Once a member of Ayn Rand’s inner circle, Nathaniel Branden has played a prominent role in spreading the ideas of Objectivism, including founding the Nathaniel Branden Institute. He is also a prominent psychotherapist and is well-known for his work establishing the self-esteem movement in psychology.
In this audio-only lecture from the 1979 Libertarian Party Presidential Nominating Convention, Nathaniel Branden talks about “how self-concept determines destiny” and shares his own thoughts on coming challenges to the libertarian movement. He also takes questions from the audience.
View full post on Libertarianism.org
What in the world is happening to America? Over the past couple of decades, the federal government has used just about every major national tragedy as an excuse to take even more liberty and freedom away from us. And without a doubt, the Boston Marathon bombing was a great national tragedy. I don’t think that any of us will forget the images that we have seen over the past week. All of those responsible for this attack should be exposed, hunted down, tried and punished. Unfortunately, what always seems to happen is that it is the American people that seem to get punished the most for these tragedies. Over the past couple of decades we have been told again and again that if we will just give up a little bit more freedom that the authorities will be able to keep us safe. But you know what? It is IMPOSSIBLE for them to keep us safe. There is no way in the world that the federal government can protect us from all of the bad guys in the world. We are a country that is absolutely teeming with “soft targets” – malls, churches, schools, concerts, sporting events, etc. No matter how much money we spend, there is no way that the federal government will ever be able to provide enough security for all of those soft targets. Even if our society morphed into something that resembled George Orwell’s “1984″, the government would still never be able to guarantee our safety. Unfortunately, in the aftermath of this attack there will inevitably be calls for “increased security” and “more anti-terror legislation”. The answer always seems to be to expand the emerging police state. But it is getting to the point where all of this “security” is becoming absolutely suffocating, and yet it doesn’t seem to be keeping us any safer. So where does all of this end? Are we going to completely throw out the entire U.S. Constitution in a desperate attempt to feel a little bit safer? Or are we going to choose to live our lives without fear no matter what others may try to do to us?
Benjamin Franklin once made the following statement…
“Those who would give up Essential Liberty to purchase a little Temporary Safety, deserve neither Liberty nor Safety.”
Sadly, the way that the American people have responded to national tragedies over the past couple of decades would have made our founding fathers greatly ashamed. The American people have been way too willing to give up liberty in exchange for the promise of safety.
We have been told that the terrorists hate us because of our liberties and freedoms. But we have also been told that in order to be “safe” from those terrorists we have got to give up those liberties and freedoms.
So who is really winning?
We seem to have forgotten some of the most basic lessons in life.
If you cower in fear when a bully comes after you, what is the bully going to do?
The bully is just going to keep coming after you because his actions are being rewarded.
Those that are trying to create fear love it when you become fearful. It is exactly what they want.
The appropriate response to a great national tragedy is to reject fear and to continue to boldly live our lives as if nobody could ever shake us.
But instead, the atmosphere of fear in America continues to grow.
And yes, there are common sense things that our government should be doing to keep bad guys away from us.
For example, the number one thing that the federal government should be doing is to secure the border. Every single day, thousands upon thousands of people that we don’t know anything about pour into this country. And yet the federal government has absolutely refused to secure our borders for decades.
Until the federal government secures our borders, they should not ask any of us to sacrifice a single ounce of liberty or freedom in the name of “national security”.
But even as the Obama administration treats our border security like a joke and continues to import huge numbers of people from radical areas of the Middle East, they continue to tell us that “domestic terror” is the next great threat that we are facing.
Many of our other politicians are buying into this philosophy as well. Senator Lindsey Graham says that the attack in Boston is a perfect example of “why the homeland is the battlefield“.
So if “the homeland is the battlefield”, then who is the enemy?
Well, a U.S. Army Reserve training presentation recently identified evangelical Christians as “religious extremists“, and since Barack Obama entered the White House there have been numerous government reports that have identified Christians, “constitutionalists”, patriots, anti-abortion activists, conspiracy theorists and gun owners as “potential terrorists”.
So where does all of this end?
Are the American people rapidly becoming the enemy?
Will we be constantly scared to death of one another?
Will the entire nation exist in a never ending environment of fear?
Will we eventually have the TSA and the Department of Homeland Security patrolling every mall, every church, every school, every concert and every sporting event?
