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The Unseen Consequences of Zero-Interest-Rate Policy

Tyler Durden's picture




 

Submitted by Ronald-Peter Stoferle via The Mises Institute,

In a dynamic economy, an action not only triggers just one effect, but always an entire series of different consequences. While the cause of the first effect is easily recognizable, the other effects often occur only later and no such recognition occurs. Frédéric Bastiat described this phenomenon in 1850 in his ground-breaking essay “What Is Seen and What is Not Seen”:

In the economic sphere, an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them …

 

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen. Yet this difference is tremendous; for it is almost always the case that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Hence it follows that the bad economist pursues a small present good that will be followed by a great evil, while the good economist pursues a great good to come, at the risk of a small present evil.

A similar phenomenon can be seen with the consequences of artificially suppressed interest rates and monetary stimulus: in the short term, they appear to have positive effects, the long term effects are, however, disastrous. If one studies these processes closely, it becomes clear that the underlying problems cannot be solved by global zero-interest-rate policy (ZIRP), but that this instead undermines the natural selection process of the market.

With artificial stimulus like ZIRP, we only end up with a situation in which governments, financial institutions, entrepreneurs, and consumers who should actually be declared insolvent all remain on artificial life support.

In line with Bastiat’s thoughts, numerous fatal long-term consequences of zero-interest-rate policies can be identified, but are generally ignored:

  • Conservative investors by nature come under increasing pressure with respect to their investments and take on excessive risks in light of the prospect that interest rates will remain low in the long term. This leads to capital misallocation and the emergence of bubbles.
  • The sweet poison of low interest rates leads to massive asset price inflation (stocks, bonds, works of art, real estate).
  • Structurally too low interest rates in industrialized nations due to carry trades lead to the emergence of asset price bubbles and contagion effects in emerging markets.
  • Changes in human behavior patterns occur, due to continually declining purchasing power. While thrift is increasingly mutating into a relic of the past, taking on debt comes to be seen as rational.
  • As a result of the structurally too low level of interest rates, a “culture of instant gratification” is created, which is among other things characterized by the fact that consumption is financed with credit instead of savings. The formation of wealth becomes steadily more difficult.
  • The medium of exchange and unit of account function of money increases in importance, while its role as a store of value declines.
  • Incentives for fiscal discipline decline.
  • Zombie banks are created: Low interest rates prevent the healthy process of creative destruction. Banks are enabled to roll over potentially non-performing loans practically indefinitely and can thus lower their write-off requirements.
  • Newly created money is neither uniformly nor simultaneously distributed amongst the population. This results in a permanent transfer of wealth from later receivers to earlier receivers of newly created money.

Conventional monetary policy — that is, the promotion of credit creation by lowering interest rates — reaches its limits once the “zero-bound” is reached. In order to continue the spiral of stimulus, “unconventional monetary policy” becomes ever more important. The multitude of “newfangled” monetary policy measures is seemingly only limited by the imagination of central bankers, whereby recent years have shown that central bankers can be extraordinarily creative. That this phenomenon is nothing new, is inter alia shown by this observation by Ludwig von Mises in 1922:

But an increase in the quantity of money and fiduciary media will not enrich the world. … Expansion of circulation credit does lead to a boom at first, it is true, but sooner or later this boom is bound to crash and bring about a new depression. Only apparent and temporary relief can be won by tricks of banking and currency. In the long run they must lead to an all the more profound catastrophe.

 

 

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Sat, 08/08/2015 - 09:32 | 6404447 dimwitted economist
dimwitted economist's picture

Whatever you do.. Don't Buy Gold!  (And USE THAT Credit Card Bitches!!!!!)

Sat, 08/08/2015 - 09:44 | 6404470 doctor10
doctor10's picture

The world's problem is NOT a credit shortage.
It is a COLLATERAL shortage.

In a world of multi-layered governments, monopolies, regulation, taxation, licensing and insurance mandates, there is no money left for constructive investment in the uncontrolled proliferation of ideas and creativity.

Until the world is shed of its 20th Century oligarchy and their centralized control freak mentality nothing happens.

Its a beautiful paradox in a way-to get what they need-collateral-they have to give up what they got-control.

