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The High Price Of Delaying The Default

Tyler Durden's picture


Submitted by Thorsten Polleit via the Ludwig von Mises Institute,

Credit is a wonderful tool that can help advance the division of labor, thereby increasing productivity and prosperity. The granting of credit enables savers to spread their income over time, as they prefer. By taking out loans, investors can implement productive spending plans that they would be unable to afford using their own resources.

The economically beneficial effects of credit can only come about, however, if the underlying credit and monetary system is solidly based on free-market principles. And here is a major problem for today’s economies: the prevailing credit and monetary regime is irreconcilable with the free market system.

At present, all major currencies in the world — be it the US dollar, the euro, the Japanese yen, or the Chinese renminbi — represent government sponsored unbacked paper, or, “fiat” monies. These monies have three characteristic features. First, central banks have a monopoly on money production. Second, money is created by bank lending — or “out of thin air” — without loans being backed by real savings. And third, money that is dematerialized, can be expanded in any quantity politically desired.

A fiat money regime suffers from a number of far-reaching economic and ethical flaws. It is inflationary, it inevitably causes waves of speculation, provokes bad investments and “boom-and-bust” cycles, and generally encourages an excessive built up of debt. And fiat money unjustifiably favors the few at the expense of the many: the early receivers of the new money benefit at the expense of those receiving the new money at a later point in time (“Cantillon Effect”).

One issue deserves particular attention: the burden of debt that accumulates over time in a fiat money regime will become unsustainable. The primary reason for this is that the act of creating credit and money out of thin air, accompanied by artificially suppressed interest rates, encourages poor investments: malinvestments that do not have the earning power to service the resulting rise in debt in full.

Governments are especially guilty of accumulating an excessive debt burden, greatly helped by central banks providing an inexhaustible supply of credit at artificially low costs. Politicians finance election promises with credit, and voters acquiesce because they expect to benefit from government’s “horn of plenty.” The ruling class and the class of the ruled are quite hopeful that they can defer repayment to future generations to sort out.

However, there comes a point in time when private investors are no longer willing to refinance maturing debt, let alone finance a further rise in indebtedness of banks, corporations, and governments. In such a situation, the paper money boom is doomed to collapse: rising concern about credit defaults is a deadly enemy to the fiat money regime. And once the flow of credit dries up, the boom turns into bust. This is exactly what was about to happen in many fiat currency areas around the world in 2008.

A fiat money bust can easily develop into a full-scale depression, meaning failing banks, corporations filing for bankruptcy, and even some governments going belly up. The economy contracts sharply, causing mass unemployment. Such a development will predictably be interpreted as an ordeal — rather than an economic adjustment made inevitable by the ravages of the preceding fiat money boom.

Everyone — those of the ruling class and those of the class of the ruled — will predictably want to escape disaster. Threatened with extreme economic hardship and political desperation, their eyes will turn to the central bank which, alas, can print all the money that is politically desired to keep overstretched borrowers liquid, first and foremost banks and governments.

Running the electronic printing press will be perceived as the policy of the least evil — a reaction that could be observed many times throughout the troubled history of unbacked paper money. Since the end of 2008, many central banks have successfully kept their commercial banks afloat by providing them with new credit at virtually zero interest rates.

This policy is actually meant to make banks churn out even more credit and fiat money. More credit and money, provided at record low interest rates, is seen as a remedy of the problems caused by an expansion of credit and money, provided at low interest rates, in the first place. This is hardly a confidence-inspiring route to take.


It was Ludwig von Mises who understood that a fiat money boom will, and actually must, ultimately end in a collapse of the economic system. The only open question would be whether such an outcome will be preceded by a debasement of the currency or not:

The boom cannot continue indefinitely. There are two alternatives. Either the banks continue the credit expansion without restriction and thus cause constantly mounting price increases and an ever-growing orgy of speculation, which, as in all other cases of unlimited inflation, ends in a “crack-up boom” and in a collapse of the money and credit system. Or the banks stop before this point is reached, voluntarily renounce further credit expansion and thus bring about the crisis. The depression follows in both instances

A monetary policy dedicated to averting credit defaults by all means would speak for a fairly tough scenario going forward: depression preceded by inflation. This is a scenario quite similar to what happened, for instance, in the fiat money inflation in eighteenth-century France.

According to Andrew Dickson White, France issued paper money

seeking a remedy for a comparatively small evil in an evil infinitely more dangerous. To cure a disease temporary in its character, a corrosive poison was administered, which ate out the vitals of French prosperity.


