In his recent article, “The United States Fiat Money & the Federal Reserve System,” author Darryl Robert Schoon declared in part, “Fiat money is an oxymoron. Traditionally, money has been both a storehouse of value and a medium of exchange. Fiat money exists by mimicking both; but when its ability to do so ends, fiat money exposed for what it is, reverts to what it is—government issued coupons with expiration dates printed in invisible ink.” Mr. Schoon’s description of money as a “storehouse of value” illustrates that while price is all in the “now,” value is a function of time.
Thanks to persistent inflation, the value of the U.S. dollar has fallen by about 97% since A.D. 1933. A dollar back then is worth just three cents today. That loss is significant, but only averages out to about 1.5% per year. The world will tolerate a fiat dollar that only loses 1.5% of its value (purchasing power) per year.
But today, when the real inflation rate may be about 15%, the U.S. dollar has clearly lost its perceived ability to “store value over time”. Relatively speaking, the purchasing power of last year’s dollar may be worth only 85 cents today. Today’s dollar will probably be similarly reduced in value (purchasing power) over the next year. If so, only fools hold dollars or debt instruments denominated in dollars. As the world increasingly recognizes that the dollar can no longer hold value over time, and can therefore no longer “mimic” real money, the world will abandon the dollar, and its perceived value will fall even faster.
Mr. Schoon continues:
“Fiat money distorts the time value of money and in so doing destroys both money and the economies that use it. Real money like gold and silver has value over time, the greater its value and the longer it endures, the more likely it will be accepted as money. Throughout history, gold and silver have . . . both have been used as money for thousands of years. Unfortunately, throughout history governments have either debased . . . the amount of gold and silver in their coins or attempted to circumvent gold and silver entirely by mandating the use of paper (fiat) money. This is why: Wealth, e.g. money, is power in a stored state . . . [and that power] has been coveted by governments since governments existed.”
The idea that money is a means of storing value is so old as to have become a cliché. However, for me, the realization that money is a means of storing wealth as a fixed value over time is a new and exciting insight. Real money (declared at Article 1 Section 10 Clause 1 of our U.S. Constitution to be gold or silver coin) retains its value over time. For example, one hundred years ago, you could buy a good suit of clothes for a one-ounce, $20 gold coin or $20 in paper money. Today, you can still buy a good suit of clothes for a one-ounce $20 gold coin but those twenty paper dollars (fiat money) from A.D. 1908 might not even pay for a tie to go with a modern suit. The gold held its value over time; the fiat money did not.
Thus, while the value (purchasing power) of real money (gold/silver coin) is fairly stable and “fixed” over time, the value of fiat (paper) money is constantly depreciating, changing, and never precisely known. Today, the current value of fiat money is not assured or “fixed,” but is “discovered” by means of the markets on a minute-by-minute, transaction-by-transaction basis.
For example, what is the price of a gallon of gasoline denominated in fiat money? It depends. When are you asking about? A year ago, a gallon of gasoline might’ve cost $3.00; today it cost $4.15, and next week at 3PM on Wednesday, it might cost $4.25.
While the price (denominated in legal tender/fiat money) is constantly changing, the value of the gallon of gasoline remains constant. A year ago, my car got twenty-miles-per-gallon of gasoline; today, it still gets twenty-miles-per-gallon. Over the past year, the value of the gasoline (at least relative to my car) has remained unchanged. But the price is in constant flux. Why? Because the medium (fiat money) by which we measure price has no fixed or assured value.
Historically, the value of the dollar was declared by law to be $20 per ounce of gold. In A.D. 1933, that fixed value was reduced by law to $35 per ounce. In A.D. 1970, the value of the dollar was reduced again (by law) to $42.20 per ounce. The value of the dollar was falling for over thirty years, but it was still fixed by law until October 28th, A.D. 1977 when the federales passed Public Law 95-147 which expressly mandated that henceforth, the dollar would have no “assured” (fixed) value. Thus, the absence of assured value for the fiat dollar is not an accident; it’s the law. Without an assured value, every transaction denominated in fiat dollars becomes negotiable.