Unfortunately, the bad guys will always be able to find a soft target, and there will be more terror attacks in the future no matter how much security we pour on. Once upon a time this nation was greatly blessed with peace and security, but now that hedge of protection is gone. The federal government could give the Department of Homeland Security trillions of dollars a year and it would not make much of a difference. We live in a world that is becoming increasingly unstable, and bad guys are going to do bad things.
Yes, there are some common sense things that we can do to make our nation more secure. At this point, the federal government is not doing most of those things.
But no matter how hard we try, bad things are going to happen. When those bad things happen, what we can control is how we respond to them.
That is why what just happened in Boston is so alarming. The entire city was put into a complete lockdown for nearly two days. It was a preview of what could happen nationwide if martial law was declared. It was an over the top display of force that clearly demonstrated to the rest of the world how incredibly frightened we are.
Some of the things we saw in Boston were absolutely disgraceful. For example, you can see video of an innocent Watertown family being ripped out of their home at gunpoint right here.
Do you know what this tells the rest of the world?
It tells them that terrorism works.
It tells them that one small incident is enough to send the entire nation into a full-blown panic attack.
You can see some more photos of martial law in Boston right here. Instead of making things better, this is just going to make the atmosphere of fear in this nation even worse.
And you know what? None of those heavily armed men even found the second suspect. He was actually found by a neighbor that had gone out to take a smoke.
Like most Americans, I absolutely hate terrorism in all the forms that it takes.
But we are not going to prevent future terrorism by treating the U.S. Constitution like a piece of trash. We have now shown the world that we are willing to throw out our most important constitutional rights the moment that a “threat” arises, and this is just going to encourage even more terrorism.
You see, those that engage in terrorism want attention and they want to create fear. When we give them attention and we allow them to create fear we give them exactly what they want.
Is there anyone out there that can defend what we just saw in Boston? I can’t imagine any American that still loves the Constitution being proud of what just happened. I think that Karl Denninger put it quite eloquently the other day…
By effectively occupying a part of the Boston metro area they made an utter mockery of the 4th Amendment. There was no “hot pursuit” and thus no argument available to them allowing searches of private property without consent or a warrant. Not only did they search without a warrant there were multiple reports through the day of seizure of firearms, among other things.
Sadly, most Americans seem to be more than willing to disregard the U.S. Constitution these days. Most of them are incredibly scared and they just want someone in a position of authority to assure them that they will be safe.
So I am sure that in the months ahead we will see “security” get even tighter in this country. With each subsequent tragedy, it will just get tighter and tighter until we can barely even breathe.
This is not the answer to any of our problems. In fact, it is just going to make many of the problems that we are facing as a nation far worse.
View full post on The Economic Collapse
What happens if there is no clear US presidential election result?
03 November 2012
It happened as recently as 2000. Then a series of irregularities in Florida delayed the election of President Bush that only came after an intervention by the Supreme Court. Next Tuesday another incumbent president is is a very close race, might the same thing not happen again?
We can even imagine why. Superstorm Sandy has caused widespread disruption in the US East Coast and even the New York Marathon has been cancelled. Can an election really be held in these circumstances without the possibility of ballot issues arising?
The polls have showed a dead heat but we know that there can only be one president of the United States, so who will it be and when will that happen? Uncertainty over who is to run the most powerful nation in the world would be very bad for financial markets that always have to discount the worst until they know better.
Besides there is another particular reason to fear such instability at this juncture: the so-called US ‘fiscal cliff’ of automatic tax increases and expenditure cuts on January 1st. The general assumption has always been that a newly endorsed president and Congress would be able to stop this process, what if it goes ahead?
That is the statute at the moment, and if the political system is stuck in an impasse that is what will happen. Economists say it would mean a return to recesssion and up to four per cent off US GDP. Then again there are reasons why this has been enacted: balancing the budget is not such a strange idea.
However, without a clear result in the US presidential election next week financial markets will visit a place that they really would rather not go. How low could they go? You never can tell when fear and greed come fully into play.
Markets are close to four year highs, and arguably the higher you go the harder you fall. An across-the-board sell-off would bring the price of just about every asset class tumbling down and trigger a panic to get out at any price.
This is the financial market counterpoint to the superstorm that hit New York last week and could be every bit as scary. Let us hope democracy can deliver its verdict without this unexpected consequence next week.