It progressed according to a law in social physics which we may call the "law of accelerating issue and depreciation." It was comparatively easy to refrain from the first issue; it was exceedingly difficult to refrain from the second; to refrain from the third and with those following was practically impossible.


It brought ... commerce and manufactures, the mercantile interest, the agricultural interest, to ruin. It brought on these the same destruction which would come to a Hollander opening the dykes of the sea to irrigate his garden in a dry summer.


It ended in the complete financial, moral and political prostration of France — a prostration from which only a Napoleon could raise it.


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Wed, 02/26/2014 - 23:35 | 4483342 denverdolomte
denverdolomte's picture

What about this is a "Free" market? Last I checked you owed x y and z to a number of different divisions. Along with associated fees lol. 

Thu, 02/27/2014 - 00:49 | 4483498 economics9698
economics9698's picture

The free market died in 1913.

Thu, 02/27/2014 - 04:04 | 4483709 Manthong
Manthong's picture

Maybe Hussein could secretly nationalize all the Saudi funded mosques and have Lew issue assignats against the property…

Then he could ride in on a white horse like a tall, black Napoleon and save us all.

 (..and Polleit has a number of great lectures on the Mises site)

Thu, 02/27/2014 - 07:37 | 4483810 MeMadMax
MeMadMax's picture

These charts don't count anymore as we have QE as the bubblegum holding everything together...

End QE and it will all come to a halt. But you will also notice that they are trying to wind down QE slowly.

At some point QE will become unbearably low and they will jack it up again... 

So when does QE end?

QE ends when the economy ends...

Thu, 02/27/2014 - 07:42 | 4483816 negative rates
negative rates's picture

Default, credit crisis bitches! 

Thu, 02/27/2014 - 08:03 | 4483826 GetZeeGold
GetZeeGold's picture




Thu, 02/27/2014 - 11:06 | 4484373 ATM
ATM's picture

QE ends when the dollar ends.

There will still be an economy but it will be far different than the mirage of an economy that we have now. It will be real, it will be small and it will be based not on promises but reality. It is the transition from mirage to reality that is going to tear everything apart, financial, political and moral.

It will be bad.


Thu, 02/27/2014 - 07:37 | 4483811 Offthebeach
Offthebeach's picture

Barry would ride a white Unicorn, shooting Skittles out his ass.
Warm stickey Skittles, and no that won't be chocolate they're filled with.

Forward Polar Bears!

Thu, 02/27/2014 - 01:36 | 4483568 Renewable Life
Renewable Life's picture

Credit ain't money, paper ain't money, debt ain't money............but guns, food, land, gold and silver IS honey!!!

(Your not the only one drinking on this board, baby)

Thu, 02/27/2014 - 07:18 | 4483793 G-R-U-N-T
G-R-U-N-T's picture

"It was Ludwig von Mises who understood that a fiat money boom will, and actually must, ultimately end in a collapse of the economic system. The only open question would be whether such an outcome will be preceded by a debasement of the currency or not:"

Once the people lose confidence in the currency all bets are off!!!

Thu, 02/27/2014 - 08:45 | 4483940 duo
duo's picture

"the political prostration of The US — a prostration from which only an Obama could raise it."

Thu, 02/27/2014 - 11:07 | 4484381 ATM
ATM's picture

Obama ain't 'the one'. The One is laying in the weeds planning and waiting.

Obama is a token placeholder. 

Thu, 02/27/2014 - 09:55 | 4484130 Jumbotron
Jumbotron's picture

So...what about the "Free"market, denverdolomite ?

There has never been....nor can there ever be a free market anywhere in the world as long as humans are involved in it.  Call it "innate human corruption" or " the sin nature of man" but anytime you involved humanity which from birth is enslaved by the genetic / spiritual inclination to take advantage of other human beings for their own gain....ANY system of ecnomics and / or politics will be slightly corrupted at first and that corruption will only grow in time to the inevitable collapse of that system.

Sadly, enough, you would see just as much if not more corrupting influence under a Libertarian system than you would now.  The Powers That Be throughout time have seen this.  Which is why for all of man's history the normal societal system is dicatatorship / strongman.  The people can NEVER be trusted with freedom.....even though that's what we ALL strive for in our hearts.  But once we get it....we run rampant with it thus corrupting the system with immorality, unethical behaviour, thus leading to calls for tighter controls and more regulation.  And then we are right back to the dictator / strongman once again.

Welcome to the Matrix.....of our own making.  Welcome to Prison Planet.

Wed, 02/26/2014 - 23:40 | 4483356 NoDebt
NoDebt's picture

Yes, yes.  Can we get on with it already?  This is like watching paint dry.

