Guest Post: Our Counterfeit Economy

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Our Counterfeit Economy

The U.S. economy is in effect a counterfeit economy, living on money created from thin air that is unbacked by an equivalent productive expansion of surplus value.

Yesterday we looked at counterfeiting and money printing and discovered they are one in the same: (Counterfeit Money, Counterfeit Policy.) If we apply the same analysis to the U.S. economy, we have to conclude the entire U.S. economy is also counterfeit.

The analysis is not as complicated as store-bought economists would have you think. Much of what passes for "economics and finance" is simply distraction, a sophisticated version of bread and circuses.

Let's start with two basic concepts: productive value and surplus value. The classic example of a productive asset is a factory that produces goods that have a market value that exceed the input (production) costs. In other words, the factory produces surplus value.

We can measure value by any number of means: ounces of gold, quatloos, sea shells, etc. To keep things simple, let's just measure value in units. If it costs 10 units to produce a good (including labor, materials, energy inputs, transportation, and a return on the investment to construct and maintain the factory), then the output (products manufactured by the factory) must fetch 11 units in the open market to create 1 unit of surplus that can be invested or spent on consuming other goods or services.

If it takes 10 units of input costs to make a product that is only worth 9 units, then the process generates a net loss. There is no surplus to spend; rather, there is a loss that must be covered by cash, borrowing or the selling of other assets. When the cash, ability to borrow and assets that can be sold all run out, then the enterprise is recognized as insolvent and it closes.

If the factory's output has little to no market value, then the investment is what we call a mal-investment--an investment that only claimed to be valuable because it was speculative or protected from price discovery in a transparent market.

Our current economic theory holds that any good or service produced has value, which we measure in dollars of gross domestic product (GDP). The intrinsic flaw in this way of assessing value is that it doesn't recognize mal-investments.

Here are some examples.

-- If a military aircraft woefully underperforms and costs so much field commanders dare not risk its combat deployment, then what value was created by its manufacture?

-- If it takes 10 units of input costs to produce a biofuel crop that is processed into fuel worth 9 units, then what value was created by the process of making that biofuel?

-- If a subdivision of new homes is built in the middle of nowhere and finds no buyers, then what value was created by the construction of these houses?

-- If a costly medicine is distributed at great expense in the millions of doses and is discovered to have little to no effect on longevity or other metrics of health, then what value was created by the immense cost squandered on this medication?

In all these cases, the mal-investment was added to the GDP as if it created productive value. The factory and the costly but essentially useless aircraft (think B-1B bomber) were added to the GDP, but they did not create useable military value. The biofuel production facilities were all added to the GDP, even though the process generated a net loss. The homes built in the middle of nowhere were also added to the GDP, along with the costs of the worthless medication.

Consider a financial sector that is declared "too big to fail" and trillions of units are borrowed on the taxpayers' account to bail out the albatross banks. The bailout of banks created no productive value, even as it took money away from potentially productive investments.

Since surplus value is not limitless, the money squandered on these mal-investments was no longer available for productive investments. Rather, these mal-investments sucked up all the surplus generated by the entire economy. Now there is no money left for superior (and cost-effective) military aircraft, medications that actually cure diseases rather than reduce symptoms, homes that are in desirable, cost-effective locales, productive energy investments, and solvent banks.

Let's say an economy required 1 million units of input costs to generate 2 million units of productive value, i.e. goods and services whose price has been discovered by a transparent market. That economy has 1 million units of surplus to spend on consumption, productive investments and mal-investments.

Since everything requires maintenance and infrastructure, then there is no such thing as a steady-state economy: for example, factory machines wear out and have to be replaced. If there is no surplus money left because it has been sunk into mal-investments, then the factory's ability to create productive value and surplus value degrades.

If the mal-investments have been prodigious, at some point the factory is incapable of producing any surplus at all.

There is a "fix": borrow money based on the future surplus. If the amount being borrowed is modest in comparison to the potential surplus created by a refurbished factory, and the borrowed money is productively invested, then this reliance on credit and leverage may pay off.

But if the borrowed money is spent on consumption and mal-investments rather than being invested in productive assets, then the only "fix" left is to borrow more money--not just mortgaging the future surplus of the factory, but leveraging it into a stupendous sum of borrowed money.

