By --dhc-- on 11-07-08

Somehow, “We told you so” just doesn’t do this justice.

I mean, how could anyone have predicted that given carte blanche, the treasury secretary would do things other than exactly what congress intended? That’s just crazy.

By STUPID ANTISEMETIC REDNECK WANNABEES on 11-08-08

“The Jews are draining the USA kitty”

WHAT?  WHAT?  WHAT?

Listen a-hole.  If I ever meet you in person, I’ll let you know HOW THE JEWS WILL BEAT YOUR PIMPLY WHITE ASS.

NEVER AGAIN!

By mt don on 11-08-08

Where did all the racists and hate mongers come from.? Memo to the republicans.  Obama is not President yet!  It is still the Bush Administration giving away the future of our country. i’m sure he’ll steal the lights and carpets on the way out also.  Did you right wing loonies know that 70 billion of the 700 billion has already been paid out as bonuses?!! A huge chunk is going to buying up competitors, and the rest of the money the bailout firms are sitting on and not loaning out.  Now that all the big firms see the money is simply a give away they are all going to line up.  Insurance companies, car companies, energy companies…..etc etc etc -  the great fleecing of America by republican crooks!!!!!!

By In the wise words of Fekete: on 11-08-08

economy, were in solid agreement on their categorical rejection of
metallic monetary standards, that is to say, money based on positive
rather than negative values. Our present monetary system, universally
acclaimed by academia and media as the ‘wave of the future’, is based
on negative values: the value of debt. Keynes and Friedman both have
put the blame for the Great Depression on the “contractionist
propensities” of the gold standard. And that is all that’s being taught at
virtually all universities around the globe about the causes of the Great
Depression.
The proposition is put under official taboo that there is no valid
defense for giving the Fed and the Treasury the privilege to issue
promises to pay which they are neither willing nor able to honor
(except insofar as they honor them as part of their the check-kiting
conspiracy).
Bonds minus gold equals interest rates halved again and again
My revisionist thesis is simple: the truth is the exact opposite of the
officially upheld economic doctrine. The cause of the Great
Depression was the forcible removal of gold from the international
monetary system, including the suspension of the gold standard by
Great Britain in 1931, and the confiscation of the gold coins of the
citizens of the United States in 1933.
To see this clearly we have to contemplate the main role played
by gold in the monetary system which is this: gold is the only asset
that can successfully compete with government bonds for the savings
of people with a conservative frame of mind. As long as gold is
available as an alternative to bonds, the public purse is controlled by
the people. If they don’t like government profligacy, they can sell
their bonds and stay invested in gold. This is the only message that
those in power would read or understand: the rise in the cost of
borrowing by the government. The rate of interest goes up. The red
lights in the corridors of power start flashing.
Confiscation of gold means cutting the wire to those red lights. It
means the removal of the only effective competition of government
bonds, gold coins. In the absence of gold government bonds have a
captive market. They enjoy a monopoly. The government can afford
to ignore all criticism of its monetary and fiscal policies. It can do
with the public purse as it pleases. Conservative bondholders no
longer have a choice: they have to buy and hold the bond. The public
purse is no longer controlled by the people. The government can cause
the public debt to go to any high level. The government can cause the
cost of its own borrowing to fall to any low level. In formula: bonds
minus gold equals interest rates halved, and halved, and halved; again,
and again, and again:
B – G = (½)np
Keynesians butt in: “Hey, wait a minute, that’s just it. Isn’t this a good
thing to have? Isn’t it a wonderful thing to turn the stone into bread; to
abolish scarcity, by making capital abundant through a low interestrate
policy?”
Confusing a low with a falling rate of interest
Nobody denies that a low interest-rate structure, brought about by a
high rate of voluntary savings, is a great blessing to society. What we
face here is a fatal confusion of low with falling interest rates. If the
fall is prolonged, then the net effect on the economy is lethal, as it
causes the destruction of capital which, unless checked in time, could
bring the entire economy to a screeching halt.
Capital destruction is a subtle process which even the victims
themselves are unable to diagnose. The suggestion that pari passu
with falling interest rates the market price of bonds rises is
uncontroversial. It is an undeniable fact of the markets. It follows that