Wed, 02/26/2014 - 23:42 | 4483359 denverdolomte
denverdolomte's picture

At least then you get fumes. With this it's well......

Wed, 02/26/2014 - 23:56 | 4483402 Carpenter1
Carpenter1's picture

Yet to see anyone lay down a mathematical formula for at least a rough estimate of where the fault lines crack open. Surely someone is able to put something like that together, but then again, haven't seen it.

Thu, 02/27/2014 - 00:00 | 4483410 denverdolomte
denverdolomte's picture


1. economy + 1. military = $85 billion a month. ='s We've been fucked since sometime in 1913ish. 


I'm drunk so I don't know if that computes yet or not, but seems legit. 

Thu, 02/27/2014 - 10:08 | 4484178 Slave
Slave's picture

Upvote for reading ZH drunk. Good times.

Wed, 02/26/2014 - 23:45 | 4483371 max2205
max2205's picture

What if you have no fiat money to be blown up....ah fuck it

Thu, 02/27/2014 - 00:01 | 4483378 Bonapartist
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What has been will be again, what has been done will be done again, nothing new under the sun. Mayer from under the big Red Shield sent his 5 sons to the 5 major capitals of 18th century Europe and the rest is well known. Napoleon dared to defy the moneychangers with his refusal to become indebted to them- for that all of Europe's armies were brought to bear against him.

Thu, 02/27/2014 - 09:04 | 4483987 Zwelgje
Zwelgje's picture

BS. Nappy was funded by the banksters. And Russia was the secret collateral. That's way he invaded in 1812.

Thu, 02/27/2014 - 11:17 | 4484427 Bonapartist
Bonapartist's picture

BS- the Louisiana Purchase was made to FUND his invasion of Russia so he would not go into debt.

Wed, 02/26/2014 - 23:48 | 4483381 erg
erg's picture

We're fine. Everything is fine. *trembles*

Anybody have some smelling salts or...nitrous oxide perhaps? Really, I'll take anything you've got.

Thu, 02/27/2014 - 00:06 | 4483423 booboo
booboo's picture

I hear the rage amongst the poor white trash is sniffing their own fermented turds, blacks are down to huffing Pam cooking spray out of a paper bag, the asians still have Marlboros for sale out of the back of a cut down Clelica, italians are boilig their wine bottles to get the last bit of resin off the inside of the bottles and the bankers are snorting top of the line coke off the backs of high dollar escorts. You fit in, you get in, pick a trick.

Thu, 02/27/2014 - 00:14 | 4483436 Skateboarder
Skateboarder's picture

Yo it's called Jenkem.

Thu, 02/27/2014 - 00:47 | 4483493 erg
erg's picture

That's fucked up.

Thu, 02/27/2014 - 01:59 | 4483595 The Final Straw
The Final Straw's picture

FInally, my lucky break. I'm gonna start dealing this. "Yo homey, my shit is the shit." I'm gonna log my meals for different grades of jenkem. The grade A steak all the way down to pizza pockets with questionnable meat products. Listen up ZH folks, ya better make your bulk orders ASAP, before too much fiat is chasing too little product.

Thu, 02/27/2014 - 02:32 | 4483626 The Final Straw
The Final Straw's picture

For a limited time, all bulk order include a free pack of Mentos, the best treatment for that septic aftertaste.

Bitcoins accepted.

Thu, 02/27/2014 - 02:58 | 4483654 Skateboarder
Skateboarder's picture

Aint no mentos gonna get rid of jenkem evidence...

Thu, 02/27/2014 - 05:06 | 4483734 stacking12321
stacking12321's picture

slang terms include: "butthash"!


Thu, 02/27/2014 - 09:52 | 4484122 Mrs. Haggy
Mrs. Haggy's picture

Get wasted off waste!

Thu, 02/27/2014 - 07:24 | 4483800 The Final Straw
The Final Straw's picture

I sense an impending War on Human Excrement.

Thu, 02/27/2014 - 00:17 | 4483440 erg
erg's picture

Don't forget the fresh breath of those Aqua Velva men.

Thu, 02/27/2014 - 05:25 | 4483745 RabbitChow
RabbitChow's picture

Amyl nitrite?  great stuff!

Wed, 02/26/2014 - 23:50 | 4483384 besnook
besnook's picture

fiat money is the ultimate moral hazard. since the foundation of the monetary scheme is inherently criminal if judged by moral and ethical measures one must possess a criminal mindset to game it, to play it. it makes sense, then, that the successful banker/trader must be a sociopath bordering psychopathy just as psychological studies have revealed. therefore, it makes complete sense that the scheme will self destruct in the effort to save it since the main players are only interested in saving themselves without regard for the consequences of their blind self interest.