At some point the sums being borrowed far exceed the potential surplus generated by the factory, even if the factory amd market are running at optimum levels. If the factory requires 100 units of investment to generate 50 units of surplus, but 1,000 units of money have been borrowed against that future surplus, then the interest payments on that 1,000 will eventually exceed the modest potential surplus value.

Note that future surpluses are all imaginary; it could turn out that the market for the factory's goods declines and there will be little to no surplus value created in the future.

Borrowing money based on imaginary future surpluses is a higher form of counterfeiting. And that is precisely what the U.S. is doing, borrowing immense sums at every level, private, corporate and State/Federal, all leveraged against phantom future surpluses, even as the economy requires some 10% of its supposed output (GDP) to be borrowed and spent on consumption each and every year just to run in place, i.e. the Red Queen's Race (Bernanke, Goldilocks and The Red Queen January 10, 2011).

In other words, the U.S. economy is running a massive deficit, and squandering the vast sums being borrowed on consumption and mal-investments. Once you rely on more borrowing against imaginary future surpluses to fund your current expenses, then eventually the costs of servicing that debt exceeds any possible future surplus.

The last-ditch "fix" is to simply print units of money (or borrow it into existence like the Federal Reserve)--counterfeiting, pure and simple-- and deceive the market for a time via the illusion that the freshly printed units of money are actually backed by productive value or surplus.

As history has shown, eventually the market discovers the actual value of this counterfeit money, i.e. near-zero, and the system implodes.

Alternatively, the credit markets grasp that there is no way the economy can pay the interest on its monumental debts, never mind pay back the principal, and then the number of people willing to lend surplus capital to the economy declines to zero, as does the economy's ability to sustain itself with leveraged debt.

The system then implodes as the "free money machine" of ever-expanding debt breaks down. Once there is no more "free money" to fund consumption and mal-investment, then the reality of systemic insolvency is revealed to all.

You cannot counterfeit actual surplus value generated by productive assets, you can only counterfeit proxy claims on future surplus. That is the U.S. economy in a nutshell: we are counterfeiting claims on our future surplus, even as we squander vast sums on horrifically obvious mal-investments and wasteful, cost-ineffective consumption.

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trav7777's picture

Future surplus gone bitchez

TruthInSunshine's picture

Let me summarize this entire article with one chart (and you can replace the gold in it - it doesn't matter if you think gold is valuable or a barbaric relic - with anything else that you believe does have inherent value, that is finite in quantity, whether oil, wheat or whatever - regardless as to how plentiful or rare it may be - as long as it's finite):


And the emperor declared, "Dilutus Maximus Fiat Ad Infinitum!"

But soon, the crowd slowly became aware that he hath no clothing.


p.s. That chart only plots the money supply until mid 2005. 2006 to 2011 is very interesting. I can't wait until the 2012 through 2020 chart is here.

kridkrid's picture

another simple chart: - Of course we know that debt and money are the same thing, so as one might expect, my chart that shows aggregate debt looks similar to yours that show money. 

TruthInSunshine's picture

In fact, there will inevitably be a one-to-one ratio, in a fractional reserve bankster's paradise.

economics1996's picture

Here is the future that lies ahead if you fail to understand and do something about our inflationary government policies. You will receive Social Security if it is not reformed, but it will be worth a cup of coffee, maybe.

Let’s go to Lady Listowel (Germany-Austria-1923 during the hyperinflation years) for some historical accuracy and perspective as she writes about how inflation affected her circle of friends and the elderly:

“One use to see the appearance of their flats gradually changing. One remembered where there used to hang a picture, or a carpet, or a secretaire. Eventually their rooms would be almost empty – and on paper some people were reduced to nothing.

In practice, people didn’t just die. They were terribly hungry, and relations and friends would help with a little food from time to time. We sent them parcels, or took them ourselves because we had no cash to pay for postage. And some of them begged – not in the streets – but by making casual visits (one knew only too well what they had come for) or by writing letters asking for help.

Everyone still tried to keep up appearances: at first, early on, people looked around to see what economies they could make, what clubs to resign from, what luxuries to do without. Later it was a question of considering what necessities to do without.

And when the food was not a problem – after all, we lived most of the time in the country where we could get it – there were troubles because we had no money. Only one of us could afford to go to Budapest at a time. There was no way to get medical help without money. If you had a toothache you couldn’t afford a dentist. If you needed to go to the hospital, you might get into a convent; otherwise you stayed home, and got better, or got worse.”