Statistics: Posted by yoda — Sat Nov 03, 2012 12:49 pm
View full post on opinions.caduceusx.com
What Happens When The Core Starts To Rot
FRIDAY, OCTOBER 12, 2012
While we’re all watching Spain and Greece, their alleged saviors in the rich core of the eurozone are starting to show serious signs of corrosion. This makes all the hollow words and promises coming from the world of troikas and politics sound even emptier than they already did. Not that anyone in Holland or Germany seems to even be prepared to think their economies are in for a big fall; for them, all the bad stuff is temporary, and soon it will all be better. Our proverbial Martian might be tempted to think denial is a river in northern Europe.
To wit: after a slew of reports on the housing situation in Holland earlier this year, by the Dutch government’s Central Statistics Bureau, the Dutch Central Bank and the Central Plan Bureau (CPB) – got to love the name -, the real estate sector itself issued a paper today, which, despite the obvious bias, makes everything look worse. Again.
As I wrote in Those Dutch Tulips Ain’t Looking All That Rosy last month, home prices in Holland rose some 20% annually around the turn of the century/millennium, for a total of 228% from 1985-2007.
On August 21, the Wall Street Journal reported that
The slump in the Dutch housing market deepened in July as prices posted the steepest drop on record, highlighting the challenges facing the Netherlands ahead of next month’s general elections. With prices now plumbing levels last seen in 2004, the downturn is weighing heavily on household consumption and has raised concern about the country’s huge mortgage debt pile, among the largest in Europe
House prices fell 8% from a year earlier, statistics bureau CBS said Tuesday, the largest decline in the 17-year history of the agency’s house-price index. Prices fell 4.4% in June and 5.5% in May. [..] House prices have fallen about 15% since their peak in August 2008 amid a stagnant economy, more stringent bank-lending criteria and weak consumer sentiment.
Today, the NVM (Dutch Real Estate Brokers Association) announced that among its members (good for 86% of transactions), Q3 sales were down 17.2% (!) from Q2. Home prices fell 2.2% from that quarter, and 7.5% from Q3 2011. Average home prices are now down 21% compared with 2008, from €265,000 to €209,000. 700,000, or over 20%, of Dutch homeowners are now underwater. The NVM expects 100,000 homes to be sold in 2012, and labels this the "absolute bottom".
Still, in Q3 just 18.664 homes actually were sold, so this looks like just another case of false bottom calling. The NVM may not be as bad as the NAR, but the bias is the same. One difference may be that the former still expects the government to step in with subsidies and law changes to stimulate the anemic market, so it has less incentive to make things look better than they are; it walks a bit of a tight rope in that regard.
The Dutch government itself would love for the market and price levels to recuperate, since it’s on the hook for a major part of the potential losses through a national mortgage guarantee scheme. At the same time, it’s planning to counter the overwhelming subprime character the market has obtained through the past two decades (people could borrow 125% or so, over 50% of loans are interest-only, and even that interest is deductible).
Hence, the Dutch will be able to borrow less after January 1, and under less favorable conditions. That doesn’t add up to stimulus, but to even fewer sales. And that in turn adds up to even lower prices. Rinse and repeat. Still, peering through the reports, and the media coverage they get, one still doesn’t get any sense of alarm. Complacency dictates that the negative numbers are seen as a fleeting phenomenon, and everything will soon be alright again, the housing market as well as the economy as a whole.
But if you take that 228% price rise from 1985-2007, you find that this means a home that cost €100,000 in 1985 sold for €328,000 in 2007, lost about 21% since, and is still "worth" $260,000 today. General price levels (what many incorrectly call inflation) may have risen by 56%, but even when including that, you’re still roughly €100,000 off the mark. That is, unless you believe that things are going well and have just temporarily slid off the rails. The Amsterdam stock exchange is up 1% today in the face of this really bad housing report: what more do you need? The line between optimism and delusion is at least as thin as the one between love and hate.
Of course, Northern Europeans find support for their optimism in the fact that they don’t have the over 25% overall and over 50% youth unemployment that Greece and Spain have. Yet. But let’s remind ourselves that, as I wrote in the article quoted above, retail sales in Holland fell 11% in April alone (vs 9.7% in Spain). That’s serious stuff, the kind that costs jobs. And that’s not going to recover and get back to whatever people think is "normal", and then keep growing on giddily forever.
But it will take a while yet before this reality sinks in. These are people who’ve gotten used to taking 3-4 holidays per year on top of buying overpriced real estate with subprime-like mortgage loans. They’ve had it all and then some for over a decade, and that’s a hard addiction to shake. Optimism, illusion, delusion are much easier for now. Still, if you look at those numbers, and you add to them the fact that Holland is one of the rich core countries that has tens of billions of euros, and counting, at risk in the bailouts of southern Europe, PIIGS, Cyprus, Slovenia, it’s hard not to wonder where this is going.
And it’s not just Holland. Germany too is starting to show cracks. And how could it not? Both countries rely to a large extent for their economic success on exports, of which a substantial part stays in the eurozone. That was the whole idea, after all. With Greece, Spain, Italy, Portugal, Ireland et al in trouble, these exports can only go one way. The effects of this shrinking may be somewhat delayed in the richer countries, but of course they must be felt at some point. That is, unless other exports markets are found, conquered and developed, but that hasn’t happened.
One of the things hitting Germany is a pan-European phenomenon: the demise of the car industry. From Der Spiegel last week:
Germany Infected by European Automotive Plague
On Tuesday, the Federal Motor Transport Authority (KBA) announced that new car registrations in Germany were down some 11% in September against the same month last year.[..]
On Monday, France indicated that car registrations there dropped by 18% in September against the same month a year ago. In Italy, the drop was 25.7%, whereas Spain saw registrations plummet by a whopping 37%. Overall, the European Union has seen a 7.1% drop in new registrations over the first eight months of the year, with final numbers for September still pending.
[..] most of the industry agony has been felt by mass producers such as Fiat, Renault, Ford and Peugeot. Indeed, the latter two carmakers are on track to lose €1 billion each in Europe this year. Renault expects to sell 7 to 8% fewer cars in Europe this year than last, having suffered a 36% sales plunge in France in September. And Fiat factories in Italy are operating at just 50% capacity, according to Marchionne. [..]
Italian media is reporting on Tuesday that some 1.75 million bicycles were sold in the country in 2011. It was the first time ever that cycle sales exceeded that of automobiles.
This week, Der Spiegel even had this to say about GM’s main longtime subsidiary: The End Might Be Near for Opel. Sure, not all German carmakers are as down and out as Opel is. BMW, Audi, Mercedes can keep growing for a while longer in China, for example. And part of the whole thing is a natural selection type survival of the best and brightest. But the overall net effect of those plunging sales is very negative for the German economy. And the French. And eastern European, where the Czech Republic, Hungary, Romania, Slovakia rely on car factories for a substantial segment of their economies.
There’s a vicious circle somewhere in there that will draw down the core countries as well as the peripheral ones. But the periphery will be much faster in accepting and realizing that simple truth than the core will. Which means, it doesn’t get simpler than this, that the core will have no time to prepare; it’s all illusion all the way, until one day there’s a loud sucking sound.
Anything nations like Germany and Holland do these days seems to have a short term objective only. And that is not the sort of attitude that restores confidence in markets. The Germans, of course, know this, so we are left to conclude that confidence is not their primary goal. Here’s another future thorn in the northern European side, courtesy of Jeremy Warner:
Why Germany must face up to its €1 trillion headache
One of the most mind-boggling debates going on in euroland right now – only one of many, but particularly guaranteed to make the head spin, this one – is over the build-up of so-called “Target 2” claims and liabilities. Target 2 is the mechanism by which money is transferred around the euro area to ensure that each national central bank has sufficient euros to fund its banking system.
Accumulated cross border claims are now so extreme that they threaten to leave German taxpayers with huge losses should the euro break up, or if any one of its members leaves.
What makes this debate of particular importance is that it is German opposition to debt pooling in the eurozone that is generally thought, at least among the periphery nations, to be the biggest barrier to crisis resolution. If only the Germans would agree to treat Europe’s debts as one, rather than the separate responsibility of 17 different sovereign nations, then all this nastiness would go away.
Well, through Target 2, it can reasonably be argued, these debts are already being shared, only many Germans don’t yet know it and it certainly hasn’t cured the crisis. The euro has stuffed the Germans just as much as the Spanish, Italians and Greeks.
The economist who has done the most to raise the profile of this issue is Hans-Werner Sinn, head of the Munich-based Ifo Institute. Germany would lose the thick end of a €1 trillion, he has written, should Greece, Ireland, Portugal, Spain and Italy leave the euro, or around a quarter of GDP.
Now, the sums he refers to are only contingent liabilities that wouldn’t crystalise except in the event of default. It is, in any case, impossible to think Germany would get nothing back at all in the event of euro exits. If the euro holds together, moreover, the debate around Target 2 becomes somewhat irrelevant. The liabilities would never crystalise, so their relative size would only be of interest to monetary anoraks.
The longer these imbalances persist, however, and the bigger they grow, the more unstable the whole system becomes. So to argue, as some economists do, that they are unimportant is a bizarrely complacent way of looking at the problem.
All money systems are a version of Europe’s Target 2, which is merely an interbank payments system for cross border transactions. When contained within countries, nobody even bothers to think about the way the system works. It’s plainly not going to matter, for instance, if a big trade and capital imbalance develops between the north-east of England and the South East, if only because there is a unified banking and fiscal system to intermediate. If there is a sudden rush of deposits out of the North East to the South, it makes no difference to the banks involved; their net position in terms of assets and liabilities is unaffected.
Yet when these flows are between nations with different banking and fiscal systems, then there is potential for big trouble. Go back to the origins of the eurozone crisis and, in broad outline, this is what occurred.
Hey, at least it seems to make it easier to understand why Merkel says she would like to keep Greece in the eurozone. Even though the fear of a (domino of) credit event(s) as a result of a member leaving will always be in the number one spot. So what then are we to think when the IMF says European banks need to sell $4.5 trillion in assets? What assets will they sell? Who are supposed to be the buyers, and what discounts will they demand? What will then be left of these banks? What if another round of writedowns is necessary on Greek debt? What about writedowns on Spanish debt?
IMF Sees European Banks Facing $4.5 Trillion Sell-Off
The International Monetary Fund said European banks may need to sell as much as $4.5 trillion in assets through 2013 if policy makers fall short of pledges to stem the fiscal crisis. Failure to implement fiscal tightening or set up a single supervisory system in the timing agreed could force 58 European Union banks from UniCredit SpA (UCG) to Deutsche Bank AG (DBK) to shrink assets, the IMF wrote in its Global Financial Stability Report released today. That would hurt credit and crimp growth by 4 percentage points next year in Greece, Cyprus, Ireland, Italy, Portugal and Spain, Europe’s periphery. [..]
“There is definitely a need for deleveraging in Europe,” said Michael Seufert, an analyst at Norddeutsche Landesbank in Hanover, Germany, with a “negative” rating on the European banking sector. “The danger is that this produced a downward spiral as the regulation gets stricter and stricter and the global economy cools, potentially meaning more writedowns for banks. States in the periphery are hit hardest.”
In April, the IMF forecast asset sales of $3.8 trillion in a “weak policies scenario.” Since then, policy makers’ delay in taking decisions to solve the crisis worsened funding pressures while the relief provided by the ECB’s program of unlimited three-year loans faded.
Whether the core like it or not, the deleveraging continues. That means there will be less money to spend, and it also means more money will have to be spent on "saving" the banking industry, and the periphery. We’re on no road to no where.
You know, Merkel may go to Athens, and soon to Madrid, and anywhere else she wants, and the other "rich" core countries may pretend they’re wearing all the rich garments they want, but in the grand scheme of things it doesn’t really matter. Let them open their books, and if the numbers in the books look good, they may survive. If they refuse to open them, they won’t.
They’ll be fish in a barrel, in the exact same way that Greece and Spain are today. Market confidence in the latter will return only when all issues and problems are on the table, not when €100 billion left or right are handed over while the table stays empty. That just moves money from the public to the private sector. And that in turn weakens the public sector, which, of course, destroys confidence instead of strenghtening it. Things are not always what they seem.
We can live in illusions for a period of time, but those periods are always limited. All of Europe’s countries would do better to recognize their real predicaments, and prepare for their real futures. But that’s not the kind of platform that politicians get elected on, and so it will not happen. People will vote for those who feed their illusions, not those who tear them apart. Our proverbial Martian might say that is one of the perils of democracy.
Statistics: Posted by yoda — Sun Oct 14, 2012 12:33 am
View full post on opinions.caduceusx.com
What Happens When All the Money Vanishes Into Thin Air?
April 24, 2012
Issuing debt and printing money do not create wealth. All they can create is a temporary illusion of wealth.
I could have written "if all the money vanishes," but that would be misleading, for all unbacked money will most certainly vanish into thin air. The only question is when, not if. Frequent contributor Harun I. explains why:
Those who fail to understand that the Status Quo is impossible to maintain will be shocked when the disintegration is undeniable. But the whole thing was perverse to begin with. Words like capitalism and meritocracy are thrown around to make people feel good when, in reality, we have never owned anything, not even ourselves.
How can we own ourselves when the very thing we use for subsistence can be cheapened or reduced to nearly nothing, not by market forces, but by central banks acting at the behest of governments? When a person does not control his labor, what is he?
I have been studying the monetary history of the world for the past few weeks. I can tell you that the second oldest profession is currency debasement. Nothing is new.
Of course, this should be no surprise, everything is cyclical. Humankind is like the trader looking for the Holy Grail. There is no perfect monetary system, there is only better and worse. And this one ranks among the worst.
I wait patiently for people to come to the understanding that the only way for everyone to get their money would be to destroy its value completely, meaning that a loaf of bread would be a million dollars. If a small fraction of what has to be printed to keep the system afloat has caused the price spikes in energy and everything else, imagine what happens as the disintegration picks up speed.
As the exponential debt curve moves closer to the pure vertical, the rate at which debts come due will approach infinity. Of course, while this is the ultimate mathematical outcome, the reality is that the system will collapse before this point is reached. But don’t think governments will throw in the towel. If history holds true the rise of a totalitarian government is just over the horizon.
Then there are those who get it right and wrong in the same breath. John Mauldin, in a KWN interview, thanked Europe for keeping the heat off the US. Mr. Mauldin apparently does not understand that our monetary policies are transferring what we do not want to the rest of the world, at least for a time, but not much more.
How many more food items be made smaller and sold at the same price? In effect this is a slow starvation of those at the margin. The 46 million American souls on food stamps will soon find their food stamps to be worthless.
Those who assert that a credit system cannot go hyper-inflationary may not have thought through the exponential effects on the relationship of the debt and productivity curves within the context of all money is debt and the only way to create money is for debt to be created. Eventually the debt curve accelerates away from the productivity curve, then the productivity curve collapses all together. Sovereign debt crises caused by governments stepping in to keep the debt system going is the last stage. Then comes the debt/currency collapse.
Even if the Fed stopped printing money, I fail to see the difference between too much money that is worth nothing, and no money at all. It’s not going to matter to a starving man that a loaf of bread is $1 million and he is a dollar short, or if it’s $1 and he is a dollar short.
Thank you, Harun. Many observers have addressed the key concept here, which boils down to this: paper money is an abstract representation of the real world.
This can be explained by a simple example. If there is $100 in the money supply, and $100 of goods and services to trade, then $1 will be exchanged for $1 of goods and services. If the money supply suddenly increases by $100, then the value of the existing $100 declines by half, as the money supply is now $200 and the supply of goods and services remains unchanged. Thus it now takes $2 to buy what $1 once bought in goods and services.
Holders of the currency have had half the value of their currency (what we call purchasing power) stolen by the central bank that issued the additional $100 in money supply.
Here is the primary point: issuing debt and printing money do not create wealth. All they can create is a temporary illusion of wealth.
(This is drawn from Chapter One of Resistance, Revolution, Liberation: A Model for Positive Change (Kindle); you can read Chapter One for free.)
Here is another example. Let’s say that a small group is stranded on a desert island that supports a handful of coconut palms. Each palm produces a limited number of coconuts each season. To facilitate trade, the group issues a currency that represents one coconut. (Lacking a printing press, they have to laboriously carve out a pattern on a rock to imprint a difficult-to-counterfeit stamp on the currency.)
This system works well, as the currency issued matches the number of coconuts harvested annually (for simplicity’s sake, let’s say that’s 100). 100 pieces of currency are issued to match the 100 coconuts that exist in the real world. The currency (let’s call it the quatloo) is an abstract representation of the goods available, i.e. the coconuts.
But then a wise-guy (i.e. the "central banker" on the island) realizes that if he prints another 100 quatloos, he and his buddies can buy up all the coconuts and fish without having created any real goods in the real world: the abstraction is used to con people out of their real coconuts.
The residents quickly catch on, and the "price" of coconuts rises to 2 quatloos. The wise-guy is addicted to the scam, and so he prints 1,000 quatloos, and then issues quatloos in denominations of 1 million.
