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Guest Post:The Existential Financial Problem Of Our Time

Tyler Durden's picture





 

Submitted by Tim Price, Director of Investment at PFP Wealth Management, courtesy of Sovereign Man

The Existential Financial Problem Of Our Time

In December last year, the poet Alice Oswald withdrew from the TS Eliot poetry prize on the grounds that the prize was being sponsored by an investment company (Aurum, a fund of hedge funds manager).

How you feel about this principled stance may depend on whether you are a UK taxpayer. If you are a UK taxpayer, you will probably feel relieved that your tax pounds are no longer being squandered on the Arts Council's sponsorship of the prize in question "a tiny victory" but a victory nevertheless against the arrogant dissipations of the state.

Ms Oswald seems to believe that poetry prizes should be funded with everybody else's money, rather than by a private patron grown-up enough to be responsible for its discretionary expenditure (private patronage being what you might call "traditional" in the arts).

As a graduate in English Language and Literature, this commentator has no animus against poets. But I am not sure we want them in charge of the economy. They are notorious for starving in garrets for a reason.

Ms Oswald's "protest" is part of a wider intellectual malaise that lazily conflates government spending with the real economy and which conveniently ignores the fact that without a flourishing private sector, there would be no government and certainly no government spending to speak of.

It is part of that lazy thinking that inspires journalists to keep speaking of "the government" spending money on this or that, as if "the government" were somehow sitting on an infinitely large pile of "government money" that most of the time it was unreasonably withholding from worthy causes.

The reason our economy is knackered is because successive governments have indeed pandered to subjective worthy causes with money that those governments did not possess.

Tomorrow and tomorrow and tomorrow, taxpayers will be paying the bill. It is not government money because the government doesn't have any. It has liabilities only. It is taxpayers' money.

The finest achievement to date of the UK's coalition government has been a triumph of PR' as one might expect, given that PR appears to comprise the only work experience our current Prime Minister has ever had outside politics.

A myth has arisen, polished frequently by an ignorant media, that the British government has started to deal with the grotesque debt inherited from the previous government. But as Prosperity Capital's chief economist Liam Halligan points out, government spending was actually higher for the fiscal year 2010/11 than under the last year of the last government.

The UK debt figures are also much worse than conventionally believed because 2011 debt including "interventions" stood at ~£2,270 billion as at September 2011, or 150% of UK GDP. To this we should add public sector pensions (~£1,100bn+), PFI (~£400bn+) and sundry other off-balance-sheet obligations of the state.

Liam Halligan's bleak summary is that after five years of supposed austerity, UK government spending will be back to 2005 levels... but with twice as much debt.

Just as there has been no real austerity in the UK, yet' there has been no real deleveraging in the global economy at an aggregate level. Paul Marson of Lombard Odier points out that global credit market debt stands at $220 trillion, having grown by 11% annually since 2002, versus 8% nominal GDP growth:

In debt markets we are seeing a catastrophic example of the law of diminishing returns. As Marson makes clear, it takes greater amounts of debt to have the same marginal impact on GDP. The marginal effectiveness of debt has collapsed during the period since the end of the Second World War.

For the USA, for example, 1 unit of debt generated 0.63 units of GDP between 1953 and 1984; that same 1 unit of debt generated 0.24 units of GDP between 1985 and 2000; since 2000, 1 unit of debt has generated just 0.08 units of GDP.

The problem is insuperable. More debt has been created in the past forty years than will ever realistically be paid back...  which leads us to the existential financial problem of our time:

The modern, debt-based economy requires constant economic expansion if only to service all that debt. So what happens when the modern economy goes ex-growth and stops expanding?

Iceland already found out. Greece is in the process of discovering. But we will all get a chance to participate in this lesson.

Runaway fiscal and monetary stimulus throughout the western economies is in the process of destroying the concept of creditworthiness at the centre of the modern monetary system.  Private investors, we suspect, have little or no conception of the extent to which the state is now the predominant player in the financial markets.