JPM Hater001's picture

Edited for mass consumption...Permission granted to copy and paste to papers everywhere in the first person.  It will be in mine next week.

Dear Editor
I felt it prudent to share the fleecing that continues to occur in America.
On November 8th, 2010 I did some bulk purchasing for my pantry from Sam’s Club Online. Having recently seen the massive increase in beef by some 22%, blamed I might add on everything but monetary policy, I thought I would see what the purchase of these same items would cost today. Fortunately, Sam's keeps my order available for me to download and compare.  I submit for your approval the top 13 most used items in our households and the current inflationary increase over 14 months to purchase the exact same product:
Dakota Maid All Purpose flour 25 lbs. - 30%
Crystal Sugar® Granulated 25 lbs. - 277%
Jif® Extra Crunchy Peanut Butter - 40 oz. - 50%
Golden Star® Jasmine Rice - 25 lbs. - 7%
Bakers & Chefs Gar den Rotini 6 lb. - 10%
Idahoan® Mashed Potatoes 5 lb. bag - 16%
Chicken Flavor Bouillon - 4.4 lb. bucket - 84%
Freeze Dried Sliced Mushrooms 1.5 oz. - 534%
Imitation Vanilla - 64 oz. plastic jug - 58%
Hunt's® Tomato Sauce - 12/15 oz. cans - 72%
Del Monte® Whole Kernel Corn - 8/15 oz. cans - 25%
Hunt's® Diced Tomatoes - 8/14.5 oz. cans - 90%
Del Monte® Cut Green Beans - 12/14.5 oz. cans - 18%

I have been stressing that we are playing a very dangerous game. This inflation is a very predictable outcome to the unbridled borrowing and spending by our governments- state and national. In Wisconsin Scott Walker actually does something to save the state literally billions and they recall him? Are you crazy? Why would you sign your children's life away? If they can't convince people to get fiscal policy under control in Wisconsin the federal government has no chance.

Ron Paul is the only candidate talking about the monetary policy and role the Federal Reserve plays in our life. Look at these numbers! YOU ARE BEING ROBBED and President Obama (I still respect the office if not the man), Mitt Romney, Newt Gingrich and Rick Santorum have no idea what is going on. Watch the next debate and ask why not a single question is asked about inflation, Ben Bernanke, the Fed, gold, or, I might add, this false war the propaganda machine is building up with Iran. Wars are very inflationary by the way.

Joseph Gobbels would have been proud with what we have become. If you don’t know who he is...turn off Snookie and take out a book.

JPM Hater001's picture

Here is the actual raw data if you care:
ITEM / ITEM #    -  PRICE       Current Price   Inflation
Dakota Maid All Purpose flour 25 lbs $6.86            8.93        30%
Crystal Sugar® Granulated 25 lbs $3.94   $14.87        277%
Bakers & Chefs Cle ar Frying Oil 35 lbs $22.49       $22.49   27.28     21%
Bakers & Chefs Soy Salad Oil       $22.49Salad Oil                 27.79     24%
Arm & Hammer® Baking Soda 13.5 Oz     $6.16     6.68        8%
Jif® Extra Crunchy Peanut Butter jars - 40 oz.$6.98            10.44     50%
Spam® Classic - 4/12 oz $9.28      9.99        7%
Peak® Pinto Beans- 10 lb. bag     $5.73     8.53        49%
Golden Star® Jasmi ne Rice - 25lbs            $16.48   17.59     7%
Bakers & Chefs Gar den Rotini 6 lb.          $4.98     5.48        10%
Idahoan® Original Mashed Potatoes 5 lb. bag      $5.88     6.82        16%
Knorr® Chicken Fla vor Bouillon - 4.4 lb. bucket   $9.88     18.17                     84%
MALABAR BLACK PEPP  10 ER 10 OZ         $2.98     3.88                        30%
Tone's Freeze Drie d Sliced Mushrooms 1.5oz     $1.34     8.5          534%
Tone's® Beef Base- 16 oz. jar      $3.48     7.56        117%
Tone's® Imitation Vanilla - 64oz plastic jug            $4.18     6.59        6.59        58%
Tone's® Italian Se asoning - 6 oz.               $3.98     4.68                        18%
Tone's® Minced Gar lic - 23 oz. shaker    $4.98     5.68                        14%
Tone's® Minced Oni on - 15 oz. shaker   $4.98     5.22                        5%
Hunt's® Tomato Sauce - 12/15oz cans     $6.98     12                           72%
Hunt's® Tomato Pas te - 12/6 oz                $5.38    5.82        8%
Del Monte® Whole K ernel Corn - 8/15. 25 oz. cans           $4.72     5.88        25%
Hunt's® Diced Toma toes - 8/14.5oz can $5.98     11.37     11.37     90%
Del Monte® Cut Gre en Beans - 12/14.5 $7.08     8.38                        18%