Gasoline’s not going up; the fiat dollar’s going down—which should come as no surprise since the value of the fiat dollar has been in a constant state of decline since A.D. 1933. The surprise is that under today’s 15% rate of inflation, the fiat dollar’s value is going down rapidly.
Because the fiat dollar has no assured (fixed) value, it cannot store value over time. Therefore, prices for gasoline and most other goods and commodities are rising. It appears that the primary distinction between real money and fiat money may be their comparative abilities to store value over time. Fiat money can’t. Once it starts to lose value in double-digit inflation, people begin to abandon it. And once they begin to abandon the fiat money, where will they almost inevitably go? Back to real money: gold and silver.
“While productivity is doing more with less, fiat money allows governments to do more with nothing. Fiat currencies are a way for governments to spend what they don’t have; and while counterfeiting by individuals is a crime, passing government coupons off as money is legal because governments make the laws.”
Unfortunately, while passing fiat money as real money is an enormous deceit, it is not exactly a crime. Article 1 Section 10 Clause 1 of the Constitution of the United States declares in part, “No State shall . . . make any Thing but gold and silver Coin a Tender in Payment of Debts . . . .” There is no similar prohibition for the federal government. Thus, Wee duh Pee-pul made an enormous constitutional error when we didn’t impose the same monetary controls on the federales that we imposed on the States of the Union. That oversight allows the feds to use legal tender (fiat money). (That oversight could and should be corrected by a constitutional amendment to the “people’s law”—the Constitution of the United States.)
Will the Real Creditor Please Stand Up?
Inflation serves the borrower (the debtor) rather than the creditor because the borrower repays his debts with “cheaper” dollars. Given that inflation has been mandated and maintained by the Federal Reserve for over 70 years, we can infer that the modern monetary system is designed and intended to rob the creditors and enrich the debtors.
The only question is Who are the actual creditors? It’s not the local banks; it’s the depositors (people who work for a living). It’s not the government and certainly not welfare recipients; it’s the taxpayers.
Over time (since we almost always borrow from banks), we’ve come to mistakenly see the local bankers as our “creditors”. But that’s not true. The local bankers are actually borrowers, debtors, who borrow money from the people who deposit their “money” into savings accounts (in return for a trivial interest rate) which the bankers then loan out to others at a relatively high rate of interest. The bankers don’t usually loan their money; they primarily loan your deposits. That makes you—not the bankers—the nation’s ultimate creditors.
Given that inflation and a fiat monetary system ultimately defraud the creditors and serve the debtors, it’s obvious who’s taking the real beating in the modern monetary system: those who work, save, deposit and attempt to store the value of their wealth over time in a bank account. The system is designed to rob such creditors (average Americans) and enrich the borrowers (banks and government). Thus, a common opinion that the “system” is intended to subject the “borrower” to some bondage may be short-sighted. In fact, the borrowers are freed by inflation to repay their debts with cheaper (less valuable) fiat dollars. The real and intended victims of the current monetary system are the creditors—the people who work for a living and try in vain to store their wealth over time in any debt instrument denominate in paper, fiat dollars.
Fiat money’s constant depreciation compels the wise to get rid of it, spend it quickly before it becomes (significantly) less valuable. On the other hand, the objective of gold & silver is to save it since it will at least hold its value and in periods of hyper-inflation, even increase. Thus, fiat money stimulates the economy while the gold & silver tend to stabilize or even depress an economy. Fiat money favors the borrower, the gold & silver favor the creditors.
The fundamental presumption behind fiat money is that it’s good for growing the economy; the fundamental presumption is that that growing the economy is the ultimate good. The conflict between real and fiat money is ultimately a question of fundamental values: Is growing the economy the ultimate good? The fiat monetary appears to feed more, clothe more, provide more shelter than the real money. The reason is that the fiat money creates apparent value out of virtually nothing (paper and ink, or even digital 1’s and 0’s on some banker’s hard drive).