Central banks control the money supply and interest rates. Central banking and commercial banking interests have essentially become fused.
The ECB's long-term refinancing operations are banking bailouts by the back door. Central banks are now also the swing players in government bond markets which directly influences the price for corporate credit. Central bank monetary stimulus also directly influences equity market direction and confidence.

Be careful, be very careful about the sort of government debt you hold. You may well end up being paid in whole- but in such depreciated terms that being "kept whole" will be meaningless in real terms.

In all other respects, our investment choices remain what they have always been: high quality, high yielding defensive equities; uncorrelated systematic trend-following funds; gold, silver, and gold and silver mining companies.

There will come a point, and it may admittedly be some time in coming, when a major government bond market goes bang. Perhaps Japan, some peripheral market in the euro zone, some core market in the euro zone, the UK, or even the US.

You will hear the echo throughout the world. We intend to be a very long way away when that time comes.

 


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Tue, 02/28/2012 - 13:18 | Link to Comment rickadoh
rickadoh's picture

FIRST! SILVER BITCHEZ!!!!!!!!!!!!

Tue, 02/28/2012 - 13:22 | Link to Comment Chuck Bone
Chuck Bone's picture

This article needs to be titled The Exponential Financial Problem of Our Time, because in reality that's what it's about.

Tue, 02/28/2012 - 13:23 | Link to Comment BW
BW's picture

The only question is who takes the losses.

Tue, 02/28/2012 - 13:30 | Link to Comment economics1996
economics1996's picture

Inflation/taxpayers/peasants.

 

"Ms Oswald's "protest" is part of a wider intellectual malaise that lazily conflates government spending with the real economy and which conveniently ignores the fact that without a flourishing private sector, there would be no government and certainly no government spending to speak of."

This guy gets it. 

Wed, 02/29/2012 - 02:03 | Link to Comment StychoKiller
StychoKiller's picture

Elvis Costello, "Less than Zero:"

Calling Mister Oswald with the swastika tattoo,
there is a vacancy waiting in the English voodoo,
carving "v" for vandal on the guilty boy's head.
When he's had enough of that maybe you'll take him to bed
to teach him he's alive before he wishes he was dead.

[Chorus:]
Turn up the TV. No one listening will suspect,
even your mother won't detect it,
no your father won't know.
they think that I've got no respect
but everything means less than zero.
Hey, ooh hey, hey, ooh hey.

Oswald and his sister are doing it again.
They've got the finest home movies that you have ever seen.
They've got a thousand variations: every service with a smile.
They're gonna take a little break, and they'll be back after a while.
well I hear that South America is coming into style.

[Chorus]

A pistol was still smoking, a man lay on the floor.
Mister Oswald said he had an understanding with the law.
He said he heard about a couple living in the USA.
He said they traded in their baby for a Chevrolet.
Let's talk about the future now we've put the past away.

[Chorus]

 

Tue, 02/28/2012 - 13:42 | Link to Comment Don Birnam
Don Birnam's picture

The existential reality is that PCLN is up $43 today. 

Debt...default...reissuance...recycle in the equity market.

Austerity is dead. Everything is deemed bullish. Buy it all. If it has a ticker, it is fair game.

Tue, 02/28/2012 - 13:23 | Link to Comment economics1996
Tue, 02/28/2012 - 13:33 | Link to Comment economics1996
economics1996's picture

"For the USA, for example, 1 unit of debt generated 0.63 units of GDP between 1953 and 1984; that same 1 unit of debt generated 0.24 units of GDP between 1985 and 2000; since 2000, 1 unit of debt has generated just 0.08 units of GDP."

In the 50s federal, state, and local government cosnsumed 26% of the GDP.  That has increased to 45% today.  For every 10% of government growth the economy loses 0.5% to 1% of GDP growth.  The GDP equation should be re-writen as Y = C+I-G+lNXl

 http://usa-wethepeople.com/2011/02/y-c-i-g-nx-and-the-gdp-bull-crap-numbers/

Tue, 02/28/2012 - 13:35 | Link to Comment gwar5
gwar5's picture

Over $37.  James Turk says only couple of months to new highs and $60 after the $36.50 threshold. We'll see.