And yes, I bought far more than one of each of these.  I am wealthy in sugar currency.

Raging Debate's picture

I handed out multiple pounds of sugar for holiday baking this year. As I explained to people that thought I was mad two years ago, if I wanted TWO spoonfuls of sugar in my coffee (which I also have lots of) then I will have it. Sometimes, it is the little things that keep a person sane.

kridkrid's picture

that's fantastic.  I've been wanting to do the same, but haven't.  Kudos.  Of course, food and energy have nothing to do with inflation (wink, wink, nod, nod).

JPM Hater001's picture

I'll report you to a FEMA camp you keep that up.

Thought crime is serious.

SilverRhino's picture

Cleaned up this data.  This should be a lot easier to import into excel as a csv.  Can you validate the price dates?

ITEM / ITEM #,PRICE (11/2010),Current Price (12/2011),Inflation
Dakota Maid All Purpose flour 25 lbs.,$6.86,$8.93,30.17%
Crystal Sugar? Granulated 25 lbs,$3.94,$14.87,277.41%
Bakers & Chefs Cle ar Frying Oil 35 lbs,$22.49,$27.28,21.30%
Bakers & Chefs Soy Salad Oil,$22.49,$27.79,23.57%
Arm & Hammer? Baking Soda 13.5 Oz,$6.16,$6.68,8.44%
Jif? Extra Crunchy Peanut Butter jars - 40 oz.,$6.98,$10.44,49.57%
Spam? Classic - 4/12 oz,$9.28,$9.99,7.65%
Peak? Pinto Beans- 10 lb. bag   ,$5.73,$8.53,48.87%
Golden Star? Jasmi ne Rice - 25lbs,$16.48,$17.59,6.74%
Bakers & Chefs Gar den Rotini 6 lb.,$4.98,$5.48,10.04%
Idahoan? Original Mashed Potatoes 5 lb. bag,$5.88,$6.82,15.99%
Knorr? Chicken Fla vor Bouillon - 4.4 lb. bucket,$9.88,$18.17,83.91%
MALABAR BLACK PEPP  10 ER 10 OZ,$2.98,$3.88,30.20%
Tone's Freeze Drie d Sliced Mushrooms 1.5oz,$1.34,$8.50,534.33%
Tone's? Beef Base- 16 oz. jar,$3.48,$7.56,117.24%
Tone's? Imitation Vanilla - 64oz plastic jug,$4.18,$6.59,57.66%
Tone's? Italian Se asoning - 6 oz.,$3.98,$4.68,17.59%
Tone's? Minced Gar lic - 23 oz. shaker,$4.98,$5.68,14.06%
Tone's? Minced Oni on - 15 oz. shaker,$4.98,$5.22,4.82%
Hunt's? Tomato Sauce - 12/15oz cans,$6.98,$12.00,71.92%
Hunt's? Tomato Pas te - 12/6 oz,$5.38,$5.82,8.18%
Del Monte? Whole K ernel Corn - 8/15. 25 oz. cans,$4.72,$5.88,24.58%
Hunt's? Diced Toma toes - 8/14.5oz can,$5.98,$11.37,90.13%
Del Monte? Cut Gre en Beans - 12/14.5,$7.08,$8.38,18.36%


and yes that is a very distrubing level of inflation.

Manthong's picture

The futere surplus will be there..

Surplus troops in Boston and LA.

poor fella's picture

Will help the unemployment numbers.

For that matter, we can take the unemployed youth of the country (soon to approach Spanish levels) and pay them to watch their parents and neighbors. They can train for these new positions down at the baseball diamond since there will be no time for mindless entertainment or 'community'.