The monetary alchemy of creating something out of nothing is quite astonishing until you realize that the “miracle” of fiat money creates a very toxic and ultimately lethal by-product: enormous and unpayable debt. That’s where government comes in. When the debt owed by the borrowers (central bank and government) becomes too great to be paid or even sustained, the central bank implements hyper-inflation to repudiate part of the debt and the government passes laws to shift the burden of government’s and banker’s debts back onto the people—the original creditors. A little smoke, a little mirror, pump a little sunshine and presto-chango! the borrowers’ debt is transferred back from the debtors (central banks and government) to the creditors (the people).
You’ve all seen it. What are government “bail-outs” for banks and corporations all about? Protecting the debtors, the borrowers—ultimately at the expense of the creditors; the American people.
This criminal enterprise (holding creditors liable for the principle debtors’ debts) is not new. It’s been going on since at least A.D. 1933 when our government seized the people’s wealth as stored in gold and kept that gold for itself. The creditors (people) were robbed; the government (debtor) was enriched.
We can probably trace the foundation for this legalized theft all the way back to A.D. 1868 and the 14th Amendment which declares in part, that “The validity of the public debt of the United States . . . shall not be questioned.” In other words, the U.S. citizens shall not only be liable for however much debt the government incurs, the U.S. citizens can’t even question that debt. Thus, if government wants to borrow $1 million, $1 billion or $1 trillion, the U.S. citizens are held liable for whatever debt might be incurred. By means of the 14th Amendment, you and I became sureties for any debt the government wanted to incur, gave government an almost unlimited credit rating and thereby empowered government to become the world’s biggest debtor.
So long as the government’s debts were guaranteed by the spectacularly wealthy American people (in A.D. 1950 we were the world’s #1 creditor and wealthiest nation on the planet), the government could borrow endlessly. But as government programs began to tax us into poverty, ship our jobs overseas and encourage an invasion by illegal aliens that would cut our wages, the American people have lost the mantle of “spectacularly wealthy” and begun the world’s biggest debtor nation. The world knows that we are not only no longer rich but, worse, can no longer repay our debts. That means loans to the U.S. government are bound to dry up. Without those loans ($800 billion per year), the government may be forced to default (declare overt bankruptcy) and precipitate the sort of social chaos that, in 1930’s Germany, gave rise to Adolph Hiter.
It’s worth nothing that without the 14th Amendment, the government might not be able to borrow unlimited sums to fuel its various enterprises and schemes. (Could we have invaded Iraq without credit?) Without the 14th Amendment, government might not have unlimited (or any) credit and might be forced to live on its budget without any deficit spending (credit). Imagine our government without deficit spending (credit); it wouldn’t be one-quarter of its present size—and our national debt would not even exist.
Mr. Schooner:
“Capital is but the polite word for credit and that is why it is used. Capitalism sounds so much better (and more like money) than creditism. The word capital implies a ‘moneyness’ that does not exist.”
I disagree to this extent: “capitalism” is for people who have “capital”. “Capital” refers to “payments”—real gold or silver, or something tangible. “Capitalism” is a system that truly favors the “capitalists”—the creditors who have actually saved or otherwise accumulated their “capital” (gold & silver) and then made their capital available to not only be borrowed but then repaid in kind. Capitalists lend gold and silver “capital” to be repaid with gold and silver capital. That way the capitalist-creditor is assured of not being robbed by the debtor or by time (inflation). The creditor loans 100 ounces of gold; he was entitled to receive 100 ounces of gold (plus interest) as repayment. Unless the debtor dies or goes bankrupt, the capitalist creditor can’t lose.
However, in today’s fiat money system, we creditors “loan” something tangible—our lives, our sweat, our effort, intelligence and work—to a the system in return for mere promises to pay (fiat money) rather than real payments (gold or silver coin). We creditors “loan” the central bank and government something “real” (our living energy); they repay us with something imaginary, something fictional—mere promises to pay (fiat money) that the debtors know from the beginning will never be fully repaid. We the Creditors are thereby defrauded of our lives and our wealth by our government and central bank.