Wed, 02/26/2014 - 23:59 | 4483407 Ban KKiller
Ban KKiller's picture

Petrodollar to the rescue! Backed by high speed printing presses.

BRIC basket to the rescue! Ummm....Amero to the front! 

All script for the company store.


Thu, 02/27/2014 - 00:03 | 4483418 Bonapartist
Bonapartist's picture

this "Amero" concept is quietly being introduced into the mainstream

Thu, 02/27/2014 - 00:33 | 4483469 infinity8
infinity8's picture

and B-I-N-G-O was his name-O!

Thu, 02/27/2014 - 01:04 | 4483524 tony bonn
tony bonn's picture

as well meaning as this article is, it misses the main evil of "fiat" money, which is much a misnomer, in that its creation must be accompanied by debt....the fiat racket is the creation of money with interest paid to a very small elite group of criminal central banksters who grow fabulously wealthy off the backs of the 99%.

thus there can never be enough money to extinguish debt - it is like the failed british consols. the system is a fraud which is enslaving everyone.

Thu, 02/27/2014 - 01:10 | 4483534 22winmag
22winmag's picture

Credit is a tool alright.


Somewhere between a nail gun and an anal intruder.

Thu, 02/27/2014 - 01:31 | 4483557 Kirk2NCC1701
Kirk2NCC1701's picture

When you create so much liquidity, it spills over and needs to be mopped up with labor and assets.

Perfect mops: MIC, failed pro-US regimes, EU banks, PM manipulation, Uprisings & Revolutions, bank bailouts...

And when there is so much Fed liquidity that so many are bathing in, they are unlikely to get out of that warm bath any time soon.

Thu, 02/27/2014 - 02:16 | 4483614 starman
starman's picture

its definitely not your grandmas capitalism anymore!

Thu, 02/27/2014 - 07:55 | 4483835 GetZeeGold
GetZeeGold's picture



She always told me.....keep this up....and you're gonna be learning Common Core.

Thu, 02/27/2014 - 09:55 | 4484135 Mrs. Haggy
Mrs. Haggy's picture

I'll say!

Thu, 02/27/2014 - 02:35 | 4483629 kellycriterion
kellycriterion's picture

You reach a point where credit isn't credit, leverage isn't leverage, it's all just confiscation. Who cares what private investors prefer when you can confiscate indirectly or directly?

The coordinated policies of western CBs and the "business models" of cartel banks are the new mercantilism. The final realization of Imperialism 2.0.

QE and ZIRP are bankrolling western governments and cartel banks and the activities they favor the most. The claims they create on resources are honored globally with a few exceptions.

Thu, 02/27/2014 - 02:38 | 4483632 satoshi123
satoshi123's picture

Crazy Article.

Yes, the USA died in 1913, that's when PTB decided to make the USA the world's 'reserve currency'.

Some 100 years later and 100+ million lives lost the wet-dream is real, the USA can print FIAT to infinity, without credit, ... without permission.

Any NSA fantasy can be fulfilled any toy for COP ShOP can be bought.

Science Fiction 100 years ago could not have predicted todays world where WunderKids create currency on personal computers and the USA congress no longer controls the PURSE,cuz now every law enforcement agency has access to the NSA printing press.

Thu, 02/27/2014 - 07:31 | 4483807 smacker
smacker's picture

I don't see why any of what you wrote makes a "Crazy Article".


Hint: central bank printing into oblivion - which is what you're saying - eventually has consequences. The article makes that quite clear.

Thu, 02/27/2014 - 07:46 | 4483821 satoshi123
satoshi123's picture

Crazy ARTICLE, because it pre-suposes that the CREDIT-DEBT illusion is still real, its not.

How many will die in the future to keep the ponzi afloat? Me Thinks Billions, now with the internet where assholes can prove to you that 2+2=10, its all quite simple to keep the PONZI to infinite, and nobody speaks-up, cuz all know they will be droned in a nano-second.

Thu, 02/27/2014 - 02:40 | 4483635 satoshi123
satoshi123's picture

Credit and DEBT are for little people, and little country's.

We of AIPAC and NOW are god's and we make our own currency and pull it out of are ass as needed.

Who the fuck needs DEBT or CREDIT,when you OWN the fucking money tree.


Credit/Debt are just tools to control slaves and slave states but masters,... have access to unlimited FIAT.