Sat, 08/08/2015 - 09:47 | 6404475 remain calm
remain calm's picture

Agree. In fact sell your gold to all the stupid people and take on more debt. Max out your credit card, get a bigger house and car, get a student loan and go back to school. Makes perfect sense. The bankers will help you they are your friend. Oh yea, buy a nail gun, just in case you need to fix the drywall or something?

Sat, 08/08/2015 - 10:00 | 6404493 Captain Debtcrash
Captain Debtcrash's picture

There is no question that artificially low interest rates at any level will end in a crisis, but every time that crisis has approached, they have lowered the interest rates further to kick the can. Now they are at the zero lower bound and can’t go further, in theory, but all they have to do is change the rules to lower the rates into further negative territory. They will ban cash and push rates significantly negative and cause super bubbles, it will not prevent the eventual collapse but it will kick the can a few years and the fall will just be from a higher level, explained here.

Sat, 08/08/2015 - 10:25 | 6404540 PT
PT's picture

We have descended into an aristocracy.  The only thing that matters now is having the "right" friends.  If they like you then they will let you borrow money.  If they don't like you then they will make you pay it back.

The plebs never rise up, not even the gun owners, because they are too weak.  Because the plebs are getting poorer, those who sell to the plebs, i.e. the retailers, also get poorer.  I thought the retailers might be strong enough to put up a resistance, but it appears that they are just victims like the rest of us.  Who services the retailers?  As the retailers go broke, so do their suppliers.  Maybe we actually do have to wait all the way until the MIC starts eating itself.  Some day, someone rich and powerful will realize that the protective layer of victims beneath them no longer is there and they are next.  These are the guys that don't have to lay down and take it.  I guess that will be the split that divides the nation and pushes it into Anarchy.  Or Feudalism, if you like to be more accurate.

Another angle:

Donald Trump was a property magnate that made his billions the "honest", "old-fashioned" way - knowing the price of everything and how to assemble deals etc ... until along came the new upstarts on the block - with their mortgage backed securities, CDOs, CDSs ... and when all that didn't work, they went straight to the bail-outs - TARP money, QEn, Operation Twist etc.  The new guys didn't care if their deals didn't make sense - they'd just offload the losses onto other muppets, I mean, investors.  The point being that they were able to undercut Trump and basically steal his business by taking all the profit out of the property business.  Trump gets pissed and realizes that the only way he can sort out the mess is not by lobbying the govt but by becoming the govt.  If he gets to be Prez then he can end the rorts and go back to making an "honest" living by doing real-estate business the "old-fashioned" way.  (Or at the very least, he can profit from the rorts instead of becoming a victim of the rorts).

While the paragraph about Trump makes sense to me, I am truly ignorant in this regard.  From my tiny view of the world it might be true, or someone may be able to explain to me that it is a stupid load of nonsense.  Insights are welcomed.

Sat, 08/08/2015 - 10:55 | 6404596 Sages wife
Sages wife's picture

If Trump were a legitimate threat to the establishment, we would hear nothing from him in the MSM. He is the distraction that keeps americans watching. He will be rewarded and dispatched when he has fulfilled his purpose. The population will be begging for Hillary or Jeb by the time his peformance is complete.

Sat, 08/08/2015 - 11:10 | 6404633 PT
PT's picture

Gotta admit, I can't imagine him actually getting in.  Timeshare Monarchy:  Clinton, then Bush, then Clinton, then Bush .... I can see it now, one day in the future an old lady says, "I tried and tried, but I found I could not bring myself to care about the plight of the peasants ..."

... and an old man sez, "You're either with the D's or the R's ... or you're with the terrrrsts ..." 

Sat, 08/08/2015 - 12:23 | 6404821 Kaervek
Kaervek's picture

I think you have a good grasp on what's going on.

The only question is how long the peasants will tolerate their quickly deteriorating standard of living

Sat, 08/08/2015 - 12:57 | 6404854 KnuckleDragger-X
KnuckleDragger-X's picture

It's all cause and effect, but they brag about the things they like while ignoring or papering over the bad effects, which are actually much larger. This is going to be like a sinkhole that magically appears and eats everything around it and will, of course, be a complete surprise to the all the 'smart' people who led us off this cliff....