Our modern “credit-based” system does not rely on actual “payments” (gold and silver coin) but instead accepts mere “promises to pay” (debt instruments) as if they were payments. Thus, to be wealthy in the “capitalist” system you must work hard and be responsible so as to save your payments until you have enough payments/ capital/gold-silver coins to “invest” in some wealth-producing business or industry. But to be wealthy in the “credit-based” monetary system of fiat money, you need not be hard-working or responsible. Your fundamental need is to merely be a good con-artist able to issue one convincing promise after another, and to persuade people to accept your promises to pay (debt instruments) as if they were capital (payments).
Today, most people think of banks and wealthy people as “creditors” who lend their money. I doubt that’s true. I doubt that you can point to even 5% of this country’s wealthiest people who got rich by saving their own money and then lending it. I suspect that the vast majority of today’s wealthy are wealthy because they make great promises. They promise to pay, they promise to pay, and they promise to pay—but in the end, they never pay. They only issue more promises.
Today’s wealthy aren’t the true creditors. Today’s wealthy are the borrowers; the debtors. How many rich men or institutions can you name who don’t have almost unlimited credit ratings? Most people think the rich have credit because they are rich. I’d say that today’s wealthy are rich because they have credit (an ability to make believable promises).
And what is credit in a fiat money system other than an ability to issue persuasive and believable promises to pay at some time in the future? But those future promises to pay, denominated in legal tender, in a society exposed to over 70 years of steady inflation, will never be actually paid in lawful money. Instead, those promises to pay will be discharged by means of legal tender (more promises to pay) and will be at least partially repudiated (unpaid) due to inflation.
Thus, all the modern promises to pay (paper debt instruments) are lies. They were lies from the beginning, and the people making those promises knew they were lies in direct proportion to the size of the promises made. In a fiat money system, all borrowers are liars. The credit-based monetary system makes liars out of all who borrow.
Have you ever borrowed fiat money from a bank? Then, technically, you’re a liar. Your promise to repay in full was a lie.
That allegation may seem too insulting or hyperbolic to be credible. But what about all the “liar loans” that banks were issuing just a few years ago to anyone who wanted to borrow money to buy a house? Poor people who were virtually unemployed could fill out a loan application, claim to be making $75,000 a year, and the bank would approve the loan without checking to confirm the claim of income was valid. The applicants knew they were lying; the banks knew they were lying. Everyone knew but just winked at the “liar loans”. However, the result of those merry liar’s loans of just five years ago, is today’s collapse in the housing industry.
(Are you beginning to see that there’s more to money than mere numbers? Are you beginning to see the moral nature and implications of money?)
Everybody Lies
Most Americans can smugly dismiss the significance of the “liar loans” since they were primarily extended to poor people and minorities. After all, what do you expect from “those people,” hmm?
But while recent loans to the poor and minorities might be the most egregious example of loans to liars (people who make promises to pay that everyone knows they can’t keep), the middle and upper classes are just as guilty. I doubt that you can find one man in fifty who’s over 30 years of age and who’s borrowed money from a bank and had not heard and dimly understood that he’d be repaying the loan with “cheaper” dollars. You and I may “promise” to repay our loans, but so long as inflation is in operation, we know that we’ll only repay part of the value of the loan.
For example, you borrow $100,000 today, knowing that by the time you repay the principal, you’ll only repay the equivalent of $80,000 in purchasing power. Yes, the argument is complicated by interest, but we still know that despite our promise to repay (and repay in full), that we will only repay the face price of the loan—not the full and original value. That makes (virtually) everyone who borrows fiat money a liar. We promise to repay, but we know from the start that we will not.
Moral Standing?
Given that our own “small” lies are inherent every time we borrow legal tender (fiat money), why should we be shocked or even surprised if the government and the central bank are likewise lying when they borrow from us? We rob our creditors whenever we promise to repay in legal tender. What is our moral standing to complain when our government then robs its creditors (you and me) when they borrow from us?
The lesson is that money is not simply about numbers; it’s about morality. It’s about value over time. It’s about repaying the same value of the loan five years from now as you borrowed today. Thanks to fiat money, we never repay the value—only the price. Thanks to fiat money, our promises to pay are lies, and our nation’s morality has declined precipitously. As I wrote previously, fiat money makes liars out of all who borrow—and in this society, who doesn’t? Got a credit card? Then you’re a liar. Your promises to pay at some time in the future—even if it’s just 30 days from now—are technically lies because thanks to 15% inflation rate, in just 30 days the value of the currency you borrowed with you Master Card will probably have shrunk by about 1%.
The guy who borrows $10 from me on Monday and promises to repay me next Friday is hardly a pathological liar. When he borrows the $10, he doesn’t calculate that, thanks to a 15% rate of annual inflation, when he repays the $10 next Friday, the purchasing power of the $10 he repays will be reduced by 2 cents to about $9.98 and thus he will “beat” me out of almost 2 cents when he repays $10 borrowed with a mere $10. Technically, he will beat me out of close to two cents, but he doesn’t “intend” to do so, and thus, I wouldn’t say he was truly a liar. Moreover, if you brought this argument to his attention and demanded that he repay $10.02 on Friday, he might think you’re a real idiot, but he’d probably repay $10.02.
But when you start talking about loans made in terms of $1 million or $1 billion and lasting over a period of years or decades, I guarantee that the borrowers know very well that, thanks to inflation, they’ll repay only part of the real value (purchasing power) of the credit they’ve borrowed. You show me a man who borrows $1 million, and I’ll show you a liar. His promise to pay, however convincing, was a lie. Show me a man (or a government) who borrows $1 billion in legal tender during times of inflation, and I will show you a pathological liar. Any man or government that can borrow $1 billion when the inflation rate is 15% and the interest rate is 7% has to know that he’s going to beat the lender out of 8% of the purchasing power of the principal borrowed. That borrower knows that his “promise to repay” will not be kept and thus that borrower knows that he’s a liar—but he doesn’t care.
Thus, it follows that the more you borrow, the more you lie. And if that’s true, then the U.S. government—the world’s greatest debtor—must be the alpha and omega of all earthly liars.
Mr. Schoon:
“In fiat credit-based economies, savers [creditors] are penalized and speculators [borrowers; promissors; gamblers] are rewarded. And while this is welcomed by Wall Street, it is a death warrant for Main Street. In the US over the past twenty years, while Wall Street has expanded, Main Street has contracted.”
“Wall Street” (like OPEC) is another “villain we love to hate”. But the big expansion over the past twenty years was not “Wall Street”—it was Pennsylvania Avenue. Who has ever borrowed more money than our government? Our government is the “borrower of first (and last) resort” and the “mother of all debtors”.
Certainly, our government has profited dramatically in terms of wealth and power based on the fiat-money, credit-based monetary system. Wall Street may be populated by a bunch of hustlers and con-artists, but when it comes to outright immoral and criminal behavior, government makes Wall Street look like a bunch of Boy Scouts. Wall Street is merely a convenient scapegoat. Main Street is not being destroyed by Wall Street. Main Street—the home of the common man and creditor—is being destroyed by government—and the fiat monetary system.
“Now, the United States, once the world’s only creditor is by far its largest debtor. A report from the Federal Reserve in 2006 stated the US is technically bankrupt with $65.9 trillion in irreconcilable obligations. Currently, the US can only pay its debts by issuing new debt. Default comes next.”
