them?
Some people are doing it profitably.
http://www.npr.org/blogs/bryantpark/2008/02/old_electronics_are_a_new_go...
Does America Even Own a Guillotine Manufacturer ? I see an Opportunity for a Nice Side Business
Might be some of these could be easily modified by the manufacturers to meet demand.
Those aren't American.
For Entertainment Purposes Only Of Course :)
I think that Executioners ~R~ UsTM might be a new franchise that I would like to open. Yes. We can sell Gallows and Guillotines. We can sell Letahl Injection Devices and Electric Chairs. We may even have a sale on Crosses and Nails or the Garroting Devices. Perhaps a Gun Store may think about this as they already have the Firing Squad Execution Line already in place.
Every father of a Teenage Girl needs to have a Gallows in the Front Room and it needs to be shown to thier boyfriends. Teen Pregnancy rates will decline rapidly.
I agree. Good idea. Do you think that we can get an IPO and a CNBS Media Slot to Pump and Dump it?
It is...after all...BECAUSE OF THEM.
Stagflation until the last of the holdouts cry uncle, then inflation. It's just how it is.
The Great Reset is the only real solution. Repudate all debts, public and private. After the hangings are completed, a new monetary system (and laws, we'll need to repeal many laws) based on barbarous relics.
I don't like to make guesses about the future, but I'll make an exception to posit the following:
If we don't have #3, we will have #s 1, 2, 4 and 7.
I actually agreed with the trillion dollar coin idea... but not in the sense those advocating for it wanted. In a legal sense the Treasury could mint the coin, walk it over to the fed, and tell them the coin is legal tender which they have to accept for any monies owed to the Fed. Thusly, X$ owed thereto disappears in a puff of debt destruction, strengthening the dollar, while eliminating much of the public debt and debt service, and leaving the fed with a coin worth a few dollars in metal they can't actually spend anywhere. The point is the Fed would be obligated to take T-coins to satisfy debts issued in FRNs.
But sure - those advocating it just wanted to do it to allow the government to deficit spend more, but those fuckwads didn't appreciate that a coin minted as legal tender by the government itself is not the same thing, at all, as a FRN.
I have convinced precisely no one of the merits of this approach, but I persist in thinking it solid, if used in that way.... in essence, since the private federal reserve can create our currency as a loan at interest, out of thin air, I'd advocate the government printing, or minting its own fiat legal tender to satisfy the obligations owed to the Fed.
It's fake money. why not pay it off, i.e. destroy that fake debt with different, actually fed gov issued fake money of a different kind?
What's that I'm hearing?
And having done it once, why not do it perpetually? Why? Because it doesn't fix the problem, that's why.
Who said it fixes the problem of deficit spending? I didn't - so why did you suggest that I had? In fact, if it's not clear from what I wrote, I'll explicitly note {reiterate} that I wasn't envisioning this in the way those advocating it did, i.e. I wouldn't use it as a way to simply artificially reduce the debt so that more deficit spending could be done.
If you think it's better to simply have people working for weeks out of the year to pay back the Fed for $ it created out of thin air... I guess we just have to disagree. Where I would agree with you is that it would be pointless and counterproductive to do it repeatedly.
So to answer your question, you don't do it repeatedly because it doesn't fix the problem, but it simply doesn't follow that you therefore don't do it once to 'vanish' billions in fake debt real people have to work to repay.
Got it. But then wouldn't you also want to eliminate the Fed and just have the Treasury do what the Fed supposedly does? Or is that asking too much?
trav7777 used to say that eventually, the US gov will go pure fiat (no interest) which makes sense
The only way it can legitimately go "no interest" is to have zero defaults. The government is the most irresponsible trader and defaults on virtually "all" it's trading promises. Taxes only going to paying interest, and that interest is totally arbitrary. All the debt (i.e. trading promises) are just rolled over (i.e. a new lie about keeping the promise is made).