Sat, 08/08/2015 - 09:49 | 6404481 PT
PT's picture

The horse is not moving.  I shall eat some more oats until the horse is no longer hungry.  The horse is still not moving.  I shall beat the horse until it does some work.  Stupid horse does not appreciate all the money I spend on oats.  Why does the horse not move?  See how much oats I am eating?  I shall beat it some more.  Stupid, ungrateful horse.

Sat, 08/08/2015 - 10:39 | 6404570 Steroid
Steroid's picture

The horse is moving, it is getting bigger from the gases the rot inside generates.

It has to explode to be realized that it has been long dead.

Sat, 08/08/2015 - 12:25 | 6404826 Kaervek
Kaervek's picture

This is one amazing horse, instead of moving it gets bigger and bigger, we just might be able to sell it to some idiot farmer who thinks that's all meat (before it explodes)

Sat, 08/08/2015 - 19:35 | 6405821 metastar
metastar's picture

Now that's USDA A / S&P AAA grade horse meat!

Sat, 08/08/2015 - 10:19 | 6404525 Peter Pan
Peter Pan's picture

In addition to there being a collateral shortage there is also the problem of that collateral being overvalued on the books of the banks (to hide their insolvency in many instances) as well as being overvalued by the markets due to very low interest rates.

Sat, 08/08/2015 - 10:32 | 6404558 PT
PT's picture

There is a battle between those who work for Cashflow and those who work for Capital Gains.  Capital Gains is supposed to be linked to Cashflow, but due to the derivatives market, CDOs, CDSs and straight out bail-outs (TARP, QEn etc) Capital Gains has managed to totally dissociate itself from Cashflow and is now able to indulge full Ponzi unhindered.

Sat, 08/08/2015 - 10:36 | 6404564 PT
PT's picture

Innovation is stifled, production crashes, eventually a member of the MIC decides he can't take it any more and it is easier to solve his problems by using his area of expertize ...

Sat, 08/08/2015 - 10:41 | 6404571 Peter Pan
Peter Pan's picture

I certainly agree with the first part of your statement. There seems to be  a manic pre-occupation with capital gains and the quicker the better for these people.

There was a great comment a week or so ago by another fellow Zero Hedger in relation to capital gains tax to the effect that they should tax in full all gains made in less than one second. 

Sat, 08/08/2015 - 16:04 | 6405409 NihilistZero
NihilistZero's picture

The disconnect of the capital gains set from the cash flow earners is one of the reasons I fell this correction will be asymmetrical and less severe for most than 2008 was. The cash flow business never recover from 2008. They've been slogging along with zero to negative growth for 7 years. Assuming anything short of a total collapse, how much worse can it get for them? Now the capital gains club of new math rentiers are another story. Once the FED's largesse no longer feeds them they got to zero. There fall Will measure inversely to the broader economy's rise. Once the rent seekers and middle men are removed we can have a functioning economy with some level of price discovery. The only losers Will be those just outside the financial sector who falsely thought themselves members of "The Big Club". The sooner these rentier assholes meet the sacrificial pyre the betteroff we all will be.

Sat, 08/08/2015 - 11:13 | 6404642 bamawatson
bamawatson's picture

Doctor X; superior comment. touche. (btw are you related to that guy malcom X?)

Sat, 08/08/2015 - 13:10 | 6404955 no1ninja
no1ninja's picture

They don''t really care what your collateral is worth... they do not want your collateral.   It makes no sense for them to take all the houses, because re-selling those houses just lowers the price of houses.

 

What they want is your servitude.    Just like Greece.  They get to call the shots, while you plead for them not to cut you off. 

Sat, 08/08/2015 - 13:58 | 6405117 ebworthen
ebworthen's picture

And the ultimate collateral is people's lives.

That is the consequence of ZIRP and our ponzi fiat QE bail-out TBTF's lie of an economy - people's very lives.

Sat, 08/08/2015 - 09:50 | 6404471 remain calm
remain calm's picture

In Yellen we trust

Sat, 08/08/2015 - 10:03 | 6404502 yogibear
yogibear's picture

Max out all credit and buy gold. Then default.