Look at virtual currency coming from NSA, its all a brilliant way to 'launder' virtual currency into FRN's.

Thu, 02/27/2014 - 08:27 | 4483901 headhunt
headhunt's picture

gods hate chainsaws like reality

Thu, 02/27/2014 - 03:27 | 4483682 discopimp
discopimp's picture

Hate to say it but hence TPTB disdain for bitcoin.  It is birthed out of work performed not debt, so if you don’t hold it, you don’t own it.  How many “bankers” could shift the burden of loss (and lack of underwriting) onto someone else, if they themselves were the only responsible party?  For that matter, who would need a banker, when bitcoin allows adults to be their own bank.  

Thu, 02/27/2014 - 04:19 | 4483718 Groin
Groin's picture

Fatally flawed sorry, the author doesn't understand the nature of interest. Civilisation was initiated by a surplus, not through credit. Credit is parasitic and interest will always cause a redistribution of wealth. Even a gold standard will still fail if loans are made bearing interest.

Thu, 02/27/2014 - 04:32 | 4483720 Debugas
Debugas's picture

so far i can only see how credit helps failed companies to prolong their life and continue with the wrong policies

Thu, 02/27/2014 - 04:38 | 4483725 TheRideNeverEnds
TheRideNeverEnds's picture

just buy the dips and stop complaining, the chances of this market ever going down again are basically zero and next time it does go down the dollar is going to zero so its not like being short will get you anything anyway.  

Thu, 02/27/2014 - 05:18 | 4483740 RabbitChow
RabbitChow's picture

anytime anyone sells nothing for something, money is created out of thin air. it isnt just the banks, its any specialist in the market, any hedge fund bank or whatever.  they all have done it.  the depression comes when the government or treasury is required to monetize that debt.  then the money supply increases and the currency is gradually debased.

Thu, 02/27/2014 - 05:59 | 4483758 3rivers
3rivers's picture

The velocity of money has been dropping straight down without a hiccup for more than 10 years.  It's still dropping. And at a very consistent slope at that, it makes for pretty charts.  Explain money velocity's constant drop and maybe I'll be less bored with this Bitcoin/gold canard. 

Thu, 02/27/2014 - 06:18 | 4483770 medium giraffe
medium giraffe's picture

Bingo.  It's absolutely the velocity of money that is the most important factor.  Yeah, so Benny, Mario (check Euro M supply for details), Abe and whoever the fuck else are all having a big Ctrl+P party.  But what's happening to all of this 'economy enabling' stimulus?  Institutions are sitting on it.  It isn't doing anything.  Then, with the other hand, increasing capital requirements, they are pretty much guaranteeing this scenario.  And this is what I don't get - when velocity is measured and the figures are easy to google, why are the printermen adamant that what they are doing is working with such clear evidence to the contrary?

This article should be a given by now, this is a large part of the ZH citzenship test.

Thu, 02/27/2014 - 06:52 | 4483782 smacker
smacker's picture

The explanation is probably quite simple: the printermen do their best to hide the velocity of money figures and an army of compliant economists and MSM talking heads assist them. Most ordinary people don't have a clue what's going on.

Thu, 02/27/2014 - 07:10 | 4483788 medium giraffe
medium giraffe's picture

Guess you're right.  We can probably learn a lot from this small example then - there is no control, no oversight of any competency, too much trust on the part of the public (and too little interest), and that your best defence is to have your eyes wide open. So here we all are I suppose.  Depressing, isn't it?

Thu, 02/27/2014 - 07:51 | 4483827 Offthebeach
Offthebeach's picture

A no velocity money is perfect for a Section 8, disability, fatso, nursing home, paper shuffling, form filling, countrt lawyering nation.

Thu, 02/27/2014 - 07:52 | 4483832 smacker
smacker's picture

Exactly so. The lies and obfuscation coming from the ruling elites to hide the truth has reached unprecedented levels.

Another example :: Most people in the US & UK know that true CPI is at least double what gets reported. And if the true CPI was officially reported, it would mean there is no growth, probably negative year-on-year. Meanwhile the populations are growing, meaning more people are demanding a share of the pie. We also know that the criminals in government and running the banks are manipulating the markets and economy to make sure that "their" share of the pie continues to rise. The losers are the rest of us, many of whom are drifting into poverty and dependency on the State.

This is socialist utopia.