as interest rates keep falling, bond speculators reap constant capital
gains, a reward not for saving but for gambling. Their gains do not
come out of nowhere. They are siphoned off from the capital accounts
of the producers. Entrepreneurs are unsuspecting. They don’t know
what has hit them when they find their enterprise denuded of capital.
The last thing they suspect is falling interest rates which they
welcome, like everybody else, as a relief. Whatever it is, relief it is
not. It is the kiss of death.
Liquidation value of bonded debt
To see the causal relation clearly, let us go through the process of
capital destruction step-by-step. As the name suggests, “liquidation
value” is the lump sum it takes to liquidate debt, should it be
necessary to retire it before maturity ― for example, in case of
mergers, acquisitions, takeovers, shotgun marriages, not to mention
nationalization. The point is that as the rate of interest falls, the
liquidation value of debt rises. Rise it must, because the stream of
interest payments, originally set when interest rates were higher, is
now being capitalized at a lower rate. Since it represents a lower
value, it falls short of liquidating the debt.
For example, when I repatriated to Hungary and sold my house
with a mortgage in Canada, the bank would not accept the balance
remaining in settlement. It insisted on my paying a ‘penalty’ arguing
that the prevailing rate of interest was now lower, and the liquidation
value of my mortgage higher. In other words, I suffered a capital loss
on account of falling interest rates.
Here is another example. When the rate of interest falls, the
market immediately bids up the price of bonds. The higher bond price
represents the higher liquidation value of the underlying debt.
Creditors will not let debtors off the hook, unless they can take an
extra pound of flesh for their consideration. If this is deemed unjust,
then complaints should be lodged with the gods, who ordained that
man be mortal. As is well-known, for immortal gods a future stream
of payments need not be discounted, and full credit is given for each
and every installment. On Mount Olympus, the rate of interest is zero.
Unfortunately, however, man is not immortal. For him, the rate
of interest is positive. It is for this reason that falling interest rates, far
from alleviating the burden of debt, aggravate it.
Open market operations of the Fed
The grand scheme to make interest rates fall artificially started by the
Fed’s breaking the law in the 1920’s. Open market operations were
introduced clandestinely as a way to inject new money into the
economy. The Fed was to enter the open market to buy government
bonds, paying for them with newly created dollars.
It is important to understand that open market operations are
illegal. They were not authorized under the Federal Reserve Act of
1913. In fact, the Act specifically stated that government bonds were
ineligible for the purposes of collateral in backing Federal Reserve
notes and deposits. Eligible collateral was confined to gold and real
bills. Open market operation were ‘legalized’ ex post facto only later,
in the 1930’s, and the practice went on to become the chief engine of
inflation through the monetization of government debt on a massive
scale. It should be noted that retroactive laws are not recognized by
the U.S. Constitution.
Open market operations, apart from being illegal, are no less a
hare-brained scheme. Authors responsible for developing this illegal
practice have been ignorant of its effect on speculation, and the effect
of the resulting speculation on the rate of interest. Bond speculators
are very much alive to the Fed’s need to make periodic trips to the
open market to buy the bonds. They lie in ambush to preempt it. They
buy the bonds first, only to dump them in the lap of the Fed at a profit
later. In effect, bond speculators get a free ride at public expense.
They pocket risk free profits. The entire playing field of the national
economy becomes tilted, favoring parasites and penalizing producers.
This is the fatal flaw in the Keynesian edifice: the chrysophobic
(anti-gold) monetary system has a built-in instability manifested by
the unopposed bull speculation in the bond market. The net result is an
interest-rate structure that is persistently drifting lower. Keynesians
pretend that their idol has made a discovery in justifying deficit
spending made possible through open market operations, thus
benefiting mankind. But as my analysis shows, the goodies distributed
by Keynesian economics are not costless. They come at the expense of
society’s accumulated capital. Capital dissipation is masked by the
euphoria of free lunch and pork. The damage to society dawns on the
people later. By then it is too late to stop the rot. Irreparable damage
has been done. The capital of society has been destroyed. Everybody
is made to suffer because of Keynesian profligacy, justified under
false pretenses.