Your stuck with an asset and the banksters are stuck with a non-performing loan. 

Then pay for everything you need by using your gold rserves.

 

Sat, 08/08/2015 - 12:52 | 6404903 Kaervek
Kaervek's picture

You know they will just take your gold after defaulting?

Sat, 08/08/2015 - 14:01 | 6405126 ebworthen
ebworthen's picture

Tragic...boating...accident.  Not binary data digital "cash" they can bail-in with their computers, very tangible yet elusive.

Sat, 08/08/2015 - 16:53 | 6405500 goldhedge
goldhedge's picture

"Gold is not Quality money"

 

oh wait.

Sat, 08/08/2015 - 09:35 | 6404454 LawsofPhysics
LawsofPhysics's picture

Massive captial and resource mis-allocation and mal-investment on a scale never seen before!!!

In short, global Weimar...

hedge accordingly...

Sat, 08/08/2015 - 09:55 | 6404489 crazytechnician
crazytechnician's picture

What about deflation and NIRP ? That's another potential outcome of this.

Sat, 08/08/2015 - 11:48 | 6404720 Arnold
Arnold's picture

Just about every conceivable outcome is still on the table, except Peace and Tranquility.

 

I'm rooting for Karma myself.

Sat, 08/08/2015 - 09:36 | 6404456 terry44
terry44's picture

Yes, ZIRP ensures survival of the most financially wreckless and incompetent!

Sat, 08/08/2015 - 09:43 | 6404465 PrimalScream
PrimalScream's picture

ZEROHEDGE - sorry guys.  different topic.  Have YOU GUYS SEEN THIS?  When in doubt - delete the evidence!

http://observer.com/2015/08/breaking-cheryl-mills-to-destroy-emails-about-hillary-clinton/

Sat, 08/08/2015 - 09:56 | 6404491 wmbz
wmbz's picture

Yea... but it would make no difference if the cackling cunt herself were to print out all of her e-mails and take them in front of Con-gress lite a match and burn then to ashes...

She would never, ever be charged with anything, period.

Sat, 08/08/2015 - 12:26 | 6404831 autofixer
autofixer's picture

Does this mean the NSA storage apparatus is broken?  

Sat, 08/08/2015 - 10:11 | 6404514 Lordflin
Lordflin's picture

The intent of cheap money is never to fix problems. It is pure and simply theft.

I am sick and tired of seeing this subject analyzed. It is not clever. It is not even complicated... although much modern derivative fraud certainly is... the basic concept is simple enough. There are never any good intentions. The actual perpetrators, a collection of self serving sociopaths and psychopaths, are never surprised by the outcome. Does it cause untold death, suffering and moral decay? Absolutely! They either do not care, or in the case of the sicker ones, they enjoy it.

This descent into hell will continue until we have a world ending world war, a massive societal implosion on a global level, or the people rise up, overthrow their overlords and start the cycle anew...

Happy endings are an illusion. Either the one where mankind launches itself into a grand and beautiful future where all humanity benefits from as yet unrealized technological wonders... except for the ones that don't survive the womb I suppose... but then they are not human anyway because now we call them fetuses. Or the one where these self defined gods become part machine... or all machine in the case of the uploads... and shed themselves of the unwashed masses... meaning that even if you escape womb you wind up on the butcher's block.

We'll... guess I woke up in a mood. Perhaps I should turn out the lights and get some more sleep.

Sat, 08/08/2015 - 11:39 | 6404697 JR
JR's picture

Exactly. Who can celebrate a managed market where there's a pretense of civil and economic justice as the owners of the market, the Federal Reserve, steal and wreak havoc on the sound money investors and savers to enrich and reward their greed?

"It is phenomenon as old as Babylon," says Jesse.

Jesse's Café Américain:

The Jobs Report came in weakly, but not enough to deter the Fed which is staunchly in favor of breaking the ribbon on the first rate increase since they instituted an alphabet soup of programs culminating in QE and ZIRP to rescue the financial system and the very wealthy.  That must have been their motive, because that is about the only thing that they have accomplished.