I'd eliminate the fuck out of the Fed. I think the Fed Reserve Act was unconstitutional on its face, but then I think words have meanings not wholly malleable by "interpretation" which is not a position supported by The Academy, which takes a more... ahem... Orwellian approach to language.
Maybe I should have restated by anti-Fed bona fides. I think fractional reserve lending is actual and should be considered legal fraud, and certainly think the existence of the Fed/fiat/frac reserve combo plate clusters wealth at the top and encourages wars.
But if we can't get rid of it, I'd like to find a way to not have people working weeks or months out of the year to pay back imaginary credit those fucking charlatans created out of thin air.
Eliminating a fraudlent debt can be done by repudiation, by payingit off, or by other satisfaction. I think we need to look at other satisfaction even before repudiation [for various reasons, some of them obvious] but sure, I wouldn't claim to know that even a 1 off T-coin would work, particularly with the same politicians and academics still in charge and still believing that deficit spending is not only the best but only way to grow a {real} economy.
Sort of like this? ESP 2:50 in
http://www.mtv.com/videos/misc/139096/candy-sale.jhtml
So to summarize: Zimbabwe's only problem was that it (somehow) failed to name Johnny Cocknballs as the head of their Monetary Policy Committee.
I don't think I would have fucked up quite so badly, mostly because I don't support a system of borrowing the nation's currency as a loan at interest from private banks, or sustained deficit spending, or for that matter, frac reserve lending.
You're correct. I utterly fail to grasp how paying off a "fake debt" with "fake money" could possibly not trigger widespread, and probably fatal loss of confidence in the dollar.
(JC completely changed his above post, so this response may now seem out of place.)
Why, on earth, would you think that reducing the amount of checkbook dollars in existence, while reducing the debt/service the U.S. government owes would trigger "widespread loss of confidence in the dollar"?
Let me ask you this - do you think printing trillions of dollars into existence in a 6 year period causes inflation? leads to a "fatal loss of confidence" in the dollar?
Confidence is as good as the reserve currency status, which is being eroded as we speak, and trillions in new money didn't seem to much matter.
Here, the suggestion is to satisfy debt obligation to the Fed, and the Fed alone. And once again - the Fed created their currency out of thin air, while taxpayers, maybe even you, have to actually do work to pay it back. Would repeated use be bad? Sure - but this is a thought experiment for a one-time satisfaction of the Fed's ostensible checkbook credits so we don't have to work to pay it, and presupposes a government that doesn't simply use it as an excuse to keep deficit spending.... because yes, ongoing deficit spending isn't good.
So why you would think a legal tender which is not a dollar but which reduces the amount of dollars nominally in existence while reducing the taxpayer's debt burden to the Fed would do cause a "fatal loss of confidence in the dollar " is...well... something I utterly fail to grasp.
Edit: I did wholly change the prior post to be somewhat less of a cunt in my reply, which wasn't actually substantive anyway. Apologies for my prior, needless cuntery.
To answer your second question first, yes, I have no doubt that the printing path that the U.S. is on will lead to a fatal loss of confidence in the dollar. Are we at the inflection point yet? No, obviously not.
You say that "Confidence is as good as the reserve currency status, which is being eroded as we speak, and trillions in new money didn't seem to much matter."
It didn't? Really? It hasn't played a role in China's accelerating purchase of gold, and the rapidly increasing number of trade pacts circumventing the dollar? It doesn't play a role in the decreasing comfort level major central banks have in holding U.S. Treasuries?
You're obviously a smart man, and you know full well why the trillions conjured haven't yet triggered massive inflation and a full-blown panic. And you also know that the game TPTB are playing is approaching its limit. So I cannot understand how a "fix" such as the one that you propose wouldn't, at the very least, bring the camel's back much closer to the breaking point.
Johnny Cocknballs, is that like "John Cocktoasten?"
How would the use of a TDC strengthen the dollar? It would create more dollar deposits in the banking system that are not offset by Treasury debt. And everyone knows that Congress will have every incentive to run bigger deficits once the precedent is set. I could see this option being used only in the context of a major war, especailly if interest rates are rising and foreign demand for Treasury debt drops off.