The banking panic of the 1930’s
The Great Depression was not caused by the vanishing of demand, as
suggested by Keynes. It was caused by the vanishing of capital. Nor
was the destruction of capital confined to the producing sector. It
affected the financial sector as well. From 1930 to 1933 more than
nine thousand banks closed their doors for good in the United States.
Depositors and shareholders lost about $2.5 billion. As a share of the
economy, that would be the equivalent of $340 billion today.
Economic historians give credit to Franklin Delano Roosevelt
for meeting the banking crisis head-on. Only a few days after he was
inaugurated as president in March, 1933, he declared a bank holiday
and ordered all the people under the jurisdiction of the United States
to surrender their gold coins. Although Roosevelt promised to return
the gold after the banking crisis has subsided, this promise was
apparently made in bad faith. No sooner had he confiscated the gold
than he marked up its value, leaving people with paper worth 56
percent less. This neat piece of presidential chicanery was called
“devaluation of the dollar in the national interest.”
Old Coppernose
Yet it was plain stealing, nothing less, as the great blind senator from
Oklahoma, Thomas P. Gore, had told the president in his face in the
Oval Office. Senator Gore, moreover, in a debate on the Senate floor,
also said this: “Henry VIII approached total depravity as nearly as
imperfections of human nature would allow. But the vilest thing that
Henry ever did was to debase the coin of the realm!” Old Coppernose,
as he was nicknamed, did not confiscate the people’s gold coins. He
merely diluted them. When the gold wash wore thin, the effigy of
Henry on the coin revealed a copper nose underneath. People suffered
a loss as a result of this royal chicanery, to be sure, but at least they
could keep their coin and have a good laugh at the expense of their
sovereign.
Keynesian chrysophobes were jubilant. Roosevelt was their hero.
They celebrated the advent of synthetic money and credit, laying great
stores on the ‘rational’ management of the national currency. The
money supply was expanded and deflation halted. At least so the fable
said. In reality, Roosevelt was pouring oil on the fire. Capital
destruction got a new boost. As I have already explained, interest rates
continued their free-fall as the only competitor to government bonds,
gold, had been eliminated. Keynesian economists got the fallen god,
the gold standard, to kick around. No one thought that the fallen god
could, phoenix-like, rise from its ashes in the fullness of times and
have retribution.
Ominous parallels
It is hard to avoid seeing parallels to the current situation. Interest
rates have been falling for 28 years from 16 percent in 1980 to 4
percent today. Capital destruction has taken a great toll on the
producing sector, causing a large part of American industry fold tent
and seek salvation overseas where wage rates are lower. As far as the
financial sector is concerned, up until recently it appeared that the
banks have escaped the death-trap of capital destruction. Well, we
now know that they have not. Banking capital, just like industrial
capital, has also been destroyed by the relentless fall of interest rates.
Banks no longer trust one other’s promises to pay, because they
suspect that their counter-party has no capital backing those promises.
Banks are walking dead men, artificially propped up by the Fed and
the Treasury, anxious to avoid the blame for inaction that ushered in
the Great Depression in 1930. They are working hard to keep credit
flowing. But the financial situation they face is incomparably more
difficult than that of the 1930’s. This is not an illiquidity crisis. This is
a solvency crisis. It is due to an insidious destruction of capital.
The Fed and the Treasury are trying to recapitalize the banks by
infusion of new capital in the form of freshly created Federal Reserve
credit. Incidentally, the Fed is just one of the walking dead men. It
does not have the collateral necessary to create new credit to the tune
of $700 billion. The Treasury has to donate the Fed the bonds directly.
The last time this imprudent departure from the principles of sound
central banking has been invoked was during World War II, when the
exigencies of war finance were used to justify the bypassing of the
open market. The vexing question is whether irredeemable promises
by the Fed and the Treasury are sufficient to jump-start banking in the
United States.
There are no contingency plans for the mobilization of gold
reserves to recapitalize the banks. Gold is the ultimate liquidator of
debt, toxic and non-toxic. Why not use the ultimate liquidator, if we
really mean business in eliminating toxic debt from the system, and if
we really want to proceed with the task of deleverage to shrink the
bloated balance sheets of banks? Well, the ideological obstacles are
insurmountable.