The precious metals are being manipulated by a pool.  I am not entirely sure who all of the participants may be, but a few of them are hard to miss.   And there is a cottage industry in tracking their moves, and speculating on their motives which they strive to conceal.   And often the analyst reveals more about themselves than they do about the subject on which they are speaking.

But no matter.   These things have happened before.  And we know what they look like, and what happens to them over time.

And this instance will be no different.   It will enrich some and cause significant damage to many, with the few giving their actions little thought, much less any shame.  Such are the works of the selfish and the self-important.  It is a phenomenon as old as Babylon and as evil as sin.

http://jessescrossroadscafe.blogspot.com/2015/08/gold-daily-and-silver-weekly-charts-not.html?utm_source=feedb

Sat, 08/08/2015 - 10:14 | 6404518 eddiebe
eddiebe's picture

I don't see why anything has to crash as long as the Fed or all central banks and banksters keep buying everything. Stocks bonds real estate commodities, everything. After all isn't that exactly what they are after? Complete control and ownership of everything? Especially everything of value. Seems to me that is exactly what is happening now anyway.

Sat, 08/08/2015 - 10:44 | 6404576 PT
PT's picture

There is a war between those who work for Cashflow and those who work for Capital Gains.  Those who work for Capital Gains need high prices to "prove" they are not insolvent.  They will do what it takes to keep those valuations high.

This house rents out for $400 per week.  Tell me again, why is it "worth" a $million? 

Sat, 08/08/2015 - 10:14 | 6404519 i_call_you_my_base
i_call_you_my_base's picture

The next step in unconventional policy is for the fed to buy corporate bonds. It'll take an event, but it'll happen.

Sat, 08/08/2015 - 10:16 | 6404522 Peter Pan
Peter Pan's picture

" Constant prosperity through credit is no more possible than constant peace through heroin." 

- Daryl Robert Schoon

Sat, 08/08/2015 - 10:46 | 6404579 Tinky
Tinky's picture

meh.

I'd opt for: Indefinite prosperity through credit is no more possible than indefinite pain relief through the use of Morphine.

Sat, 08/08/2015 - 10:24 | 6404537 Teknopagan
Teknopagan's picture

zero rates are a bail in for anyone who saves fiat

Sat, 08/08/2015 - 10:38 | 6404568 Soul Glow
Soul Glow's picture
Unseen Consequences of Zero-Interest-Rate Policy -

HYPERINFLATION!

Sat, 08/08/2015 - 10:44 | 6404575 Peter Pan
Peter Pan's picture

Hard to see this happening when all the cheap money seems to be ending up in the hands of those that do not need it and who instead use it to push up asset prices.

Sat, 08/08/2015 - 11:02 | 6404618 Sages wife
Sages wife's picture

Yeah, but who will cut their grass?

Sat, 08/08/2015 - 14:48 | 6405244 monad
monad's picture

90% of the goyim are below you. Half of them can be trained to cut grass...

Sat, 08/08/2015 - 10:38 | 6404569 GRDguy
GRDguy's picture

"But an increase in the quantity of money and fiduciary media will not enrich the world... (just a few well-connected folks who lie, steal, skim, whatever.) Here's one reason:

http://www.amlu.com/2015/08/07/billionaire-thomas-peterffy-lists-80-acre...

Sat, 08/08/2015 - 10:50 | 6404587 max2205
max2205's picture

The five year needs to get back to 4% soon or we are all fucked 

Sat, 08/08/2015 - 11:02 | 6404619 PT
PT's picture

I need to be able to borrow at zero percent fixed with no principal repayments necessary.  Then I could start lots of businesses and employ lots of people.  Revenue?  No-one else cares about revenue, why should I?  Profits???  Who knows?  I might get lucky one day ... Till then, think of it as "welfare for engineers" or something ...

=P 

Sat, 08/08/2015 - 11:02 | 6404599 withglee
withglee's picture

Conventional monetary policy — that is, the promotion of credit creation by lowering interest rates — reaches its limits once the “zero-bound” is reached. In order to continue the spiral of stimulus, “unconventional monetary policy” becomes ever more important.

The fallacy is monetary policy itself.