You'd have the amount of dollars less those extinguished by satisfaction of the debt denominated in those dollars. It wouldn't create more dollar deposits in the banking system - it's satisfying future debits/debt service.
Look, I don't feel like getting knocked around for something that's really just a thought experiment. Basically, I'd love to find a legal, and economically sound way to, right now, elminate a great deal of debt I consider phony by satisfying it with government-issued phony currency. Basically, it's repudiating without, formally, repudiating.
Johnny, I know you are new here and just wanted to let you know that I like ur style........you remind me of some old time commentors
Thanks, I appreciate that coming from you. I've been reading ZH off and on for about 3 or 4 years, and a lot more in the past year or so. Fully half the reason I came were the comments.
I fully expect to expose my considerable ignorance herein as well as take some knocks for floating ideas or ways of looking at stuff I might not even necessarily believe in myself - but that's the fun bit and a good way of learning from {at times} more intelligent/informed/knowledgeable people.
Treasury could mint the coin, walk it over to the fed, and tell them the coin is legal tender which they have to accept
Thought experiments expand our sense of possibilities, so kudos Johnny, but getting them out of the lab and into the field is when the wrenching of realities hits:
Anyone trying to walk it over to the Fed would never get there ; ) Talk about running the gauntlet! paging Clint Eastwood...
Seems the root of the problem in bizzarro mirror world is that Treasury isn't the teller, it's the tellee.
"this world is ruled by violence but I guess that's better left unsaid" Bob Dylan
The problem is not the paper. It is what the paper stands for. With our currently mis-managed Medium of Exchange (MOE), the MOE (money) doesn't stand for anything. It is created arbitrarily and injected into the marketplace through government debt. It is never repaid, thus it is inflationary on its face.
With a properly managed MOE, the MOE stands for trading promises. It is created by traders making new trading promises. It is extinguished when those promises are delivered. Supply and demand for the MOE are always in perfect balance ... it's the nature of a trade. Inflation is "guaranteed" to be zero everywhere at all times because defaults are reclaimed with an equal amount of interest collections. The relation is INFLATION = DEFAULT - INTEREST. And traders promises are always freely certified thus eliminating the farming opportunities our current bank managed MOE depends on.
With inflation "guaranteed" to be zero, everything changes in favor of the traders and against the bankers and governments. You and I are traders. We welcome a change to a properly managed MOE.
Todd Marshall
Plantersville, TX
Another way to look at the problem with "money" is that it is the "Who" that controls it. It is not "what" it is specifically. Conversely, money = power and power corrupts. Hence, it seems at least for the foreseable future, sound money = utopia.
It is traders who create money and extinguish it by delivering on their trades. And no one controls traders.
Promises are made and promises are kept (or defaulted).
Is the medium of exchange where it all goes wrong. And that is where the controls are implemented.
When a trading promise goes beyond direct barter (i.e. after negotiation the trading promise and delivery on that promise are "not" made on the spot) money is "created". That money then becomes an item of barter because it is known to hold its value for a resonable duration. If managed properly, it holds its value forever (inflation is zero). When the trading promise is delivered, the money is extinguished. It has done its job. It has completed the trade as promised. If the trader defaults, the money is left circulating in the marketplace indefinitely. It is counterfeit. Counterfeit money must be reclaimed and extinguished to protect the integrity of the money. This is done by collecting interest equal to the default and extinguishing it.
Where it all goes wrong is allowing defaults to continue to circulate. That creates INFLATION by the relation: INFLATION = DEFAULT - INTEREST.
I can hear the guns going off at the shooting range in Camp Parks,they're getting ready.
Any reset will involve liquidating large quantities of someone's wealth and/or confiscation of someone's income, since the problem is mountains of debt, all of it someone 's property, and other competing claims on the real economy.
The problem with agreeing on a reset is that it wil inevitrably involve choosing the losers. Big losers. So there is no way that a solution can be arrived at without an intense and chaotic struggle, with unforeseeable consequences.
