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Debt-Based Monetary System Demands Ever More Debt—Part II—Ponzi Schemes?


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Is our Debt-Based Monetary System a Ponzi Scheme?  [Courtesy Google Images]

Recently, in Part I of this series, I promised that in Part II, I’d explain “why” the survival of our debt-based monetary system (DBMS) depends on the creation of ever more debt. I argued that our massive National Debt is not an accident or evidence of political malfeasance, but rather an intentional and necessary consequence of accepting our debt-based monetary system (DBMS). I argued that our DBMS can’t survive without going ever deeper into debt.

I compared “payments” (which are tangible, real assets like gold or silver coins) to “promises to pay” (which are intangible, paper debt-instruments like paper dollars). I warned that, given the choice between receiving a tangible “payment” and an intangible “promise to pay,” only a fool would take the paper “promises to pay”.

I illustrated my argument about “promises to pay” by reminding readers of how many times they had made or received promises that had failed. My point was that promises are easily made and routinely broken.

So, I suppose it should come as no surprise that my promise to use this week’s article to explain the “why” behind the debt-based monetary scheme will also be broken. I began to write this second article with some background on “Ponzi Schemes” (which is how I and others frequently describe our DBMS).  But, when I looked into “Ponzi Schemes,” I discovered that maybe that’s not the most accurate way to describe our DBMS. I also realized that maybe I should try to discern and describe the nature of our DBMS before I got into the “why”.

Result? Here, in Part II of this series of articles we’re going to explore whether our DBMS is really a “Ponzi Scheme” or if it’s something else. Then, in Part III (coming soon) I’ll present my notions concerning the fundamental “why”.

I promise.

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Debt-Based Monetary System Demands Ever More Debt—Part I


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The National Debt was basically flat from A.D. 1900 through A.D. 1971. In A.D. 1971, President Nixon closed the “gold window” and the dollar became a pure fiat/debt-based currency.  Since A.D. 1971, the National Debt has persistently increased, without regard to which political party controls the government.  I strongly suspect that a debt-based monetary system cannot survive without government creating more debt.  Once the dollar was debt-based, the National Debt had to increase.

The Congressional Budget Office (CBO) recently released a 55-page report on the “long-term US budget outlook”. The report implied that the US government is on the road to fiscal chaos and possible collapse that could not be sustained beyond A.D. 2047.

I think the CBO is lying about the “long-term” budget outlook. Instead, I think we’ve only got a “short-term” to go before the debt hits the fan.

According to the report, the “official” National Debt ($20 trillion) currently stands at the highest level since shortly after World War II. (The report did not comment on estimates by others that, including unfunded liabilities, the real National Debt may be closer to $100 trillion or even $200 trillion.)  According to the report, if government maintains current policies and economic trends continue, the debt will likely double over the next 30 years, rising to about 150% of GDP.

I see the CBO’s predictions and “warnings” as bunk, bunk, and, uh, bunk.

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Robot Blitzkrieg


Robot8blitzkrieg /blits-krēɡ/ noun an intense military campaign intended to bring about a swift victory.”

24hGOLD (“How many Jobs Do Robots Destroy?”) wrote:

How many jobs do robots – whether mechanical robots or software – destroy? Do these destroyed jobs get replaced by the Great American Economy with better jobs? That’s the big discussion these days.

So far, the answers have been soothing. Economists cite the industrial revolution [A.D. 1760 to 1840]. At the time, most humans replaced by machines found better paid, more productive, less back-breaking jobs. Productivity soared and, despite some big dislocations, society prospered. Some say the same principle applies today.”

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Posted by on April 21, 2017 in Robots, Technology, Uncategorized

 

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Passive Investing Destroys “Price Discovery”


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Courtesy Google Images

 

ZERO HEDGE published an article entitled, “Hedge Fund CIO: “Expect Enormous Losses In The Next Correction As There Is No Price Discovery In Index Investing”. According to that article,

The CIO [Chief Investment Officer] of One River Asset Management spoke on the one topic that is first and foremost on the minds of the active investing community: the unprecedented shift from active to passive management, and what it means for not only the industry, but for markets during the next “normal correction.”

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Posted by on April 21, 2017 in Economy, Investment, Market Panics, Uncategorized

 

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Economics: Science or Séance?


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Janet Yellen calls Federal Reserve meeting to order

Jim Cramer is a former hedge fund manager and best-selling author. He’s the host of CNBC’s Mad Money TV show and a co-founder of TheStreet, Inc.

According to CNBC, with oil prices on the rise, Cramer recently used technician Carolyn Boroden’s charts to try to determine,

[W]hether the uptick in crude oil prices is just a one-off [an aberration or anomaly] or if it’s time to get bullish.”

Note that when it comes to investing in crude oil, Cramer apparently sees just two choices:

1) Stand pat since the rising price is a “one-off” and nothing major is really happening; or,

2) Jump in with both feet since the oil market is really changing to become significantly bullish.

However, there’s a third possibility that Cramer has ignored but others who invest in crude oil should consider: while crude oil’s near-term price is volatile and might go up or down, crude oil’s mid- to long-term price might be falling.

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Silver’s Future


CrystalBall1NEWSMAX reports that in A.D. 2012, America’s largest investment bank (JPMorgan Chase & Co.) held 5 million ounces of silver. Today, JPM holds a staggering 91.5 million ounces of silver! In just 5 years, JPM increased their stockpile 1700%.

In the first three months of A.D. 2017, JPM reportedly purchased 9.4 million ounces of silver. That’s an average purchase of over 3 million ounces per month. JPM clearly believes that silver’s price will rise.

Since A.D. 2000, silver has enjoyed an average annual growth of 10%. Plus, we know that silver can go to $48 per ounce, as it did in 1980 and 2011.”

More, since 2000, silver supplies have been in a deficit every single year. That means the supply of silver has not kept up with the growing demand for over 17 years and is unlikely to do so in the foreseeable future. Diminished supplies coupled with growing demand means higher prices.

Financial expert John Rubino believes that silver could exceed $100 per ounce. According to Rubino, the silver market is so small that if even a relatively modest amount of currency (“a few tens of billions of dollars”) flows into the silver market, the price of silver could start jumping by “$5 or $10 per ounce per day”.

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Consumer Confidence Foretells Economic Crash?


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Consumer Confidence

 

Anyone who stops to think about it knows that the fundamental strategy for generating investment profits is to buy an investment when the price is low and sell when that investment’s price is high. The name of that strategy is “buy-low/sell-high”. The difference between the “buy low” price (say, $100) and the “sell high” price (say $300) is the measure of the profit ($200, in this example) made on the investment.

No one seeking investment profits can refute the “buy-low/sell-high” strategy. On considering that strategy, virtually everyone will say, “Well, of course,” or “Obviously” or even “Well, duh”.

However, the buy-low/sell-high” strategy isn’t as simple as it sounds. There’s a problem: investors like to behave like herd animals. We are generally and genetically afraid to act independently. We feel more comfortable believing someone else (especially an “expert”) than we do in trusting our own eyes and ears. Insofar as that tendency is prevalent, investors are prone to ignore the buy-low/sell-high strategy and instead “buy high” (when virtually everyone is buying and says “now’s the time to buy”) and “sell low” (when virtually everyone is selling at a low price). This “sell-low/buy-high” strategy is a sure formula for going broke. I.e., most investors tend to “buy high” (when the investment’s price is $300) and “sell low” (when the price is $100) and thereby suffer a $200 loss.

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