Money is "a promise to complete a trade". This is obvious when examining 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 ... so money obviously is "a promise to complete a trade"

When the trading promise is originated by the trader, it is certified. Those certificates circulate in the marketplace as the most valued objects of simple barter exchange. When the trader delivers on his promise, he returns those certificates and they are destroyed. If he doesn't deliver on his promise, he defaults. That default is immediately mitigated by an equal interest collection, which reclaims the certificate which is destroyed.  Before and after the trade, no money exists related to the subject trade. It only exists during the delivery process. This is a automatic negative feedback process that keeps the system stable (like the governor on an engine). The governing relation is: INFLATION = DEFAULT - INTEREST = zero.

Implicit in this is that reliable traders enjoy zero interest load on their trades. And deadbeat traders (like all governments who just rollover their trading promises and thus default) are shunned by the marketplace with unworkable interest loads.

Explicit in this is the supply and demand for money is always in perfect balance ... it's the nature of any trade. Money is always in free supply. Nothing keeps traders from making trading promise "out of thin air". The resulting money never loses its value. You can put it under a rock for 50 years and use it as if you put it there 50 seconds ago. Saving and hording of money have absolutely zero impact on trade. And it is universally accepted for "all" trades because by virtue of the totally open, transparent, and authenticated process, it is universally trusted.

It's "not" a policy!!!! Policy is about manipulation. Money is about trading.

Sat, 08/08/2015 - 11:50 | 6404729 JR
JR's picture

Counterfeiting the currency destroys money, the FRN, as a medium of exchange. We’re not talking money here, we’re talking a private business’s promise, and it’s worth nothing. This is private script. It is not money; it wasn’t intended to be.

“No one would welcome a counterfeiter to town, yet this same authority is blindly given to our central bank without any serious oversight by the Congress.

“When the government can replicate the monetary unit at will without regard to cost, whether it’s paper currency or a computer entry, it’s morally identical to the counterfeiter who illegally prints current. Both ways, it’s fraud.” – Ron Paul, Paper Money and Tyranny

Sat, 08/08/2015 - 13:37 | 6405053 withglee
withglee's picture

Counterfeiting the currency destroys money,

No it doesn't. Delivery on the trading promise destroys the money ... just like making a trading promise and getting it certified "creates" the money.

Counterfeiting creates money without a trading promise. Thus it is never delivered upon and looks exactly like default. Where counterfeits are detected, they must be destroyed and an equal value of interest collections be made like any other default. However, the interest collections are paid to the holder (presuming he is not the counterfeiter). That protects the marketplace from counterfeit money.

We’re not talking money here, we’re talking a private business’s promise, and it’s worth nothing.

Promises used to create money are only worth nothing in the case of default. Otherwise they are worth exactly what the trader gets them certified for. Those certificates are returned and destroyed on delivery. You clearly don't get the concept, which isn't surprising. You've been taught the opposite when you're taught the principles of capitalism ... and communism.

This is private script. It is not money; it wasn’t intended to be.

Money is "obviously" a promise to complete a trade. After negotiation of a trade that will take place over time and space, one trader gets his promise certified. You do it when you buy a house with a mortgage. Those certificates go to the other trader and that part of the trade is complete. You have the house and he has no claim to it whatever. When the promising trader delivers, he returns the certificates and they are destroyed. You do that with monthly payments on your mortgage. In the mean time, they have enabled simple barter trade over time and space. If you fail to do that, your are defaulting every month you fail. In the extreme case, you are forced to sell and deliver certificates for destruction ... just like delivery. In the end, no certificates exist pertaining to that particular trading promise. They are either returned and destroyed or  reclaimed through interest collections and destroyed.

“When the government can replicate the monetary unit at will without regard to cost, whether it’s paper currency or a computer entry, it’s morally identical to the counterfeiter who illegally prints current. Both ways, it’s fraud.” – Ron Paul, Paper Money and Tyranny

Absolutely correct. When a government fails to deliver on a trading promise now, they are allowed to just roll it over. But this is "obviously" default.

And how does a properly managed MOE mitigate defaults? It makes an immediate equal interest collection to reclaim and destroy the certificates. And it marks the defaulter actuarially. He pays an interest load next time he tries to get a trading promise certified. With a government defaulting perpetually, the are very quickly ostracized from using the MOE.