Thu, 06/21/2012 - 08:42 | Link to Comment aaliyah
Tue, 02/28/2012 - 13:18 | Link to Comment Ray1968
Ray1968's picture

Good day for gold and silver. Cue the margin hikes.

Tue, 02/28/2012 - 13:18 | Link to Comment LawsofPhysics
LawsofPhysics's picture

"There will come a point, and it may admittedly be some time in coming, when a major government bond market goes bang. Perhaps Japan, some peripheral market in the euro zone, some core market in the euro zone, the UK, or even the US."

 

Unfortunately, the system is intentionally set up so that everyone on the grid has a vested interest in making sure that does not happen.  How can a man understand something when his very existence depends on him not understanding it.

Tue, 02/28/2012 - 13:21 | Link to Comment donsluck
donsluck's picture

Sorry, but physics does not require belief to exist.

Tue, 02/28/2012 - 13:29 | Link to Comment LawsofPhysics
LawsofPhysics's picture

No shit, so when it does go "bang", it will be completely unforeseen.  LOL, the longer the animal spirits are suppressed, the greater the wrath when reality re-enforces itself.   Hedge accordingly.

Tue, 02/28/2012 - 13:33 | Link to Comment LowProfile
LowProfile's picture

whodanodewhodanodewhodanodewhodanodewhodanodewhodanodewhodanodewhodanodewhodanodewhodanodewhodanodewhodanodewhodanode....

Tue, 02/28/2012 - 14:26 | Link to Comment Chicken_Little
Chicken_Little's picture

I don't normally reply to messages except about silver. Watch this link and crank up the speakers with the music. Time to take a deep breath and watch this utube video.

http://www.youtube.com/watch?v=kJoMDq4AyLc

:)

 

Tue, 02/28/2012 - 13:20 | Link to Comment donsluck
donsluck's picture

Um, which world does the author intend to be on?

Tue, 02/28/2012 - 13:49 | Link to Comment DogSlime
DogSlime's picture

Maybe he'll hide up his own arse?

Tue, 02/28/2012 - 13:23 | Link to Comment Scotch-n-Soda
Scotch-n-Soda's picture

I am shorting Fish and Chips.  Going long Benny Hill.

Tue, 02/28/2012 - 13:25 | Link to Comment Alcoholic Nativ...
Alcoholic Native American's picture

Tax revenues are quaint relics.  Government spending is simply too big to fail. 

Tue, 02/28/2012 - 13:30 | Link to Comment newworldorder
newworldorder's picture

OK - Most ZH readers "get it." 

The question is, beyond making our individual plans for the future - How is the system forced to change. Most individuals are clueless and uninformed, the MSM willfully rejects the truth and governments and central bankers do what they want. There are few checks and balances left as the "free market mechanisms" have been captured by the debt based fusion of governments, central banking and TBTF mega banks.

Tue, 02/28/2012 - 13:51 | Link to Comment Dr. Engali
Dr. Engali's picture

The forced change will happen when the petrodollar collapses. My guess is that is coming sooner than expected because sooner or later the oil producing countries are going to be sick of Ben devaluing the currency.

Tue, 02/28/2012 - 13:33 | Link to Comment EmileLargo
EmileLargo's picture

Which country goes bankrupt first: (1) the UK; (2) Japan; or (3) the US? My money is on (2) but could well be (1).

Tue, 02/28/2012 - 13:43 | Link to Comment LowProfile
LowProfile's picture

Japan, then the UK and then quickly everybody else.

Tue, 02/28/2012 - 13:43 | Link to Comment death_to_fed_tyranny
death_to_fed_tyranny's picture

The United States Corporation has been bankrupt since its inception.

