Monetary Madness Part II—Perpetual Bonds

The Cure for Economic Calamity:
Looney Tune Economics
[courtesy Google Images]

As seen in the previous article, the total value of negative-interest rate bonds has jumped from nothing to $13 trillion in just two years.

Although governments issuing negative interest rates bonds don’t have to pay interest on those bonds, they still have to repay most of the principal.

What a bummer. Wouldn’t it be great if someone invented a government bond that not only didn’t have to pay interest (as with negative interest rate bonds) but also didn’t even have to repay the principal?

Well, folks, they appear to have done just that. They’re called “perpetual bonds”. They’re hot off the press, and the concept seems straight out of Looney Tunes.

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Last month, Gold-Eagle.com published an article entitled “Gold and the Perpetual Bonds Era”. The subject was “perpetual bonds”–a concept I’d heard of for the first time only about a week earlier.

Judging from what I’d already heard and the Gold-Eagle article, it’s apparent that “perpetual bonds” are—like “consumerism,” debt-based currency, sub-prime loans, fractional reserve banking, deficit financing, negative interest rates, market manipulation, and “helicopter money”—just another manifestation of the madness that’s inherent in the concept of fiat, debt-based currency—and of government’s desperation to do something, try anything, that might work to avoid or postpone a coming economic collapse.

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“Helicopter Money”

Helicopter Money
[courtesy Google Images]

Control of the economy is based on two sets of powers:

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1) The Federal Reserve wields the monetary powers which include control over interest rate and over the supply of currency.

2) The U.S. government wields the fiscal powers which include raising or lowering taxes, raising or lowering borrowing, and increasing or decreasing government spending on benefits, subsidies and wars.

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For the past year, we’ve heard the Federal Reserve say repeatedly that:

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1) The Federal Reserve has exhausted its monetary powers and is no longer capable of using previous, “conventional” monetary strategies like QE (Quantitative Easing; printing and injecting more currency into the economy) and ZIRP (near-Zero Interest Rate Policy) to stimulate the economy back to a “recovery”.

I believe the Federal Reserve’s claims that it’s currently helpless to do much more to “stimulate” the economy with monetary policy are true.

If the Fed’s not fibbing, then only the U.S. government remains to engineer an economic “recovery” by means of its fiscal policy. However,

2) The U.S. government is unwilling or unable use its fiscal powers to raise taxes and/or borrow more currency to provide enough additional “stimulation” to cause an economic recovery.

 

The World’s Money and Markets in One Visualization

Another view of derivatives
[courtesy Google Images]

Interesting text and illustration from The Money Project:

 

“How much ‘money’ exists in the world? . . . [T]here are multiple answers to this question, and the amount of money that exists changes depending on how we define it. The more abstract definition of money we use, the higher the number is.

“In the following  data visualization of the world’s total money supply, we wanted to not only compare the different definitions of money, but to also show powerful context for this information. That’s why we’ve also added in recognizable benchmarks such as the wealth of the richest people in the world, the market capitalizations of the largest publicly-traded companies, the value of all stock markets, and the total of all global debt.

“The end result is a hierarchy of information that ranges from some of the smallest markets (Bitcoin = $5 billion, Silver above-ground stock = $14 billion) to the world’s largest markets (Derivatives on a notional contract basis = somewhere in the range of $630 trillion to $1.2 quadrillion).

“In between those benchmarks is the total of the world’s money, depending on how it is defined. This includes the global supply of all coinage and banknotes ($5 trillion), the above-ground gold supply ($7.8 trillion), the narrow money supply ($28.6 trillion), and the broad money supply ($80.9 trillion).”

 

You can see that derivatives dwarf all other forms of money.  Are derivatives extraordinarily dangerous because of their enormous magnitude?  Or, could it be that the sheer “mass” of derivatives is so enormous that that “mass” provides some sort of “ballast” and stability in an otherwise volatile monetary environment?  Does that “ballast” threaten to sink the monetary “ship”?  Or will that “ballast” help protect that “ship” from minor craziness taking place in silver, gold and stock markets?

Whatever the answer, it’s clear from the following illustration that we live in a time that is unlike anything else every before seen in world history.   The modern concept of derivatives may be roughly 20 years old, and yet the sum of those derivatives is over ten times greater than sum of all of the other forms of “money,” combined.

