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XMFSinchiruna (27.47)

Global Bankruptcy as World Leaders Succomb to Monetary Dementia

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February 03, 2009 – Comments (11)

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:

http://marketoracle.co.uk/Article8594.html

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]
 

 

11 Comments – Post Your Own

#1) On February 03, 2009 at 11:02 AM, XMFSinchiruna (27.47) wrote:

[contined from above]

Black clouds are gathering above the horizon. The IMF just announced that the world trade collapsed by staggering 45% in the last quarter of last year. Even the euphoria of Obama's inauguration didn't last long. The same day Dow closed below 8,000 as banking fears were gripping the European markets and bringing shockwaves from the United Kingdom too. British Banks got a £1TN injection which didn't prevent RBS shares to plunge 70%. London is faced with a bloodbath. Brown admitted there is not yet a limit on how much risk taxpayers must bear as a result of his rescue plan, but he even promised financial institutions that they will get more cash if they pass it on . Looks like the Brits are too being set up for the mother of all crashes. With the UK government debt alone and future liabilities not included, this means that every new baby is born with £17,000 debt. Checkmate! UK cannot take Iceland's soft option, Evans-Pritchard explains:

The parallels with Iceland are disturbing. The country was ruined by the antics of its three big banks. They built up foreign liabilities equal to 900pc of GDP. Operating as hedge funds, they borrowed in dollars, euros and pounds to speculate....If Britain walked away from UK banks' $4.4TN of foreign liabilities – worth eight times Lehman Brothers – it would destroy the credibility of the City and take the whole world into deeper depression... The sovereign debt of Russia, Ukraine, Greece, Italy, Belgium, Austria, The Netherlands, Ireland, Australia, New Zealand and Korea is all being tested by the markets. The core of countries deemed safe is shrinking by the day to a half dozen. Sadly, Britain is no longer one of them. (01/20/09)

Describing in length the fundamentals of the American economy at this stage is more or less a naughty intellectual exercise. As the bank bailout is expected to cost $4Tn , U.S. financial losses could reach $3.6TN and suggest that the banking system is 'effectively insolvent' contends Nouriel Roubini , New York University Professor and former financial Clinton's adviser. Back to spending orgy. The clock is really ticking; even the legendary investor Jim Rogers predicts a total decline in 2009. We can get a better sense of absolute gloom and doom if we take into account the Asset 3 Level also known as ‘mark to make believe,' thus whose market prices are based on the banks' 'unobservable inputs' that 'reflect management's own assumptions' . So now we have phantom asset values which remind of the CDOs' notional values, also called by the Warren Buffett WMDs. The Titanic is about to hit the iceberg. Gerald Celente doesn't chew his words when commenting on the ongoing dreadful meltdown. The situation is so dire out there that global banks have joined the clamour for bailouts. Do our demented global elites deserve to be rescued - honestly?

“All truth passes through 3 phases: First, it is ridiculed. Second, it is violently opposed, and Third, it is accepted as self-evident.” — Arthur Schopenhauer

Almost every teenager has been warned about the dangers of getting into debts, but they all grew up accepting that a government debt was acceptable and even honorable. As this editorial points out earlier, if the scheme is run by the top managers of a country, the amount of debts can only grow exponentially. One doesn't need to be a rocket scientist to figure what happens when the national debt exceeds the GDP. For the bankers it doesn't really matter, they operate for profits and when money is debt (does not exist) massive liquidations are ineluctable. The (bank) shareholders and the taxpayers are simply left holding the bag. As stipulated in 'Beyond The Age of Usury' , today's events are far from being isolated. Luckily, such facts are everywhere on the Internet: we only have to keep an open mind and allow reality to reveal itself. They represent a recurrent pattern that is concealed to preserve a feudal hierarchy.

The book titled The Bankers That Broke The World and written by Liaquat Ahamed - here reviewed by the New York Times - tells us about a macabre monetary story that looks much like today. The parallels are uncanny. That book should be on your must read list this year. If your budget is tight, there are plenty of free online books that will do the job and which you can find in the library of the site.... time is running out. As financial illiteracy and corruption are about to engulf the whole planet, some speculate more and more about the meanings of The Mayan 2012 prophecy. One thing is certain though: it is The End Of The World As We Know It - or TEOTWAWKI as an acronym frequently used by the doomsayers.

It is going to take the collapse of the dollar to have a mentality change and address central banking, Congressman Ron Paul conceded recently on MSNBC . Since we cannot escape what is coming toward us, a Biblical debt jubilee and the implementation of 'honest money' are the only long-term answers. The people have to free themselves because the 'powers that be' will never admit to being the rulers by deception. More positively, this battle cannot take place on the streets but in each of us individually; and it can only be won if waged peacefully and spiritually. There is no such a thing as a war to end all wars.

And ultimately, everything is bound to be overcome or disappear eventually. If 'We The People' were able to find our way back to prosperity, we'd no longer be living in a world where destruction is more profitable than peace and with the fear of technology. It would also enhance the smooth transition to the development of a resource based economy as advocated by Jacky Fresco who dedicated is entire life to The Venus Project ... (to be continued)

By Sharon Kayser

http://www.un-debt.net

 

 

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#2) On February 03, 2009 at 11:39 AM, carcassgrinder (37.43) wrote:

Simple seeing the flaws in Keynesian economics coming to fruition.  They could have stayed hidden for many decades were people not so greedy.  It is a wonderful facade of 'money' we have created...but Keynesian economics is fundamentaly flawed...and this is unavoidable.