Tue, 02/28/2012 - 13:45 | Link to Comment LawsofPhysics
LawsofPhysics's picture

There you go. As was done before, the "owners" will simply replace the existing "tenants" with new ones by any means necessary.

Tue, 02/28/2012 - 13:49 | Link to Comment DogSlime
DogSlime's picture

The progression from one to the next will most likely be so rapid that it doesn't matter who is first.

Tue, 02/28/2012 - 13:35 | Link to Comment zanez
zanez's picture

How about alternatives to traditional investing avenues? A co-op of sorts selling shares, well-enforced rules, investing in local / regional businesses, farmland, etc. Just thoughts running through my head.

Tue, 02/28/2012 - 14:27 | Link to Comment ATM
ATM's picture

Sounds like the crime of selling unregistered securities. TPTB cannot let you set up a system outside their control.

Tue, 02/28/2012 - 15:06 | Link to Comment zanez
zanez's picture

Shares of a privately owned holding company? 

Tue, 02/28/2012 - 13:39 | Link to Comment AnAnonymous
AnAnonymous's picture

Ms Oswald's "protest" is part of a wider intellectual malaise that lazily conflates government spending with the real economy and which conveniently ignores the fact that without a flourishing private sector, there would be no government and certainly no government spending to speak of.

It is part of that lazy thinking that inspires journalists to keep speaking of "the government" spending money on this or that, as if "the government" were somehow sitting on an infinitely large pile of "government money" that most of the time it was unreasonably withholding from worthy causes.
__________________________________________________

Made me laugh.

Ah, funny US citizens.

One could wonder how lazy it is to bypass the fact that governments were private for millenia.

How many examples of absence of governments when there was no flourishing private sector?

Best, when the government is or what private, what does it mean when the government went bankrupt, was the private sector flourishing even though the government was bankrupted?

Usual US citizen drivel, usual US citizen demand to bow down to their relentless accumulation of non sense.

Is it possible to make sense when you use US citizenism as a contextual framework?

Tue, 02/28/2012 - 13:49 | Link to Comment Schmuck Raker
Schmuck Raker's picture

"Is it possible to make sense when you use US citizenism as a contextual framework?"

Oh, the irony.

Tue, 02/28/2012 - 14:31 | Link to Comment AnAnonymous
AnAnonymous's picture

What irony?

Dont try to sell the cheap propaganda that people pointing at the lacks of US citizenism are the ones not making sense. It is too cheap.

Save kicking the can, blaming the finger pointing or anything, US citizens are unable to stand their ground based on US citizenism.

The piece is the usual: a US citizen preaching US citizenish propaganda with the aim of congregating like minded people around him.

Bits like:

(private patronage being what you might call "traditional" in the arts).

calls for submission.

This US citizen author refers to:
-the tradition
-and that the government should not subsidize the arts

It requires to skip all the private patrons who were the government in times when the government was private.

Id est, a long list of kings, the Medicis, the rest...

Stupid as stupid, can only be accepted by people who are not interested in facts but in ganging around lies.

Tue, 02/28/2012 - 14:26 | Link to Comment ebworthen
ebworthen's picture

And your point is?

Tue, 02/28/2012 - 14:35 | Link to Comment AnAnonymous
AnAnonymous's picture

The point is that the article is devoid of any value but US citizen cheap propaganda.

Supposedly, it should not be the part of the government to subdsidize arts, a private patron should do according to tradition.

Issue: the tradition was established when the government was private and the patrons were eminent members of the government.

When somebody asks you to believe a lie while giving it away explicitly as a lie, it is a call for submission.

This guy: "I lie, I'm telling you that I lie, I want you to tell me you believe my lie"

US citizenism is all about submission, submission.

Wed, 02/29/2012 - 02:08 | Link to Comment StychoKiller
StychoKiller's picture

US citizenism is all about submission, submission.

Hmm, so we can count on you to bring yer rifle and defend the wallz?

Tue, 02/28/2012 - 13:40 | Link to Comment keri
keri's picture

question is other players vs USD master money ... probably thinking wtf are you up to guys...