Thu, 02/27/2014 - 08:03 | 4483847 medium giraffe
medium giraffe's picture

Not wrong about CPI, UK reported CPI is hilarious, and I know for a fact that shrinking Mars Bars and horsemeat lasagne is nothing but inflation by stealth.  Everywhere you turn, the modus operandi is just to keep the facade propped up - fukushima, national debt, democracy, public spending.  We're drowning in lies.  I'm not even sure if it's a Socialist Utopia, nothing so idealistic - it's just a clusterfuck smash and grab with a PC gloss of gilded bullshit. 

Thu, 02/27/2014 - 12:47 | 4484947 smacker
smacker's picture

Very nicely put :-)

Thu, 02/27/2014 - 08:09 | 4483861 UselessEater
UselessEater's picture

cheer up G20 fairy dust to the rescue...

Thu, 02/27/2014 - 08:44 | 4483939 RaiZH
RaiZH's picture

Given there is more than enough latent money in the system.

Do you think there could be adequate velocity at some point to make the situation hyperinflationary?

Thu, 02/27/2014 - 12:24 | 4484806 FrankDrakman
FrankDrakman's picture

About 30 years ago, while studying Econ as a hobby (I'm an engineer), I asked a prof if there was a concept of 'fiscal momentum' (FM). In physics, we have real momentum - mass x velocity. Why not FM - the mass of money (i.e. the money supply) money velocity? He said "Velocity hardly ever changes, so no one studies it."

Well, I guess that was then, but it certainly explains why the so-called pump priming going on isn't working. Even if the money supply is tripled, if velocity keeps falling rapidly, FM is going to fall as well, and the economy doesn't have as much energy. (Those who took physics remember that kinetic energy is 1/2 MV(*2), so that if velocity falls in half, kinetic energy drops by 75%. I think that's what we're seeing in the world today. Central bankers, who can't imagine people not spending every dime they have, aren't prepared for a hunker-down world.

This is where the almost impossible to measure psychological factors of economics come into play. I see the fall in velocity as an increase in fear - people worry about their next paycheque, the next unexpected 'gift' from the gov't (hi, Obamacare!), a possible rise in their 2% mortgage rate and &c., so they save money against those possibilities. Absent any way to quantify the fear, how can one expect econometric models, which are based on so many cet.par. assumptions, to retain any validity?

Thu, 02/27/2014 - 06:18 | 4483771 fijisailor
fijisailor's picture

"Credit is a wonderful tool that................"

Debt is slavery

Thu, 02/27/2014 - 07:30 | 4483803 Ghordius
Ghordius's picture

giving labour for wages is a form of voluntary slavery, too. nobody forces you to have debt. except social conventions, of course

Lately I was in Indonesia, where only 2% of the population have a credit card

then I boarded a plane back and the guy next to me is emigrating to the US and filled my ears on how it's an absolute necessity to have a credit rating, in the US

he initially thought that having a filled bank account would be the only thing he needed to be credit-worthy

Thu, 02/27/2014 - 08:58 | 4483958 fijisailor
fijisailor's picture

Years ago when housing was booming I had a Pakistani co worker who told me that he saved frugally for five years and paid cash for his house.  His other co workers simply did not believe that he could do that.  More recently I saved for 1 year frugally in 2007 and paid cash for a house in S Florida after the bust.  Meanwhile generations of Americans and others worldwide voluntarily, as you say, accept slavery.

Thu, 02/27/2014 - 07:11 | 4483789 fijisailor
fijisailor's picture

What's going on now is a Western cartel monetary attack on the gold buying nations.  Russia, China, Thailand, Turkey and others all have their currencies under attack.  This is financial war aimed at propping up Western fiat currencies and destroying those countries' ability to buy gold.

Thu, 02/27/2014 - 07:22 | 4483799 Ghordius
Ghordius's picture

a bit simplistic, methinks, and begs for a definition of "Western cartel". hasn't the EUR, for example, been the target of relentless attacks?

do you seriously think that the Drachma, the Peso, the Lira, etc. would not have been targets of speculative attacks if they would not have been confederated into the EUR?

is this not a site full of commenters that would have loved to speculate on FX changes between the Franc and the Mark?

yes, it is a financial war. yet I'd be more careful in identifying who the "sides" are. one good criterium is to analyze which national banks have large reserves of USTs

and there China, for example, sits on both sides

Thu, 02/27/2014 - 07:47 | 4483824 AdvancingTime
AdvancingTime's picture

Very true but at some time the games central bankers are playing in supporting their and other currencies will reach a dangerous level. I think we are at this place, we may be in the "red zone". History has shown that in the past both leaders and governments have fallen with the demise of their coin. The volume of trades, the sheer magnitude of monies flowing back and forth across borders has become staggering. This area of finance has become the worlds largest casino, where players have the potential to quickly suffer staggering losses. The article below delves into the current games,