How could that have happened?

If you take time to consider the following illustration, you might find yourself beginning to gape.

 

Debt Forgiveness

[courtesy Google Images]

If asked why I write and publish articles, most people would probably guess that I want to “teach” whatever it is that I know (or think I know).

They’d be wrong.

I don’t write to teach, I write to learn. 

Something interesting crosses my mind.  I’m drawn (I think by our Father YHWH ha Elohiym) to write about it.  As I do, word-by-word and phrase-by-phrase, I often find new insight(s) that I never imagined before I started writing the article.  Thus, I learn from writing. 

Learning excites me.  Writing is exciting.

This is not to say that everything I “learn” from writing is true.  But much of what I learn is interesting (at least to me) and new (at least to me).

I don’t publish articles in order to teach.  I publish to share what I’ve most recently learned.

The following article is an example of the writing-is-learning process.  I started out to write a 1,200 word article.  I ended with nearly 4,200 words.  The extra 3,200 words were necessary for me to learn some lessons and insights that I found fascinating.

I hope you’ll also find the lessons I learned to be interesting and, to some degree, true.

 

Nobody’s in Control!

[courtesy Google Images]

In the A.D. 1992 movie, A Few Good Men, Jack Nicholson played Marine Colonel Nathan Jessep.  When confronted in court by the Navy defense lawyer played by Tom Cruise, Col. Jessep shouted, “You want the truth?! . . . .  You can’t handle the truth!”

Jessep’s line became an instant classic and, today we’re still wondering whether We the People can, or can’t, “handle the truth”.  Government thinks we can’t handle the truth and therefore lies to us.  But, does government really protect us by shielding us from the truth?  Or, does the government protect itself and condemn ordinary Americans by denying our access to the truth?

I’m inclined to believe that the American people can handle the truth.  I believe that, inevitably, people must handle the truth.  Still, I have to admit that I also have my doubts.  In any case, I believe that all lies are only temporary and sooner or later, people will be forced to “handle the truth” whether they like it or not.

 

Nobody’s In Control

Janet Yellen (the Fed’s Fairy Godmother) sez:
“BIbbidi . . . Bobbidi. . . PATIENCE!”
[courtesy Google Images]

Yahoo! Finance recently published “Bove: The Fed won’t dare hike rates this year”.  According to that article,

 

“Bank analyst Dick Bove—equity research analyst at Rafferty Capital Markets—says the Fed won’t dare raise interest rates with the dollar this strong.”

 

I agree. Janet Yellen may talk about possibly raising rates sometime this year, but it’s all smoke.  According to Bove:

 

“Expectations that the Fed will raise rates in September or even June are off the mark. The dollar is simply too strong. It’s having a significant impact on the earnings of international companies across the board and it’s having an impact on the trade balance.”

“If the Fed were to raise rates, Bove believes the downward spiral would be severe. ‘Trade balance would grow more negative, international companies would lose money overseas, jobs would be lost in the U.S. and the growth of the economy in the U.S. would slow down.”  Bove said all those scenarios are just too threatening given the fragile state of the recovery.

“Therefore he thinks the Fed will feel compelled to err on the side of caution and keep rates low.  And Bove added, the Fed never thought it would have to keep rates so low for so long. ‘They thought they could turn interest rates on and off like a water spigot.’”

 

In fact, the Fed’s predicament may be much worse than an inability to raise interest rates in a fragile economy.  Maybe the Fed has lost its powers to control the economy.  Sure, the Fed still has a capacity to influence the economy—but its powers to control may have vanished.

 

[Digital] Capital Controls

Hi-Speed Digital Dollars
[courtesy Google Images]

According to Wealth Reporter (“Fed Employees Roll Out Bold Idea To Trap The Entire Country’s Wealth”):

 

“Capital controls are simply laws that regulate and restrict what you are allowed to do with your money by regulating the flow of cash in and out of a national economy. The laws define such things as where you can invest your cash and how you can allocate your assets.

“A major financial news source just published shocking details about a research report by two employees at the Federal Reserve Bank. The 36-page report applauds the use of ‘capital controls’ in global markets.”

 

Capital controls are intended to regulate or even prevent the flow of currency in or out of a nation’s economy.

So long as the international flow of paper currency is controllable, central banks (like the Federal Reserve) have two mechanisms for controlling their nation’s economy: