Global Bankruptcy as World Leaders Succomb to Monetary Dementia
An interesting article from fellow blogger Sharon Kayser, whose work I have admired before.
Give it a read and then let's get the discussion going. What do you Fools think?
This one was picked up by MarketOracle:
Global Bankruptcy as World Leaders Succomb to Monetary Dementia
'If all the bank loans were paid up, no one would have a bank deposit, and there would not be a dollar of currency or coin in circulation. This is a staggering thought. We are completely dependent on the commercial banks for our money. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money, we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp upon the picture, the tragic absurdity of our hopeless position is almost incredible - but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it is widely understood and the defects remedied very soon.' - Robert H. Hemphill, Federal Reserve Bank of Atlanta
In order to give a full meaning to the quote above, it is essential to mention that it applies to any 'fiat' currency, not just the US Dollar. Fiat money's value is backed by confidence in the economy and covered by the government which decrees it to have value - and more importantly (here comes the devious twist) is also backed by a promise to pay! So, let's stress it again: not only the banknotes remain in our wallets at the condition we pay them back but will retain their value as long as we are able to take on debts.
How confident are you in 'a piece of paper' that is worth less that it's printed on, because it is the strict bottom line as Former Fed. Reserve Chairman Paul Volcker puts it in 'The Ascent of Money', a pbs.org video at 17:36 min. Such a concept is repellent to the mind because if we give it a thought, we begin to perceive the illusion we live in - to feel like our spiritual self and our hyper-materialistic driven environment are set for a inevitable collision course.
Since last September, world nations have grasped the importance to prop up the USD and that the failure to do so would have dire consequences. Confidence in the world currency reserve is eroding at a faster pace every day. These grave threats could all vanish overnight if people were able to make the link between the amount of taxes paid since they joined the workforce and the promises made to them during all this time - then asked themselves honestly: what did come true, was it all a dream? If they were doing just that, maybe they would demand the repudiation of their (illegal) *National Debt* to start with. Politicians who want to be elected use the old trick named 'the carrot and the stick'.
Their promises will demand raising taxes. Governments have always overspent and it is precisely this pattern which corrupts minds across the board. Passing debt onto further generations is not really a concern because nearly everybody wants it N-O-W! More dramatically, the financial structure is built in a way to preserve itself, nobody wants to lose one's entitlements: so the cure is to inject more cash into failed programs and accept corruption as a fatality. Moral hazards do not go away, they merely become bigger threats as decades pass by. How many layers of fallacies are needed to realize that fiscal straightjacket on a government level is a myth?
Alas without the power to tax, the economic world cannot exist because money wouldn't have any value at all, this is a simple as that. The top 10% depends on this scheme to consolidate wealth. The most appalling is that even the architect of our current system once confessed the awful truth:
'Should government refrain from regulation (taxation), the worthlessness of the money becomes apparent and the fraud can no longer be concealed.' -- John Maynard Keynes, 'Consequences of Peace'
It is precisely taxpayers' money that first enabled the predatory behavior of lobbies and cartels feeding today off bailouts, which are nothing more than the bones of global debt carcass. We are just running on empty and it's only a matter of time before the music stops. This is a very last cancer stage: taxpayers have been unknowingly the engine of their own demise and now must endure a 'die or spend mode' as their insolvent central banks turned them into lenders of the last resort to rescue the ' Davos Golden Boys ' way of life. Told that their house value was the safest piggy bank on earth, many worked hard and spent as if there was no tomorrows while not realizing that what was done to them was exactly the same as the economic Hitmen did to the third world countries.
Our World Managers Succumb To Monetary Dementia
Let's consider some eye-popping figures: if a big bank such as 'Bank of America' needed a $131bn bailout, CiTi finds itself on the brink of liquidation, Merrill Lynch clients pulled $10Bn in the fourth quarter, J.P. Morgan profit fell more than 75%, hedge funds lost $350Bn in 2008 and pension funds (worth $15Tn) treathen to implode ... we are indeed walking on very thin ice. Interestingly, American taxpayers seem to keep their eyes on the ball better than their lawmakers. Has a stimulus ever been necessary at all? Anti-Bailout coalitions and advocacy groups have begun to mushroom nationwide. A recent poll revealed that 60% of Americans want the bailout of the financial sector to stop; yet the DC Geniuses (who still can't figure why printing our way out of debts will aggravate the liquidity crunch) plot the next step after aid to Citigroup and Bank of America.
Unethical premises and remedies multiply moral hazards. One of the unintended consequences to finance those 'has-been businesses' is creating a new menace to the economy: 'Zombie' Debtors that will be feeding off the taxpayers and stockholders — as healthier rivals become increasingly threatened with 'organized competition' put in place by Lawmakers. The price of protection shows its true colors: it allows the government to decide who can live - or die: it is fascism in disguise. The ugly side of intervention is precisely its addictiveness. And that is why institutionalized debtism has a lethal track record.
An 'almost incomprehensible' amount of cash evaporated, this the Global crisis 'has destroyed 40pc of world wealth', Steve Schwarzman admitted. Indeed, where the heck did all the money go? When money is debt it is negative wealth... got it?