Soon enough, each coconut costs 1 million quatloos.
Creating debt and paper money does not create real goods and services or real wealth.
As Harun observed, we have been promised trillions of dollars that can supposedly be traded for trillions of dollars in real goods and services, and buyers of bonds have been promised trillions of dollars of the same artificial exchange of paper for real goods.
Just as on the desert island, the growth of actual goods in the real world lags the growth of money, i.e. abstract representations of real goods.
The U.S. Central State (Federal government) has borrowed and squandered $6 trillion over the past four years, and the actual production of goods and services has not risen at all when adjusted for inflation. The central bank (the Federal Reserve) has expanded its balance sheet by $2 trillion, and yet all the assets it have tried to force higher are actually lower when measured in real goods such as gold, oil, wheat, etc.
It’s easy to expand the money supply and difficult to expand the actual production of real goods in the real world. Expanding the money supply and issuing debt that lacks collateral is just like printing quatloos on the desert island: you can print a million quatloos but that doesn’t create a single additional coconut.
If you print enough quatloos, then people will no longer accept them in exchange for coconuts. You will actually need a real coconut to exchange for fish.
This is why Greek towns are reportedly reverting to barter, the exchange of real goods for other real goods. We can anticipate that silver and gold will soon enter the barter as means of exchange that can’t be counterfeited or printed by wise-guys (central bankers).
We can also anticipate the issuance of letters of credit, a practice that stretches back to the trading fairs of Medieval Europe, as described by Fernand Braudel in his three-volume history of early capitalism, The Structures of Everyday Life (Volume 1), The Wheels of Commerce (Volume 2) and The Perspective of the World (Volume 3).
Since gold was in insufficient supply, letters of credit were issued and accepted on a basis of trust. At the end of the great fairs, the letters were exchanged and payment of balances due made in gold or silver. Thus 99 coconuts could be traded for 100 dried fish via letters of credit and the balance due in gold or silver was the value of 1 dried fish–a mere 1% of the total value of goods exchanged.
This is what happens when abstract representations, i.e. "money," vanish into thin air. Alternative systems of exchanging goods and services arise: actual goods are exchanged via barter, tangible concentrations of value that cannot be counterfeited such as gold and silver are used as a means of exchange, letters of credit or equivalent are traded and settled with tangible goods or gold/silver, and eventually, a means of exchange ("money") that is backed by tangible goods in the real world that can be trusted to actually represent the value being traded might enter the market.
That which is phantom will vanish into thin air, while the real goods and services remain to be traded in the real world.
Statistics: Posted by yoda — Mon Apr 23, 2012 11:37 pm
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What Happens to Gold if We Enter a Recession or Depression?
7th April 2012 by Administrator in Economy
By Jeff Clark, Casey Research
Mayan prophecies aside, many of the senior Casey Research staff believe that economic, monetary, and fiscal pressures could come to a head this year. The massive buildup of global debt, continued reckless deficit spending, and the lack of sound political leadership to reverse either trend point to a potentially ugly tipping point. What happens to our investments if we enter another recession or – gulp – a depression?
Here’s an updated snapshot of the gold price during each recession since 1955.
Clearly, one should not assume that gold will perform poorly during a recession. Even in the crash of 2008, gold still ended the year with a 5% gain. And with the amount of currency dilution we’ve undergone since that time, it seems more likely gold will rise in any economic contraction than fall. Indeed, if the response of government to a recession is more money printing, precious metals will be a critical asset to have in your possession.
Even if the gold price ends up flat or down this year, the CPI won’t. Gold’s enduring purchasing power is why we hold the metal.
How about gold stocks?
In spite of the debilitating 1970s that suffered from stagflation, price controls, three recessions, and the Vietnam war, gold producers rose over 600% while the S&P was basically flat. And that includes a roughly 65% fire-sale correction, much like we saw in 2008. To be clear, gold and silver stocks won’t be immune to selloffs if a recession or worse temporarily clobbers our industry. But in the end, we’re convinced they will prevail.
Don’t lose patience with, or confidence in, your gold holdings. What happens to the price over any short period of time is only one chapter in the book of this bull market, and we think you’ll be happy by the time that last chapter is written.
Statistics: Posted by yoda — Sat Apr 07, 2012 10:08 am
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