It's all about solving more than one problem at a time.  ;)

OutLookingIn's picture


WAR. The nation puts them all in unifiorm, hands them a weapon and sends them off to be cannon fodder.

The corporate elite make lots of money from war. The 99 percenters - not so much!

He_Who Carried The Sun's picture

Further down on his website it says:

This guy is THE leading visionary on reality.

Hahaha, wake up and stop "envision" reality boy.

All you need to do is FACE IT !!

Random_Robert's picture

Mad fuckin' Max bitchez...

or maybe not.

DoChenRollingBearing's picture

@ trav7777

Spare parts, bitchez!

vast-dom's picture

You mean future to the Nth rehypothecation of the CDS of the actual surplus in derivatives?

djsmps's picture

Current CNBC top headlines:

Greece Hours Away From a Deal With Creditors: Finance Ministry Official (Story Developing)

After a Delay, MF Global’s Missing Money Is Traced

GeneMarchbanks's picture

Wait... are they related? Cause if that MF 'money' ended up in Greece I'm going to be really concerned...

TruthInSunshine's picture

I posted about the MF Global scam last night:


After Delay, MF Global’s Missing Money Is Traced

The New York Times

January 31, 2012, 9:42 pm


Investigators have determined what happened to nearly all of the customer money that disappeared from MF Global around the time of its bankruptcy last Oct. 31, but have not publicly disclosed their progress, fearing that doing so might cripple efforts to recover the cash and pursue potential wrongdoing, people briefed on the investigation said.


While authorities have traced hundreds of millions of dollars to banks, MF Global’s trading partners and even the firm’s securities customers, investigators remain uncertain about whether they can retrieve the money.

[My edit here- hmmmmmm? Really? Investigators have traced hundreds of millions of MF Global former vaporfiat to specific banks, but remain uncertain about whether they can retrieve  said money? hmmmmm?] 


Archduke's picture

it's in offshore banks, hidden by layers of shell companies and trusts with flee clauses.



for Brits, the BBC's Panorama investigates Lord Ashcroft's offshore empire in the Carribean,

including interviews with Nicholas Shaxon (non-Brits can view it through TOR tunnel)



honestann's picture

fiat is fungible.  just TAKE IT BACK.  it matters not where they routed the specific dollar bills and computer bits they stole.  just TAKE IT BACK.  obviously they're trying to find ways to justify the theft and protect the predators... most especially jon corzine.

Cult_of_Reason's picture

But CNBC conveniently does not mention these headlines (just to name a few from this morning):

1. US gasoline demand falls to lowest level since September 2001
2. Baltic Dry Index collapses to the lowest level in a decade
3. Chinese official communist government PMI for January inched up to 50.5; but more reliable private HSBC's China final manufacturing PMI stood at 48.8 in January, its third successive contraction.
4. Europe PMI was less bad than expected but still contracting @ 48.8
5. South Korea’s exports unexpectedly fell for the first time in more than two years in January
6. Hong Kong’s economy grew by a less-than-estimated 3% in the fourth quarter
7. Australia home prices plunged by the most on record in 2011
8. Chinese home prices fell for a fifth month in a row in January as well, the longest losing streak since data started being collected.

walküre's picture

They are given the proper headlines to suit the market manipulations that are being bestowed upon us daily by the banking overlords.

When the banking overlords are crashing the markets later this year, the above headlines will start to show up.

Wall Street, corporate media, Washington are the epidemy of a PROPAGANDA TRIFECTA!

Simply brilliant the way they've established themselves.


TruthInSunshine's picture

Cult_of_Reason - you get it. Many here do. It's called selective dissemination, and it's straight from the Goebbel's handbook.

Hell, I remember when Reuters headlines were literally being revised within seconds regarding Christmas season retail sales, where a prior headline that reported weaker YoY sales was revised to literally state the opposite (and it wasn't due to a discrepancy in the actual numbers, either).

The google cache function is the only way people had of comparing the two contrasting headlines as each paper reporting the headline subsequently towed the line.

JPM Hater001's picture

Well, I see it's working...We're up 139...