There's nothing that says an MOE has to be managed by a government. And there's nothing that says a government that is a deadbeat trader itself cannot be allowed to manage the MOE. As long as trading promises are openly certified to authenticated traders; as long as deliveries on those promises are monitored for defaults; as long as defaults are immediately mitigated with interest collections; as long as this is all done in the open and transparently, it doesn't matter who does it. Even you could do it if you could get enough traders to go along with you. Our government could likely "not" do it because nobody trusts them ... even themselves. They would cheat in a game where they are the only player. They can't help themselves.

 

Sat, 08/08/2015 - 14:13 | 6405168 JR
JR's picture

They are defaulting every minute. Fiat currency is in a constant state of default. Before the ink is dry it is cheating you.

This is not money. We are forced to use this fake script or we can't eat or even go to a movie, but to call it money is untrue because the more you use it the more it cheats you. Money would be something both sides could agree upon as a medium of exchange. I have not been asked to agree upon this.

"As a measure used for estimating the value of other things, money must keep the same value, since the value of all things must be expressed in terms of money." -- St. Thomas Aquinas

Congress has failed miserably in its duty to see that money or the exchange-medium remain a stable measure of value, that it represent commutative justice in the price-level, the price of a thing being the expression of its exchange-value in terms of money.

Sat, 08/08/2015 - 17:45 | 6405457 withglee
withglee's picture

Fiat currency is in a constant state of default. Before the ink is dry it is cheating you.

I personally have created so-called "fiat currency" (actually turned out to be just accounting entries) many times in my long lifetime. I was the only one who got cheated. I was charged a huge amount of interest where my propensity to default proved to be absolutely zero.

This is not money. We are forced to use this fake script or we can't eat or even go to a movie, but to call it money is untrue because the more you use it the more it cheats you.

Throughout my life, the dollar has been my money of choice ... pretty much my only choice except when I went to Mexico. I got it from my employers in exchange for things I was able to do for them. I obtained food and movies and lots of other things with it. It "never" cheated me, though banks always cheated me when I created it myself (e.g. taking a mortgage on a house or a loan to buy a car). It is money. In my lifetime (so it's a first party testimonial) it has always performed as what it has always been: A promise to complete a trade. It has been more highly and universally valued than any other object in simple barter exchange. I have never used gold as "money" in simple barter exchange ... never. And I'm sure you haven't either.

"As a measure used for estimating the value of other things, money must keep the same value, since the value of all things must be expressed in terms of money." -- St. Thomas Aquinas

Right, and of course no commodity backed money has ever done that. It's own value changes radically with supply and demand for itself. The dollar has done no better nor worse than gold in that respect. But while on average it has exhibited a 4% leak (while it's controllers claim to be shooting for a 2% leak), it has varied radically as the controllers execute their farming operation called the business cycle.

It's too bad we are always left comparing two dysfunctionals: (1) gold where with only one ounce per person on Earth, it is useless for backing an MOE; and (2) dollars which are openly manipulated by banks and governments through "monetary policy".

We can have better. But we won't have better as long a people like JR remain so confused.

Congress has failed miserably in its duty to see that money or the exchange-medium remain a stable measure of value, that it represent commutative justice in the price-level, the price of a thing being the expression of its exchange-value in terms of money.

Congress has succeeded beyond all its handlers expectations. It has given over control of the Medium of Exchange as craved by Rothschild: "Give me control of the money and I care not who makes the laws". The constitution was unbelievably inept in the tiny provisions it had for management of an MOE. You can see by reading Maclay's journal that this was in the plan from the very beginning.

Traders, and only traders, determine the value of the Medium of Exchange. Because our MOE is so badly mismanaged, their task is made vastly more difficult because they must estimate wildly gyrating supply, demand, inflation and interest loads in effect over the period in which they deliver on their trading promises.

Think how much easier there job would be if they could be confident in the guarantee that inflation was zero ... everywhere ... all the time; that supply and demand for money was always in perfect balance; that money was always in free supply; and that money was universally accepted always and everywhere as the most valued object of simple barter exchange.