Cutting entitlements and bail-ins, both would "deleverage" the system, but both would further squeeze the consumer base that supports the real economy - while just postponing dealing with real problem which is the mountains of public and private debt Thus they would speed the descent of that real economy into a kind of financial "black hole". And both would require martial law to maintain order so people can freeze and starve peaceably.
Every other proposal woud involve choosing losers from among the rich and powerful.
Good luck all you Austrianites in finding a logical and reational way out of this one!
Exactly. The economy is one big mal-investment so the second a balanced budget actually gets enforced, entitlements are eliminated and tax receipts crash, further exacerbating the economic decline. Even if they bail in enough to make meaningful debt reduction, that doesn't reform the problem with the monetary system itself. The whole ediface needs to crash, unfortunately. Unfortunately because unless TPTB have a pretty damn quick monetary plan B to implement, and I'm not talking martial law, this country is going to disintegrate and millions will starve.
An episodic visit to hell with millions dead turning into martial law and a different monetary system - repeated around the globe. Or war resulting in the same. A paradigm shift is upon us.
Another option is something similar to this: paper money with embedded gold
http://www.valaurum.com/index.html
Nice try, but who still uses cash? More and more people shop online, and larger transactions are done with credit cards and debit cards, as you don't want to walk around with 1000's in your pocket.
This is nice for commemorative stuff - as they also write on their website - but it will never make it as a real currency option.
Gold is NOT the future. Prepare to see currencies issued by countries to become less important, as digital currencies rise.
It's all about trust: who do you trust more, the Fed or Amazon? The people who buy their stuff at Amazon, eBay, Apple et al put their trust in them and would happily accept a currency issued by these companies.
It's basically loyalty points and air miles on steroids: we are already used to it so adoption will be swift.
Multinationals are richer and more powerful than governments, so they are in the perfect position to create new currencies.
You read it here first. Greetings from Davos.
How will it end?
How about asking me how to start over again once the flames are put out?!
lmao
The mere fact there have been multiple 'paper' currencies with one replacing another indicates that paper isn't the problem. It's the pushers that push it, and the muppets that accept it.
Notice how often they start with 'backed by Gold and Silver' to backed 'by the full faith in .. PONZI'.
Eagerly awaiting the next super paper product.
Perhaps they'll make it soft so we really can wipe our asses with it so it has a real value.
The bigger picture with 'printing', theft, is that whether slowly or quickly, the same negative effects on society manifest themselves.
Society becomes short-term focused and more self-absorbed. Short-tem speculation in stocks, etc. and other things become rampant, as people try to survive. Savings is no longer thought of, or possible. Good and honest people begin to steal to survive.
If one is paying attention, one can see the same symptoms manifesting themselves in the societies of the West, especially the American people. From “patriotism” to Honey Boo Boo, American society is only concerned with self and distraction.
Printing is theft. Theft of the product of society and the destruction of the "invisible hand." It is also theft of society's soul.
The time is here to reveal and stop the theft and rob those responsible of their heads.
"The guillotines await!"
How about 9. Seize real assets with military force and use those assets to suck the rest of world dry. I am thinking of Antarctica here. There must be shitloads of gas and oil under that frozen continent. The US and England could suddenly make a deal with the Aussies to recognize some ancient claims and take the whole continent. Of course it would be nice to know what is there before going through the expense of taking it.
Dramatic technological advances in finding and mining gold could also be made. If a government does this secretly, it could quietly sell that gold into the world markets, and no one would be the wiser.