All is fine.

mayhem_korner's picture

Baltic Dry Index collapses to the lowest level in a decade


Like scissors to paper (in the paper-scissors-rock game), BDI trump the touted 50/200 day cross.  Things are going to go south in a hurry folks.

undercover brother's picture

Up and up she goes and where she stops, no one knows.   as long as the central banks are commited to ZIRP and thusly printing currency, negative news will be largely ignored.  Dollar based assets such as stocks and gold have no choice but to continue ever higiher until the one day the whole system collapses on itself.   unfortunately it's pointless and a waste of mental energy to attempt to place a timetable on such an event.   

walküre's picture

uhm, we can "ignore" negative news all day and night long. there's a term for that. it's called DELUSION

in the real world... (global) trade and demand are collapsing


LongSoupLine's picture



What does any of this have to do with Facebook?

Random_Robert's picture

"You cannot counterfeit actual surplus value generated by productive assets, you can only counterfeit proxy claims on future surplus."

Careful Charles.... Current US legal tender laws (not to mention the Federal Reserve Act) REQUIRE you to be wrong about that.

Why did Bernard Von Knothouse get taken down? The law protects the counterfeiters.

Truth is Treason in the Empire of Lies....

Again, be careful.

SwingForce's picture

The victims in this crime woulb be the people who buy Treasury Bonds/bills etc., no?

Tedster's picture

Nuthouse got taken down because he was stupid enough to put a USD face value on his rounds, and make them look vaguely official. The face value was also about (then) double the melt value.


Don't try this at home kids.

NotApplicable's picture

This act was so stupid, I have to wonder if he was really legit, or just trolling, trying to discredit the whole idea (and maybe tar Dr. Paul's character)?

All he had to do was to avoid the word "dollar" and he'd been in the clear, but no, he made it the focus of his movement, guaranteeing the response he received. Add to that the idea of changing the face value over time, and it is hard to NOT consider it a monetary scheme.

Minted PMs should be classified by weight and purity alone. Anything else is just asking for trouble from the gang whose turf is being invaded.

BLOTTO's picture

Counterfeit Life.

John Law Lives's picture

That counterfeit economy will feel real enough to the estimated 10,000 - 15,000 employees of American Airlines who may be getting pink slips soon:


GeneMarchbanks's picture

'You cannot counterfeit actual surplus value generated by productive assets, you can only counterfeit proxy claims on future surplus. That is the U.S. economy in a nutshell: we are counterfeiting claims on our future surplus, even as we squander vast sums on horrifically obvious mal-investments and wasteful, cost-ineffective consumption.'

Finding new and innovative ways of 'explaining' what is going is, paradoxically, similar to the very thing you are trying to condemn. The entire article can just read: PONZI scheme keep moving; all would be explained.

NotApplicable's picture

I disagree. Ponzi scheme is a such a politicized, common phrase now, that is accepted (or rejected) without much thought as to its meaning (like decimated, or fascist).

I found this article to be an excellent restatement of the problem in wholly understandable terms that aren't overloaded with prejudice. I can talk about malinvestment to people until I'm blue in the face, but might not get anywhere until I use the example of say, empty subdivisions. It doesn't take much of an economist to recognize that giving jobs to homebuilders is secondary to building houses that are actually needed. The malinvestment then becomes recognizeable once I ask, "Could that money have been better utilized to solve other, actual human needs?"

But if I merely state that the ponzi scheme keeps moving, well, they're more likely to ignore it, instead noting my tin-foil hat nature.

Dr. Engali's picture

Gartman is in CNBS trying to take credit for the Baltic dry index. He claims it is no longer a signal for global economic strength. He also says he likes gold in non- U. S dollars. How much have you missed on Dennis?

GeneMarchbanks's picture

Yep. I concur to an extent, it makes a ton of sense to go short AUD long AU. Gartman...

Random_Robert's picture

A friend of mine in LA is a Plastic Surgeon who is minting REAL money by creating counterfeit boobies...

Unfortunately, the end result is the same; since said boobies provide no real VALUE when it comes time to nurse a baby.

They only provide superficial value to the gawkers and wanna be motor-boaters...

ozziindaus's picture

I bet some cockhead is shelling out good money to have access to those pups

NotApplicable's picture

It's LA, where all plastic surgery is considered a capital investment, as these people have nothing else of value other than their image.

DavidPierre's picture


Somebody is broke... who? Does it really matter?

The subject of the interview is nothing new as we we were already aware that the big banks are broke, what IS news is that Mr. Sinclair believes that THIS week is "when" it happens. Well...not the bankruptcies of course but a "decision" by the ISDA (International Swaps and Derivatives Assoc.) will make regarding the "non default" or "trigger" of Greek debt.