Tue, 02/28/2012 - 13:58 | Link to Comment ebworthen
ebworthen's picture

"But wait, CNBC has a new set on the floor of the NYSE!?!?

Unicorns, rainbows, and skittles!  That's all I want to see!

My eyes!  My eyes!  Cover the charts, they burn my eyes!

It's 1983!  It's 1983!

Click your heels three times!"

Tue, 02/28/2012 - 14:01 | Link to Comment stiler
stiler's picture

I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happens to them all. For man also knoweth not his time; as the fishes that are taken in an evil net, and as the birds that are caught in the snare; so are the sons of men snared in an evil time, when it falls suddenly upon them. ~ King Solomon

But of the times and the seasons... you know perfectly that the Day of the Lord so comes as a thief in the night. For when they will say, peace and safety, sudden destruction comes upon them, as labor upon a pregnant woman; and they will not escape. ~ Apostle Paul

Tue, 02/28/2012 - 14:03 | Link to Comment Chupacabra-322
Chupacabra-322's picture

In this video, Lord James of Blackheath, addresses the House of Lords, and reveals a document that shows proof that a Fraud was committed to the tune of 15 trillion in collusion with Alan Greenspan, and Timothy Geithner, of the Federal Reserve, and United States Treasury Secretary respectively, with Geithner in a duo role as an agent for the IMF and a Secretary for the Treasury of the United States respectively, while Greenspan acts in tandem as an agent for the Federal Reserve and the IMF in the same document.

Listen to the video, as it may end up being removed from its source provider as it goes viral.

Also, wanna know who the richest man in the world is... The truth is revealed in the video.

http://www.youtube.com/watch?v=eL5hqvTWkYg&feature=player_embedded

Most people are not aware of it, but when the IMF, and the World Bank received their charters from the United Nations in 1945, to do business on the world stage, that they were immediately appointed by the United Nations International Bankruptcy Court, to be the "receivers" to the the bankrupt "United States Corporation" which had began another 70 year cycle of "International Bankruptcy" in 1929 after the historical "Stock Market Crash"... The "New Deal" implemented by FDR shortly after that was the "renegotiation" and "restructuring" of that bankruptcy, whereby all gold in circulation was confiscated and turned over to our creditors, and the "Legal Tender" laws were changed to eliminate the use of gold and silver as the constitutionally authorized negotiable instruments for paying "all debts, public and private", and to usher in the use of the Federal Reserve debt notes that we use today, which is the property of our creditors, to be used in compliance with those bankruptcy proceedings as the negotiable instruments for paying all debts public and private, until our debts are paid in full in compliance with our bankruptcy.

Until 1945, our "creditors", the "Commonwealth of England" who's agents at the time were the "Bank of England", and the "Bank of International Settlements", were acting and interacting directly with the Treasury Secretary of the United States and the Federal Reserve to resolve all debt issues with regard to taking possession of "all properties and assets" of the "debtor", the "United States Corporation"... The challenge was, how do you take possession of something that you know will cause a full scale war between the "creditor" and the "debtor"... The answer, you separate and distance yourself as the "creditor" by appointing "receivers" in the bankruptcy process who are responsible as "independent bodies" to see to it that the "debtor" complies with "scheduled liquidations" of those same "properties and assets" over the 70 year cycle until the "debt" is paid in full... with this process, you give the "debtor" a change to redeem his honor, and liberate himself from his indebtedness without risking all out war for attempting to seize "all properties and assets" from the "debtor".

The slight of hand that was deployed in all this is that the World Bank, and the IMF, are "Satellite Corporations" of the Bank of England, and the Bank of International Settlements respectively, and they are acting in conflict of interest of International Law by pretending to appoint "independent bodies" who supposedly have "no skin in the game" and who will supposedly do things in the best interest of both parties... As a result, we all have come to know now, that we have been sacked by these rat bastards by the endless game of "perpetual indebtedness" in order to secure for themselves an infinite "gravy train" of wealth and enrichment on the backs of a people who are to ignorant to figure out that they've been had.