Sword of Damocles
But the real difference between now and the 1930’s is the incredible
deterioration in the credit of the United States, which makes the
present situation far more dangerous. The international credit of the
United States in the 1930’s was very strong. You were looking at the
greatest creditor country in history. Today, four score years later, you
are looking at the greatest debtor country in history, in need to borrow
abroad to pay interest on its outstanding debt, in addition to borrowing
in order to maintain consumption patterns. A large part of the debt is
held by foreigners, not under the jurisdiction of the United States, and
certainly not subject to its taxing power. This is the sword of
Damocles hanging on a thin thread. At the drop of the hat sources of
foreign credits could run dry. Nobody knows what will happen then.
Yet the dollar is not in immediate danger. Superficially it is
strong and getting stronger. Treasury bonds are in great demand as the
“flight to safety” continues. For a couple of years, maybe a little
longer, the dollar will hang on “by the skin of its teeth”.
But the writing is on the wall: the strong dollar will be beaten
down by the U.S. government in the course of the trade war, to revive
American exports. In addition, the bill for the unprecedented bailouts
will come in soon enough. The government deficit will reach
stratospheric heights. When the critical mass is reached and the
threshold of tolerance in total indebtedness is surpassed, the run on the
dollar will become inevitable. In the meantime, serious challenges to
the hegemony of the dollar may be presented from friends and foes
alike. This is an explosive situation. We are on uncharted waters,
aboard a rudderless ship.
Worst of all, we lack leadership. Those in charge of our
monetary and fiscal system are dyed-in-the-wool Keynesians and
Friedmanites. They have grown up on Keynesian and Friedmanite
bunk no longer applicable in the 21st century. They were caught
completely by surprise by the fast unfolding of events. They do not
understand what is happening to this country, let alone the world, nor
do they have any idea how further damage can be prevented. The only
trade they know is to cut interest rates; to print more money, rain or
shine, and airdrop it from helicopters indiscriminately. Their compass,
economic forecasting, the pride of mainstream economics, has turned
out to be tea-leaf reading. The only people who predicted this
maelstrom were non-conformist economists beyond the pale. They
will not be allowed to kick in the ball.
The outlook is bleak indeed. Keynesians and Friedmanites will
continue at the helm. Their faulty perception will prompt them to
throw even more bad money after bad money. They will beat down
the ‘strong’ dollar. There will be competitive depreciation of
currencies world-wide, an echo of the trade wars and beggar-thyneighbor
policies of the 1930’s. At the end of the road lie the ruination
of the world’s monetary and payment system, economic cooperation,
and division of labor.
The ”blame-it-on-the-gold-standard game” is over
We have been told that deflations, depressions, bank runs, massive
unemployment, wholesale bankruptcies can only happen under the
gold standard. In a modern, government-managed economy, equipped
with scientific money-creating techniques, bolstered by the fine-tuning
management of demand, these ills of society have been relegated to
the history books.
A few months of the year 2008 exploded the myths nurtured for
much of the twentieth century. The stark reality is that we have not
conquered scarcity with interest-rate suppressing techniques. We have
not succeeded fine-tuning the national economy with monetary and
fiscal policy. We have not learned how to combine high wages with
high employment. We cannot turn the stone into bread. We have only
been tinkering at the edges, pretending that we can ladle out riches to
all comers by government fiat.
This is not a subprime crisis. This is not a real estate crisis. This
is not even a dollar crisis. This is a gold crisis. The gold standard was
sabotaged in 1933 when the U.S. government reneged on its domestic
gold obligations, and again in 1971 when it reneged on its
international gold obligations. The gold standard strikes back ― with
a lag measured not in years but in decades.
How naïve it was to believe that the gold standard could be
abused and exiled with impunity! How dense it was to think that under
the regime of irredeemable currency basic freedoms can be
maintained! How insane it was to embrace the notion of legal tender
as the ticket to a bright future!
Events of this fateful year 2008 have dumped Keynesian and
Friedmanite economics to the garbage heap of science, where Marxian
economics, astrology, alchemy, and many other discredited and
discarded theories, the names of which have by now faded from
memory, already rest.
The sooner the world leadership realizes this, the better.