Thu, 02/27/2014 - 08:59 | 4483960 fijisailor
fijisailor's picture

I define the Western Cartel as large Western Banks including GS, JPM, DB, UBS and the usual list of large sick banks. and the Central Banks they support

Thu, 02/27/2014 - 07:42 | 4483815 AdvancingTime
AdvancingTime's picture

During the "boom times" when asset values are going up lots of people think they are getting rich. In inflationary times government also does well as tax revenues grow. Not only does government get to spend the money they print, the side effects of inflation on taxes are good for government, though bad for their subjects. By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. said John Maynard Keynes. As the central banks print like crazy to control interest rates on bonds they devalue the currency. While there are not many Bond Vigilantes there are many Currency Vigilantes. More about timing when inflation will strick in the post below.

Thu, 02/27/2014 - 07:57 | 4483836 buzzsaw99
buzzsaw99's picture

von Mises pieces are always the same, like fed statements, change a word or two then hit publish.

Thu, 02/27/2014 - 07:58 | 4483841 satoshi123
satoshi123's picture

"The essence of government is beating, killing and imprisoning, those that ask for more GUBMINT are asking for more totalitarianism" - Von Mises

What part of the Von-Mises don't you get bitch?

Thu, 02/27/2014 - 08:43 | 4483935 buzzsaw99
buzzsaw99's picture

von mises was just another maggot joo banker ya putz

Thu, 02/27/2014 - 08:02 | 4483845 Seize Mars
Seize Mars's picture


No. I think von Mises articles are like sex. If you aren't loving it then you are doing it wrong.

Thu, 02/27/2014 - 08:04 | 4483849 satoshi123
satoshi123's picture

A better question is if Von Mises the man was 'alive' would he belong to the Von Mises Institute?

I think NOT!

Thu, 02/27/2014 - 08:05 | 4483850 satoshi123
satoshi123's picture

Von Mises the MAN, was clearly an ANARCHIST, a real fucking MAN.

Thu, 02/27/2014 - 08:09 | 4483859 medium giraffe
medium giraffe's picture

Peak 'leadership'.  Insert Sex Pistols CD, turn it up and play it LOUD.

Thu, 02/27/2014 - 08:25 | 4483895 negative rates
negative rates's picture

They won't be doing it wrong when the guilltine drops.

Thu, 02/27/2014 - 08:37 | 4483921 buzzsaw99
buzzsaw99's picture

dream on. get ready for the halliburton death camps is much more likely.

Thu, 02/27/2014 - 15:05 | 4485760 The Abstraction...
The Abstraction of Justice's picture

I have to agree with you, the libertarian politics is like a sugar coating on the open borders poison. 

Thu, 02/27/2014 - 08:11 | 4483864 docinthehouse
docinthehouse's picture

We don't have an economy

We have manipulaton

It will fail. 

Debt does not go away.....Corzine.....poof....

Why is that scum allowed to roam free on this planet.

Thu, 02/27/2014 - 08:15 | 4483875 njrealtorguy
njrealtorguy's picture

Yes well written. Have you all thought when the collaspe does occur (if it does) this ponzi market made people millionares, some billionares from this fiat money? They bought real estate with this printed paper, gold, silver and other hard (real) assets and when the shit hits the fan, its they that are sitting pretty once again!  not us morans who have nothing-just with worthless usa green color crap paper. Guess we all to need to buy guns. right?  it will truly be every man woman and child for themseves in order to survive. What to do when the frenzy starts, is if you can even track them down, (we all have ideas who the corrupt are) is do what they do in other countries to them. (ex: libia, russia, n koriea, china etc..) start with those who created this mess 5-10-20 yrs ago who are sitting pretty

Thu, 02/27/2014 - 08:35 | 4483918 papaswamp
papaswamp's picture

I see we quietly crossed the $17.4T mark with $672B in new debt since Oct.1.

Thu, 02/27/2014 - 09:02 | 4483973 AdvancingTime
AdvancingTime's picture

Inflation, deflation, what is something worth? These are all very important questions to going forward. On Saturday May 12, 2012 Vincent Cate wrote a post on his blog site titled, "Predicting the Timing of Hyperinflation" He starts by pointing out that debt over 80% of GNP and deficit over 40% of spending historically means a country is headed for hyperinflation.