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#3) On February 03, 2009 at 12:21 PM, whereaminow (20.23) wrote:

In 1981, Murray Rothbard wrote this essay in which he proposed the American people repudiate the national debt. Like all Libertarians he was mocked for being out-of-touch and living in a fantasy world. Heh. Read it again. It's not so funny anymore.

A few years back I picked up a book called 48 Laws of Power. It should have been called the Handbook for Breaking the Human Spirit. But it taught me something useful. Never trust anyone that wants to be ruled. Those who want to rule are obvious. Those who want to be ruled are more evil. The rioters in France are protesting because they don't like how they've been ruled. They have lost the ability to reason. They can't even ask the fundamental question: why should I be ruled? Their Human Spirit has been broken. There is no hope for them. They have abandoned their own minds and become the drooling beast. I disagree with Ayn Rand.  Those who seek power are not worse than those who wish to be ruled. The human that submits to being ruled is the worst kind of evil. If they want to see Satan, they merely should look in the mirror.

And so it has gone across Europe for the last 100 years. Collectivism as protection from your neighbor's thoughts. The vast independent spirit that has kept America from Europe's follies is crumbling. Collectivism as protection from your neighbor's thoughts.

"Libertarians? If they were in charge who would stop the evil doers from destroying me?"

Collectivism as protection from your neighbor's thoughts.

This is your world. Enjoy it.

David in Qatar

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#4) On February 03, 2009 at 12:23 PM, whereaminow (20.23) wrote:

Another note. The great con man Yellow Kid Weil, when reflecting upon his many successes, uttered this prophetic wisdom:

"The desire to get something for nothing has been very costly to many people who have dealt with me and with other con men," Weil writes. "But I have found that this is the way it works. The average person, in my estimation, is ninety-nine per cent animal and one per cent human. The ninety-nine per cent that is animal causes very little trouble. But the one per cent that is human causes all our woes. When people learn -- as I doubt they will -- that they can't get something for nothing, crime will diminish and we shall live in greater harmony."

True words indeed.

Great article, TMFSinchurina!

David in Qatar

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#5) On February 03, 2009 at 12:43 PM, Mary953 (76.13) wrote:

Sinchiruna, Since you left a comment, you saw the blog and that I put you in it as an example of the types of warnings that get passed on to other CAPS members.

David, I am being very off-topic here, but I get to let you know also that I put a post on CAPS once in a while to provide newcomers with ways to use the site. (Usually after we have a bunch of "I'm new, so how do I...type posts).  I put a link to one of your recent blogs so that I could recommend you as a good CAPS member to read for some good discussion in realms of economics, sociology, political systems, etc  --

If you want it, here is the link - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=139616&t=01007737217973478225

 

 

 

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#6) On February 03, 2009 at 12:52 PM, whereaminow (20.23) wrote:

Mary953,

I am honestly shocked and thankful. That was very nice of you. I hope I can live up to your high praise. I'm still learning how to turn completed thoughts in my mind into well written essays. I stumble here and there but I'll keep with it.

Again, thank you very much.

David in Qatar

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#7) On February 03, 2009 at 1:16 PM, GNUBEE (24.85) wrote:

Sinchy,

Herein lies the single biggest problem of being a human.

What do you do with yourself? The current system creates needs/wants as well as the system to expend energy in chasing these needs/wants. Debt allows people to occupy themselves in consumption and production. If people did not have access to money, transactions could not take place on a level that would support such a large population base.

I firmly believe that the current system will continue because it keeps the masses occupied.Spend Spend Borrow Borrow is funamentally flawed, but universally accepted as the easiest fix.

In a utopian society something other than money would be the ultimate goal. For now we have no goals, so we get a diversion

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#8) On February 03, 2009 at 1:20 PM, Rehydrogenated (32.41) wrote:

Ugh, I really hope things start getting better before the 2012 predictions. I really can't handle another Y2K bug.

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#9) On February 03, 2009 at 1:55 PM, XMFSinchiruna (27.47) wrote:

GNUBEE

Definitely an interesting perspective... thanks for sharing!

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#10) On February 04, 2009 at 3:03 AM, jester112358 (28.83) wrote:

Great post:  This sentence particularly caught my attention:

"Paid by the taxpayers... then borrowed again by them with an interest... doesn't this make sense or perhaps is debt laundering legal?"

Obviously, only legal when practiced by the authorities.  If I try to deposit a check from one owned bank account into another insolvent account thus making the first insolvent, I would be charged with fraud.

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#11) On March 30, 2009 at 4:37 PM, JeffHur (< 20) wrote:

The solution to this economic crisis must be a moral one.The root of the problem lies in the unbrideled greed that has grown exponentially in the last 50 years. Each person and party sit and hoard, and meticulously guard their possessions without any concession for others. We are totally submerged in indifference as though nothing has happened. The entire world is in a frozen state. Everything is coming to a screeching halt. This is happening because our intentions are not aimed at benefitting each other.  A book I just read " From Chaos to Harmony" By Michael Laitman provides interesting insight.

-

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