It's a sad state of affairs for us, but don't flip out and go postal... This is where the mission of Oath Keepers is so important and critical in buying time for everyone in convincing our first responder community to "stand down" and not become a tool for the criminal element of our Government in suppressing and oppressing the Citizenry, who are so desperately trying to unravel this whole thing through exposure and situational awareness of the crimes committed against the American populous by the criminal element in our government that are acting on behalf of their handlers to continue the masquerade, and even entrench us further in the attempt to perfect their claim to a security interest in the resources of generations of Americans to come.

There is still hope, and we can still turn this ship about folks!

Tue, 02/28/2012 - 14:08 | Link to Comment lasvegaspersona
lasvegaspersona's picture

just Keep On rockin In The Free World !! ??

If it is true:

" Private investors, we suspect, have little or no conception of the extent to which the state is now the predominant player in the financial markets."

 

then they never will

We shall have to proceed without them.

Tue, 02/28/2012 - 14:26 | Link to Comment besnook
besnook's picture

more taxpayers is the answer. we need more tax payers. there needs to be a plan to import as many south americans, chinese and indians as possible into europe and the usa or massive capacity destruction to facillitate a reset.

Tue, 02/28/2012 - 14:46 | Link to Comment Chicken_Little
Chicken_Little's picture

Next best thing is to watch this link if you're interested in aviation:

http://growingbolder.com/media/sports/extreme/celebrating-50-years-of-sk...

The Chicken was one of the 50 and I made my slot all 11 jumps. I was the least experienced jumper by thousands of jumps and I was terrified on the first one.
By #11, it was easy and it happened.

Tue, 02/28/2012 - 15:01 | Link to Comment keri
keri's picture

Aupa Lord James of Blackheath! i agree we can turn this ship about...any suggestions??

Tue, 02/28/2012 - 15:19 | Link to Comment mind_imminst
mind_imminst's picture

It is an interesting dynamic that is developing. Information about inflation, debt, and tyrannical government machinations is becoming more widespread. The force of transparency is not slowing down. Governments, central banks, money center banks, and huge multinationals, will find it increasingly difficult to fleece the general public and taxpayers. I tend to think more and more of the moves by the elite bureaucrats and technocrats will be checked by open sources of information. When you see massive money-printing developing, you will know better how to protect your wealth, than, let us say, 100 years ago. The moves will be fast. I don't think it is fait acompli that the elite bureaucrats and bankers will be able to continue the charade. As each year passes, their "solutions" (to keep themselves wealthy and screw everyone else) become less and less effective and resentment grows.

Tue, 02/28/2012 - 16:23 | Link to Comment steve from virginia
steve from virginia's picture

 

I hate to break it to you Mr. Dude from Sovereign Man that there is no such thing as a 'productive economy'. It's a lie that exists to justify the issuance of that debt you hate so much.

How do you think worthless, thieving jackasses like Bill Gates, Steve Jobs and Warren Buffett get rich overnight? Become billionaires? Because they sell widgets Made in China?

No They borrow the money and stuff it in their pockets, they borrow their fortunes and leave it for others (you) to repay with interest.

Government debt is the means by which finance debt is serviced (and ultimately retired) by others. Gvernments don't die, they outlive their petit creditors.

Enough with the productive economy propaganda. Otherwise you must give ONE EXAMPLE of ANY industrial enterprise paying its own way out of earnings, not out of the credit of its own labor, out of the credit of its competitors, out of the credit of the state or out of the credit of neighboring states by way of foreign excnage.

You cannot because such a thing has never happened.

There are as a consequence hundreds of trillion$ of dollar debt taken on PLUS a quadrillion of dollar derivatives a form of debt all this as a subsidy for MONSTROUS enterprises that never should have been allowed to form in the first place.

Now all the pipers need to be paid, the debt piper, the resource piper, the climate piper who is really going to kick the human race's ass ...

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