Sat, 08/08/2015 - 13:56 | 6405112 ebear
ebear's picture

Prof. A. Fekete: Real Bills

https://www.youtube.com/watch?v=QFj6ScUOSQ4

Sat, 08/08/2015 - 10:59 | 6404606 Klemens
Klemens's picture
Silver Shortage Escalates:

https://www.youtube.com/watch?v=hS6onPAAzbA

Sat, 08/08/2015 - 11:25 | 6404667 Well Hungarian
Well Hungarian's picture

Krugman says this time will be different. He has a Nobel Prize you know...just like our President.

Sat, 08/08/2015 - 11:31 | 6404685 VWAndy
VWAndy's picture

 That stall thingy keeps looking better and better. Its the only good way around the well entrenched system of sellouts.

 We must force the sleepers to wake up and face the truth.

Sat, 08/08/2015 - 11:49 | 6404724 GMadScientist
GMadScientist's picture

 

But an increase in capitalism will not enrich the world. … capitalism does lead to a boom at first, it is true, but sooner or later this boom is bound to crash and bring about a new depression.

Sat, 08/08/2015 - 14:03 | 6405133 Clowns on Acid
Clowns on Acid's picture

what is your defintion of capitalism? What is your definition of a healthy econmy?

An unusually weak comment by you GMad

Sat, 08/08/2015 - 13:01 | 6404926 The Darwin Mode
The Darwin Mode's picture

"Global zero-interest-rate policy (ZIRP) ... undermines the natural selection process of the market." -- Ronald-Peter Stoferle

"Natural selection?" Uh oh, ZH's bible-bangin' neocon community ain't gonna like that kind of talk.

Sat, 08/08/2015 - 13:25 | 6405003 Bay of Pigs
Bay of Pigs's picture

Bible bangin neocons? What the fuck are you talking about?

Sat, 08/08/2015 - 13:59 | 6405123 Jack Burton
Jack Burton's picture

It's a war on savers. In a nut shell, government has attacked the saver class, and stolen all their interest to give to the bankers and speculators. When you punich thrift and savings, you kill the basis of real capitalism. But we all know that America is not capitalist, it is anything but. The crony gang of corporations and their bribed politicians are running a communism for the 1% game.

Sat, 08/08/2015 - 14:01 | 6405128 Tigg47
Tigg47's picture

Create unlimited fiat out of thin air and buy everything of real value with it. Robbery 2.1.

Sat, 08/08/2015 - 14:07 | 6405148 Aleedsfella
Aleedsfella's picture

Wow! we still have yanks bitching about Capitalism and Dem' vs Rep' work it out you thick cunts! American Independence went from 1776 to 1913 and you may aswell elect a fucking dog turd as your president it will not change a thing! Bankers (Rothschild) rule the world! Voting is a waste of time. 

Sat, 08/08/2015 - 15:05 | 6405298 stock market loser
stock market loser's picture

Dump a shit on my bible today.

Masturbate to milf asian women today. 

Sat, 08/08/2015 - 16:37 | 6405469 Itinerant
Itinerant's picture

ZIRP as everybody fathoms is literally buying time, delaying the day of reckoning.

By itself, the actions of the Central Banks is exactly akin to using what little water you have left to wet the streets, b/c as we all know, wet streets are a sign that it is raining.

Sat, 08/08/2015 - 19:29 | 6405810 Umh
Umh's picture

Nothing has changed, money is still being loaned for more than it costs.

Sun, 08/09/2015 - 15:15 | 6407373 whoisjg
whoisjg's picture

Not quite right. 

Middle class real estate CANT go up, people dont have the incomes to buy

Banks don't loan to entrepreneurs, they loan to pakistanis who open refurbished hotels, 7-elevens and gas stations. If they go belly up, they just go back to pakistan and send a cousin to get another sba loan. an American would be wiped out so they never find this a fair gamble. Banks make these loans because they think they have hard assets o ver entrepreneurs who are entireley intellectual. So entrepreneurs starve. 

The capital for entrepenurship dries up. Bolshevishm becomes the new way

see "Zirp Zombies - How Bankers Devour Nations"

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