He states that Hyperinflation is a positive feedback loop that is sort of a slow motion panic as the population comes to realize that the currency is going down. Included is a list of signs that inflation is about to raise its ugly head. More on the subject of when inflation will strike in the article below,

Thu, 02/27/2014 - 09:12 | 4483997 JailBanksters
JailBanksters's picture

To put it even simpler

Governments and people are both borrowing money from the future to have a better today.  The Date at which you can collect your Pension which you have paying into this Ponzi your entire working life, keeps getting further away.  It's this money Governments are stealing so the Governments of today can make ends meet. Irrespective of any Future Government or any Whiz Kid Accounting, this HAS to continue, it's mathematics.



Thu, 02/27/2014 - 09:39 | 4484069 muleskinner
muleskinner's picture

Long soap.

Must be getting close to beer time.

There is no economy, fiat money sucks.

Buy US minted gold and silver coin.

Thu, 02/27/2014 - 10:56 | 4484334 withglee
withglee's picture

At present, all major currencies in the world — be it the US dollar, the euro, the Japanese yen, or the Chinese renminbi — represent government sponsored unbacked paper, or, “fiat” monies.

You will never have a properly functioning economy if you don't have a properly managed Medium of Exchange (MOE) ... and that begins by recognizing money is "a promise to complete a trade".

This is obvious from looking at the three steps in trade:(1) Negotiation; (2) Promise to deliver; (3) Delivery. In simple barter, (2) and (3) happen simultaneously on-the-spot. Money allows (2) and (3) to happen over time and space ... but it is obvious, this money represents the "trading promise".

When properly managed, these trading promises are freely "certified". On delivery, the certificates are returned and extinguished. In the mean time they circulate as items of simple barter. They are able to do this because they are "guaranteed" to hold their value over all time and all space. How?

Well, supply of the MOE is always exactly equal to the demand for the MOE ... it's the nature of a trade. And if the trading promise is broken (DEFAULT), the certificates are recovered through INTEREST collections equaling the DEFAULT. This guarantees the value of all other circulating certificates by the relation: INFLATION = DEFAULT - INTEREST which is guaranteed to always be zero... everywhere.

Dancing (trading) is tough when someone (government) is constantly moving the dancefloor (MOE) under your feet.

Thu, 02/27/2014 - 11:33 | 4484532 lasvegaspersona
lasvegaspersona's picture

I'll start with the first error: 'out of thin air'...when I promise to pay a loan, my promise circulates as money. As long as loans are well made this is not a problem. A borrowers promise is substantially more than 'thin air'.

Thu, 02/27/2014 - 13:30 | 4485244 DecisionTime
DecisionTime's picture

"A monetary policy dedicated to averting credit defaults by all means would speak for a fairly tough scenario going forward"


It's my understanding that this is essentially impossible.  If all money were to be created through borrowing, there would never be enough dollars in circulation to pay back any loans made once interest is factored in.  The only alternative is to expand the system through more debt, which only further ensures default.  Since the Fed is now coupling money creation with asset purchases, it's as if they're skipping the whole loan phase and going straight to default since acquiring claims to assets is the inevitable result of a system where debts can't possibly be repaid.  I suppose that the problem could be passed to another country and currency, but since everyone uses fiat money, the problem never really leaves the global system.


I'm hoping that I'm wrong and someone can correct me here.

Thu, 02/27/2014 - 15:07 | 4485764 The Abstraction...
The Abstraction of Justice's picture

I know what the price is for myself - having to sell silver off at the peak manipulation. For a campaign to sue Deutsche Bank, please visit Apologies for the spam.

Fri, 02/28/2014 - 12:07 | 4489236 Pat Fields
Pat Fields's picture

I'm amazed that Prof. Polleit doesn't get it! Even after having recognized "the burden of debt that accumulates over time in a fiat money regime will become unsustainable", he goes off on the 'Human Action' mantra no differently than a Keynesian 'econo-zombie'. Sorry, but contrivance is contrivance under any discipline.

The 'burden of debt that accumulates' is intrinsic to the banknote scheme's fundamental construction. It's systemic, not behavioral. All banknotes are issued as loaned Principal. The Intreest incurred only appears from new borrowing ... so, inflation begets debt burden, begets inflation, ad infinitum. This co-generation of inflation and debt is an automatically reverberating Positive Feedback Loop of exponental process that does, as he otherwise surmises, overwhelm excess (trade) productive capacity ... and at length, even prevents internal consumption productivity.

As for this myth of loan principal 'dematerializing' on amortization, it's plain enough to see that it rather continues on as a positive credit unit in someone's account ... somewhere. No, both the inflation and debt burden are permanent results of each other.

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