Not necessarily. “Default” (overt bankruptcy) might be avoided or at least delayed if government and Federal Reserve repudiates their unpayable debt by inflation (or by killing the creditors). Hyper-inflation, mercifully, is their current choice of means to repudiate their debt, and God willing, will remain so. But “default” (sudden and overt national bankruptcy) remains a real and brutal possibility. In the unlikely event that the federal government really goes into bankruptcy, cities will burn, millions may die, and parts of this country might even break down like the former Soviet Union into violent and destitute fiefdoms run by warlords. (Sound too farfetched to be believed? Take trip to East L.A. and tell me that American fiefdoms run by warlords just can’t be.)
In a world of hyper-inflation, sensible people who’ve stored their wealth in the form of legal tender (paper promises to pay) and/or debt instruments (like stocks and bonds) denominated in U.S. fiat dollars are in danger of losing most or even all of their wealth. Sensible people should consider getting out of paper promises to pay while the getting is still good and storing their wealth in a form of money that will retain its value over time: gold and silver coins.
Until next week,
Alfred Adask
Fed Watch
Read closely, the following list of news reports paints a picture of our economy and offers a sense of economic direction, velocity, contradictions, absurdity, humor and even lies that no single article may reveal.
Saturday, June 28th, A.D. 2008
India Daily The Federal Reserve is wrong again. They are talking about raising rates while the US economy silently faces round three (massive) financial meltdown from unjustified M&A activities and regional bank failures.
India Daily Connecticut Democrat Christopher Dodd and Alabama Republican Richard Shelby, the Senate Banking Committee’s top lawmakers, have intervened in the plans of SEC and Fed to exchange information to make the discount window permanent.
Washington Post The Federal Reserve said it was scrambling to prevent a “contagion” from infecting the nation’s financial system when it took unprecedented actions this spring to back a Bear Stearns rescue package and provide emergency loans to big Wall Street firms.
El Paso Times The Federal Reserve’s aggressive period of cutting interest rates to keep the country from falling into a recession is over. That point is in general agreement. The trouble starts when you try to figure out what period the Fed has now entered.
The Fed clams to have “stopped” “aggressively” lowering interest rates as if the Fed is in control. But that control may have been lost since how much more “aggressively” could the Fed cut interest rates since they are already down to 2%? If a 2% interest isn’t stimulating the economy, why would a 1% interest rate (or even a 0% interest rate) do much better? The Fed is caught in a “Keynesian trap” (as were the Japanese in the 1990s) wherein the prime interest rate has been reduced to (or near) zero, without significant effect on the economy. Now what? Now, all the Fed can do is raise interest rates—which probably will have the adverse economic effect of further slowing the economy.
The truth is that adjusting national interest rates in a global economy is either completely ineffective or actually works contrary to historical notions. Why? Because capital is no longer “trapped” within national boundaries. Thanks to the internet and digitized “money,” if the Fed lowers interest rates, lenders move their currency at the speed of light to some foreign country that pays higher interest rates. Result? Lowering interest rates actually drives money out of the national economy and thereby slows the national economy.
Because adjusting interest rates is no longer a viable strategy, if the Fed wants to speed up the economy, they have a single option: Increase the money supply by inflating, inflating, inflating the amount of currency in circulation.
AP Treasury prices extended their gains Friday as investors saw more signs that the Federal Reserve won’t need to raise interest rates soon.
The Charlotte Observe The $48 billions of economic stimulus payments gave a massive jolt to household finances in May, sending after-tax incomes up by the largest amount in 33 years. The payments helped boost consumer spending by the largest amount (0.4%) in six months. The Commerce Department reported that disposable incomes, the amount left after paying taxes, surged by 5.7 percent last month.
In other words, all the government has to do to “stimulate” the flagging economy is to inflate the currency supply by giving the people “free money”. But if the economy is so weak that it can only be revived (by a whole 0.4%) by placing it on the “life support” of injecting $48 billions in “free money,” how dangerously weak must the economy truly be?
Lexington Herald-Leader The fragile economy improved slightly at the beginning of the year, and it could grow a bit stronger in the current quarter as extra cash from tax rebates spurs people to buy more. Still, it’s not out of danger yet.