Two days before his inauguration, Obama urged to move swiftly to rescue the banks continuing to hemorrhage billions of dollars. As the situation worsens by the day Bernanke skipped Congressional Financial Hearings in favor of a secretive euro bankers confab. According to Ron Paul, the meetings took place in Basel and were chaired by ECB's Jean-Claude Trichet - not so surprisingly the mainstream outlets remained elusive about them. Just like a bad quality varnish peeling under the pressure of a nail, the magic really vanishes when one looks at Obama's billionaire pals' list and who is throwing money into the most lavish Inauguration in history. Guess what? The biggest part of the pie goes to the financial sector. Obama is no savior... and here is why:
The Government Accountability Office (GAO), Congress' investigative watchdog, has found that "a majority of America's largest publicly traded companies and the U.S. government's largest federal contractors use multiple subsidiaries in offshore tax havens to conduct business... The culprits include some corporate giants who are receiving countless millions in bailout money, Leonnig notes. ... (01/16/09)
As credit card spending in 'The Rich West' screeched to a halt, China Central Bank, which called Paulson a 'gangster' , is trying to prevent a quagmire; and so far the only remedy is the Yuan devaluation. How smart is this really? Doing so is extremely tricky because competitive devaluation (race to the bottom) has limits. If things really go wrong, it may lead to a professional run on banks. So much for our fabulous globalization, heh?! But what if banks do not start lending again (what wouldn't fix the downhill trends if they did either)? Evans-Pritchard leans toward a collapse that could drag the entire planet into a remake of the Great Depression. SocGen warned too that the Chinese economy is imploding and speculates about the possibility of regime change. Flash back: that very dire outcome was forecast in 2004 by Krassimir Petrov . There is practically no doubt that the Chinese will overcome the shock a lot better since they are already accustomed to sweatshop wages. For us, it will be a rude awakening and we could see, in the so-called free world, a suicide epidemic as currently witnessed among young Chinese women.
In Russia, troubles are brewing too. Last November, its stock market is down 70 percent from late spring 2008 and since then anti-Western rhetoric abound. In December alone, the central bank spent $70BN to rescue its currency and avoid the panic of a currency collapse reminiscent of the 1998 crisis. As of January 13, the WSJ reported that the drastic measures didn't prevent the Ruble from nose-diving and massive lay-offs from bringing wages back to earth. The Jungle is surely fairer than our financial environment. Ireland is in the midst of a housing bust and real estate prices are predicted to fall by 80% . Icelanders have to go back fishing to survive the complete demise of their banking system - now seen as the worst economic crash of any country in peacetime, BBC reported.
The Japan's jobless are encouraged to accept a government program that focuses on reviving the ageing countryside amid a worsening recession. All this is a mere glimpse of what is coming next: your government will soon turn out being the biggest employer, that's where minimum wage laws start fitting the big picture. How great is this? But wait, the avalanche of bad news isn't over just yet... 40% of Latin America's financial wealth was wiped out in the first 11 months of 2008. On the old continent, the monetary union has left Eastern Europe trapped in depression. Um-um, wasn't that part of the world too in the midst of a b-o-o-m-i-n-g housing market until early 2008, setting off alarms bells at the IMF? Financial alchemists like Lorenzo Bini-Smaghi, a ECB board member, perfectly knew that the euro pegs would lead to boom and bust cycles. How bad could it really get? Just look at the Zimbabwean hyperinflation (hitting 231 million percent!) that has left the country with more than half the population starving and of course, the United Nations is begging for more aid. Once again, the UN is showing its uselessness!
So now, we can begin to see why Trichet said that 2009 will be ‘substantially' worse than forecast. He blamed 'mispricing of risk' for the downturn and ended his statement by saying that 2010 will be the year of the recovery. On Jan 29, in France, one million protesters demanded Sarkozy to do better at protecting jobs and consumers during the crisis. When will the masses realize that 'managed economies' do not work but are implemented to protect those in power? Moreover, how smart is it to ask people who couldn't see the bust coming to find appropriate solutions? Our problems cannot be solved by the minds that created them in the first place. Sure, after the bust the economy always comes back, it is not a matter of 'if' but 'when'. Uncharted waters. Guru Trichet even made an esoteric statement in the Dow Jones News as of 01/29, and which amounts to 'another nuclear option':
ECB is already carrying out many 'non-standard' operations, like massive liquidity injections... We are in a non-standard world. So whether or not we will embark on other non-standard operations, I said already that I wasn't excluding that," he said.
And it shouldn't be wise to bet on 2010 at all, as such a leverage needs a lot more than two years to be cleaned up. Think of ten years of more instead. The Euro could be toast for good. Meanwhile Germany forecasts the worst economic growth since WWII and riots spread throughout in Eastern Europe . On the other side of the North Sea, in Ireland (whose economy will shrink 10% by 2010), a leading economist advised a withdrawal from the euro unless Ireland gets its part of the bailout pie.
(01/19/09) "If we have a single currency there are obligations and responsibilities on both sides. The idea that Germany and France can just hang us out to dry, as has been the talk in the last couple of days should not be taken lying down," he said.... By keeping with the current policy, the state is ensuring that Ireland turns itself into a large debt-repayment machine. Is this the sort of strategy to win wars?", he said.
Speaking of bailouts, The European Commission approved a French plan to allocate firms affected by the crisis up to EUR500,000 in aid. In America, Bailout money used for lobbying and Obama promises that he will push bankers to lend more, he doesn't want them to sit on the money that they got from taxpayers. Paid by the taxpayers... then borrowed again by them with an interest... doesn't this make sense or perhaps is debt laundering legal? In England, dementia struck a step further as the BofE' s multibillion-pound scheme will offer credit to new car buyers to rescue the moribund motor industry. And there is more, the government also contemplates an insurance crackdown targeting two million uninsured drivers who, as a result, could get their cars seized and crushed! There is even sillier: US Financial Services Committee Chairman, Barney Frank who declared that companies with corporate jets may forget about the bailout money. Nevertheless, a few days later the press reported that taxpayers were also funding Citibank's jet.
[Continued in comments section below]