Excellent plan; but much too realistic. The UN has already made a law that you can't do any extraction of anything in Antartica; it's the world's largest nature preserve. So, obviously, the first thing to do is kill off the UN; which is a great idea for a number of reasons. But, this kind of darwinian decision making as to who is going to starve and freeze and who is going to look at TV all day, is very out of tune with the modern warm and gooey idea that everybody has a "right"; or whatever. Of course, the first thing to do with the existing military assets is simply cut-off China. No more ships will be alllowed to dock; turn them around in mid-ocean and back to China. No more imports; none. Eject all illegal immigrants; then start on the questionable ones; declare the Moslem Cult to be an illegal terrorist organization and close all the mosques and deport all the adherents. There's plenty of work that needs to be done in the USA; or in other words, jobs, and industries; but first you have to start making your own stuff instead of paying somebody else to do it. The country was sold by the ruling class into a sort of British Empire in reverse, which we were told was called Globalism, that was "good for everybody".
Why ban Islam, when the problems of the U.S. are due to the adherents of a different religion entirely? Is Janet Yellen muslim? Ben Bernanke? Jamie Dimon?
Wow.
What would BenYellen Do?
Or Better Yet what will he say?
"A paper money system leads to excessive debt."
I think this statement says it all about how it will end. The rash of digital currencies established or proposed are how it ends.
With that in mind is it safe to say, "A digital money system leads to excessive control."?
The beatings will continue until it is no longer possible to naked short gold, eh?
http://www.globalresearch.ca/naked-gold-shorts-the-inside-story-of-gold-...
Sorry to break your bubble, but paper money - or more likely plastic and/or digital money - will be the future. There is no way we can solve the problem of unemployment, robotics, mass production and scientific advances any other way. Current currencies must die, to make place for fiat 2.0. You read it here first.
CITIZEN! YOU HAVE BEEN CHARGED WITH SPEAKING ILL OF YOUR GOVERNMENT. YOU HAVE BEEN DOCKED ONE MILLION CREDITS. STAY IN PLACE FOR REEDUCATION TEAM TO RECEIVE YOU.
That is fundamentally the long-range plan: replace all paper currency and coins with bank deposits. Criticize the wrong people and you don't eat, don't drive, don't ride buses, etc.
It doesn't have to be that way. In Switzerland a basic income it put to the vote. It's just a negative tax which should get rid of all benefits like unemployment, state pension etc. It will be your money, free to use as you like, without state control.
Many people behave like sheep, imagining a terrible future, in which the wolves rule. How about being a bit more realistic?
There will be a new dollar. I'm trying to think what would be fair and I have no solution. Maybe if you have 98 billion in the bank you lose all of it except for the first 100 million.
Crimex just closed. Let see what gold does now.
<---- Blah blah blah. I've been hearing this for years!!
<---- Coming soon, to a theatre near you.
8. Hyperinflation and currency collapse.
It's the possiblity they leave out, and the one that always happens.
currency collapse no mater what...birght side...wont have to buy toilet paper.
When are they rolling out the Amero?
It's a baseless conspiracy theory ...until it isn't.
its been like watching a train wreck in slow motion for years...whatever we think, something else will happen...but whatever does happen, one thing you can count on, the need for gold stacks and 9mm rounds...the investment of choice.
To soak in excess reserve, the Fed will probably lobby for new powers such as just zapping money in fed member banks' account ("if you want to be part of the club, let the FedWire in") or zap money parked at the Fed.
Sounds extreme and ridiculous now, but it may sound like the just thing to do when the time comes. The overton window is moving all the time....
Ya but Al Gore said Carbon Credits was the thing of the future...Where is Old Al these days?
Oh wait found him
http://www.veteranstoday.com/wp-content/uploads/2013/07/al-gore-frozen1.jpg
Imagine we are living in the early 1900's. We would say the same thing about paper money, "never again", "gold is the answer".
What happened after? Even more paper money, an incredible rise in wealth around the world, an exploding middle class: We never had it this good!
Sure, everything is cyclical, so we will have a crash of some sorts. In fact a crash of all sorts as our consumer based society is on its last legs. There will never be enough work for all - in fact less and less - as there will never be enough "growth", and then there's automation and robotics...
So stop dreaming already: fiat will be back in a new inception and we will all have an amazing 50 or so years till the next systemic crisis, it's been like this for 1000's of years guys!