Sunday, June 29th, A.D. 2008
Montgomery Advertiser Federal Reserve now in a tight spot. The Federal Reserve met last week and really didn’t do anything.
What can they do? They are caught in a Keynesian trap where lowering the prime rate further will have no effect, and raising it may further slow the economy. There is but one option: inflate the money supply to try to stimulate the economy.
Reuters The Federal Reserve may be hesitant to raise interest rates ahead of the U.S. election in November, although there is no hard evidence to support the widely held view that politics influences monetary policy.
Darn right they’ll be “hesitant” to raise interest rates. They can’t further lower the prime rate to any positive effect (capital will flee to foreign markets). If they raise interest rates, it will be seen as a cause for further slowing the economy. Indeed, the Fed “may be hesitant”—they are damned if they do, and damned if they don’t. There is little left to the Fed but ineffective rhetoric, propaganda and bluster.
International Herald Tribune Thanks to the European Central Bank and its counterparts in Mexico and India, the U.S. Federal Reserve may have found a way to delay raising interest rates.
They haven’t found a “way” to delay raising interest rates, they’ve found an excuse for such delay.
Financial Times The past few days of trading have seen financial markets rocked by a realisation of just how fraught with dangers the US macroeconomic outlook still is – and the limitations on the power of the Federal Reserve to dispel them.
Louisville Courier-Journal Most of the market seems to be preparing for the Federal Reserve to raise interest rates as early as September, although some analysts are skeptical that the central bank would risk such a move so soon.
Fort Wayne Journal Gazette Rates on 30-year mortgages rose again last week, climbing to the highest level in more than nine months, reflecting more concerns about how the Federal Reserve will respond to higher inflation pressures.
The Fed is intentionally causing hyper-inflation (double digit) in order to repudiate existing, unpayable debt. The Fed will “react” to inflation by doing as little as possible to reduce the inflation that the Fed causes and wants. Political pressures may force the Fed to raise the prime rate by one-quarter or even one-half percent, but such raises will be meaningless if the current inflation is running at 12-15%. Implication: Hyper-inflation will continue until the value of the massive, unpayable national debt is reduced by 50 -80% or until the U.S. is forced to overtly default on its debt and thereby declare national bankruptcy.
Monday, June 30th, A.D. 2008
Washington Post In a speech in London scheduled for Wednesday, Treasury Secretary Henry Paulson will reveal more details about his accelerated plans for the Federal Reserve to assume a larger regulatory role in maintaining financial system stability.
In the end, there’s only one means by which the Fed can “assume larger regulatory role in maintaining [national] financial system stability”: install currency controls that prevent capital from fleeing from the U.S. economy when the Fed lowers interest rates. So long as the internet and globalization allow digitized currency to move from one national market to another at the speed of light, the Federal Reserve (and central banks in general) are stripped of their ability to stimulate the economy by lowering interest rates. So long as capital can flee from low domestic interest rates into foreign markets paying high interest rates, the Fed’s powers to control the economy are largely that of a mere figurehead.
India Daily Most of us are focused on the stock market’s fall in the first half of this year. But silently the bond market has performed worse than the stock market. In an economy threatened with recession, the bond market should have prospered while the stock market suffers. This time it is different.
Exactly. What can’t be paid, won’t be paid. The massive national and global debts can’t be paid, therefore won’t be paid, therefore the paper promises to pay (debt instruments) that memorialize those unapayable debts must be repudiated by 1) bankruptcy; 2) inflation; or 3) killing the creditors. The bond market is not prospering while stocks fall because both stocks and bond are denominated in fiat dollars (paper promises to pay) that can’t be paid. The world is abandoning promises and moving into tangible payments (commodities, gold, silver).
Tuesday, July 1st, A.D. 2008
BizJournals Although economic growth in the Southwest region outpaced the nation in April and May, the regional economy continued to slow.
The Canadian Press The U.S. Federal Reserve has auctioned another $75 billion in loans to squeezed banks to help them overcome credit problems and announced it will provide a fresh batch of the loans this month.