This has been written and talked about for months on end, the 5 largest banks in the U.S. have written 97% of the CDS on the planet. Think about this for a moment, were one ... which would lead to many defaults occur at the same time, we would have another AIG situation. However, this time it would be "AIG cubed, times 5"! The banking system would then be ..."officially" bankrupt rather than bankrupt for all intents and purposes. It is this decision by the ISDA that Mr. Sinclair believes will be made this week that will ... and has already lead to more massive QE money printing to liquify the system in the hopes of putting enough cushion in ahead of time for whatever reaction comes about.

He is talking about 10 or more "MF Globals" in the near future where sovereign debt was purchased, then hedged, yet the "hedges" have been made worthless because ISDA refuses to "admit" that default occured.

THIS really is a big problem! Someone, somewhere is broke.

Will it be the "writers" of the insurance? Or the "buyers"? Well, let's clear this up ... IT DOESN'T MATTER!

This is like saying you went to an orgy with 20 people and 1 of them had AIDS. Does it really matter who it was?

A great metaphor for Europe at present, no bank trusts any other bank and thus interbank lending has basically ceased to exist. Then, going one step further, if the European banks don't trust each other, why would any other non European bank trust them?

"Someone is broke" is a fact and because the global financial system truly is "global", this means they... thus "we" are ALL broke! Period, end of story!

Which leads back to broken record time. Nothing paper has the true value as is perceived today. Either they allow bankruptcies to occur as Mother Nature demands or they print $ Trillions more and throw it on top of the already raging bonfire. 

 Which choice will be made? TPTB will not ever admit defeat nor give up "power" willingly, they will print until the cows come home and the currencies approach zero. What we do not know is how long investors will leave their heads in the sand. Do they wake up and panic or continue their oblivious ways while $1,000 is not enough to purchase a Happy Meal?

The panic will happen first, then and only then we will get a revaluation of the currencies. Can we go down the Weimar road for 2,3, 4 more years? Yes but the "structure" and leverage of the current system makes an "accident" along the way very, very likely. Again though, does it really matter? Matter how?

How you will prepare and protect yourselves with "precious metals everything" of course! No, no matter how this plays out, in a currency/debt crisis such as this, REAL MONEY is your best safe haven. Whether it is this week as Mr. Sinclair says or 6 months from now, "they" will have to decide what road we will take. Deny everything, admit to nothing and print...or call reality for what it is and let bankruptcys roll around the planet like atom bombs.

It doesn't matter "when or how", what really matters is what you have done and are doing to prepare for it!

DoChenRollingBearing's picture

+ 1

I almost always like your stuff DP.  Great analyses.

We are, as a world, all broke.  Physical gold will help those of us who own it.

DavidPierre's picture

The Fascist Business Model is a cord to strangle the neck of a nation. The rage of nationalism, the eradication of liberties, the pursuit of conjured enemies, the constant sense of alert, the attack on enemies with alienation of allies, all tend to effectively conceal the theft and corruption.

Corruption in Fascist Business Model

"The system will collapse and files from regulators and law enforcement will be destroyed during the collapse.

The 911 event was an orchestrated event within the reaction matrix, a mega trial run to see how people would react and how the system would deal with the destruction.

It was also the site one of the biggest gold heists ever. ScotiaMoccatta's gold in the vaults at the WTC was completely looted, never to be recovered, a well documented but poorly known story. The coming collapse is not a question of if but when. Only hard assets such as precious metal, agricultural assets, and other essentials will survive. Pay little heed to banks, the CDS contracts, the mortgage fraud, and all the other schemes these banksters run. The Roman Empire's back was broken. This cartel's back will be broken too. So just sit back and relax if well positioned in gold & silver."

walküre's picture has an article on this today

w/o ECB cash the lending to businesses had stalled across Southern Europe. Before LTRO the situation was pretty dire it says. ECB Draghi is promising more relief by end of February.

Now the ECB is quasi directly supporting the European corporate sector with lifelines or the system would collapse. First it was nations, now its businesses and soon it will be the people.

And then there's a propaganda piece about the outlook for Germany's growth which supposedly looks promising. Sure, Germany is going to grow on its own when pretty much the rest of Europe is going from recession into depression. You can't make this stuff up, it's so good!