In May, the Bush administration gave $48 billion as “stimulus” checks to the American people to help them overcome credit problems. The Bush administrative essentially gives (loans for virtually worthless collateral) $75 billion per month to American banks.
Bloomberg U.S. manufacturing grew in June and a measure of prices jumped to a 29-year high, underscoring the Federal Reserve’s concern that economic growth will be accompanied by faster inflation.
Bloomberg The European Central Bank and the Federal Reserve are reacting differently to the threat of faster inflation, with policy makers in Europe likely to backtrack after raising interest rates, according to Deutsche Bank AG economists.
That implies that Europe may return to lower interest rates and higher inflation rates.
MarketWatch Treasurys lost money in the second quarter as the Federal Reserve completed its historic interest-rate cuts and policy makers started dropping hints that it would soon begin raising rates to combat inflation.
What can’t be paid, won’t be paid. Stocks, bonds, treasuries, and every other paper promise to pay denominated in legal tender are going to suffer a huge (50-80%) loss of value.
Fox News The Commerce Department reported construction spending fell in May for the 11th time in the past year
Wednesday, July 2nd, A.D. 2008
Personal Finance Daily The Federal Reserve has sent a pretty clear signal to the markets that it stands ready to push interest rates higher to fight inflation. If you are a homeowner with an adjustable-rate mortgage, you can pretty much interpret that as well as a signal to jump into a fixed-rate loan as quickly as you can.
Maybe. But I suspect that inflation will remain the fundamental reality and any increase in the prime rate will be trivial.
Market Watch The Federal Reserve’s Frederic Mishkin suggests the outlook for economic growth remains the top concern for U.S. central bankers, raising the possibility that they might be in no mood to hike interest rates.
Bloomberg The dollar fell to a two-month low against the euro as a report showed U.S. companies shed more jobs last month than economists forecast, reducing bets that the Federal Reserve will increase borrowing costs next month.
Reuters The Federal Reserve must “react decisively” to stop inflation from pushing up wages, one of its top policy-makers said on Tuesday, dropping a clear hint about the possibility of interest-rate hikes ahead.
I regard that “hint” as pure propaganda. I can’t prove it, but I’m convinced that the Fed is intentionally causing hyper-inflation as a device to repudiate the enormous and unpayable existing debt. If I’m right, the Fed will not “react decisively” to stop inflation until the value of the existing total debt of the US is reduced by 50 to 80%. All comments by Fed officials to the contrary are pure misdirection.
CNN Money The Commerce Department says factory orders rose by less than half the April and March gains, indicating softening demand for autos, heavy machinery and steel. The reading was in line with economists’ estimates but was the worst result in three months.
High inflation plus a stagnating economy = stagflation—an unnatural economic condition that is ideal for repudiating existing debt and minimizing the creation of new debt and is almost certainly man-made.
Thursday, July 3rd, A.D. 2008
AP Rates on 30-year mortgages, which had been rising for five straight weeks, posted a decline this week to 6.35 percent as signals from the Federal Reserve eased worries about imminent rate increases.
PR Newswire Banking Expert Warns Federal Reserve: Systemic Risks Associated With Russia’s Lawsuit Against Bank of New York. The Moscow Arbitration Court is hearing testimony from experts in the case of the Russian Federal Customs Service claim of US$22.5 billion against The Bank of New York in order to decide on the international applicability of RICO statutes.
Moldova The U.S. State Department has clear policy about pursuing oil contracts in Iraq in the absence of a national oil law. Cabinet officials were at odds regarding the deal Hunt Oil signed with the regional Kurdish government last fall. The State Department advised against the deal, but the Commerce Department wished Hunt Oil officials well, …
Friday, July 4th, A.D. 2008
Investment Executive The bad economic news continued to pile up in the United States today, cementing Bay Street economists’ expectations for a U.S. recession, and that the Federal Reserve Board will have to keep rates on hold for now.
