Preparing for the New Economy

by Bill Bonner

Waterford, Ireland – “America is beginning to consider a new stimulus program,” said Irish television last night.

It was a rainy day in the Emerald Isle yesterday. The wind was blowing. Rain was coming down. By 7pm, it was time for a pub and a drink. The Irish know what to do in the evening…

“Welcome to Ireland,” said the cab driver this morning. “Don’t you love this summer weather?”

It would have passed for a bad winter in Maryland. Cool. Wet. Disagreeable.

“What happened to that global warming?” asked a colleague. “It was supposed to make Ireland hot and dry.”

Meanwhile, back in the USA…people were wondering what happened to the stimulus program. It was supposed to stimulate.

Mr. Geithner says it is working. He says it’s “too soon” to begin thinking about another stimulus program. But every time we pick up a paper someone is voicing the need for more stimuli. And the things that really matter in the economy are going in the wrong direction: Jobs are going down. House prices are going down. Consumer prices are going down too.

This from Robert Reich’s blog:

“Recovery doesn’t depend on investors. It depends on consumers who, after all, are 70 percent of the US economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.

“Problem is, consumers won’t start spending until they have money in their pockets and feel reasonably secure. But they don’t have the money, and it’s hard to see where it will come from. They can’t borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten homeowners is under water – owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can’t are hunkering down, as they must.

“Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can’t be built on replacements. Don’t expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don’t rely on exports. The global economy is contracting.

“My prediction, then? Not a V, not a U. But an X. This economy can’t get back on track because the track we were on for years – featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere – simply cannot be sustained.

“The X marks a brand new track – a new economy. What will it look like? Nobody knows. All we know is the current economy can’t ‘recover’ because it can’t go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin…”

These comments sound sensible enough to us. In fact, colleague Rob Parenteau has been saying something quite similar in these pages. “Over the last three decades,” he says, “we’ve taken one of the greatest industrial nations in history… and traded it off piece by piece. In its place, we became the world’s #1 shopping nation.

“Even now, we’re facing an economy in which 70% of our economic output depends on consumer buying. No buyers, no recovery.

“And yet, unlike other recent minor busts and even major corrections, the lesson hundreds of millions of strapped Americans are learning all over again is that same lesson our forebearers learned after 1929.

“Namely, that the law of personal and financial responsibility is as irreversible as the law of gravity. And it’s the egg that no bureaucrat – no matter how popular – and no multi-billion dollar bailout – no matter how large – can unscramble.

“In short, the hearts and minds of the American consumer have been thrown into reverse. And it’s this total psychological ’snap’ that will make a back-to- baseline conventional recovery impossible any time soon.”

After a night of heavy drinking in the pub…and pious reflection in our hotel room…we woke up worried. What if our friend Hugh is right? What if the comments above are right? Heck…what if WE’RE right?

The most critical question an investor faces today is whether he wants to smash up on the rocks of deflation…or run aground on the hard place of inflation. Posed the question – inflation or deflation? – we have always answered ‘yes.’ We will have both. But it is gradually occurring to us that we will have both more abundantly than we realized. As Hugh reminded us: we know of no case where quantitative easing has actually worked. It seems to work only where it is applied to excess – where the results are catastrophic hyperinflation.

The feds are more incompetent than even we suspected. They are trying to cause mild inflation – say, 4%…maybe 6%…even 8%. But they aren’t doing a very good job of it. Their efforts are too hesitant…they’re too worried about what the anti-inflation hawks will say…and about what the bond vigilantes will do. “What if the Chinese dump their Treasuries?” Yikes, that is too awful to contemplate. “Better go easy on that quantitative easing.”

The Chinese…unhampered by bond vigilantes [they are the bond vigilantes] or good sense…are increasing their own money supply three times faster than the United States.

Our Feds are trapped between the same rock and the same hard place as the rest of us. Either they run into the rocks of hyperinflation…or into the hard place of deflation. Just like Japan’s central bankers and finance ministers. They COULD cause inflation…but the price of it is too high. So, they take baby steps…boosting the money supply too little to offset the natural deflation of a major correction.

Of course, this is what makes us fear hyperinflation too. There doesn’t seem to be any safe channel between Sylla and Charybdis. If they are going to cause inflation…they have to really inflate the money supply. Not by 9% a year…but maybe by 900%. We don’t know what it will take; neither do they. All we know is that what they are doing now is not working. Prices are falling, not rising. Bond prices are rising – indicating that the vigilantes don’t think inflation is a problem. And the foreigners – notably, the Chinese – are still ADDING to their supplies of US Treasury debt.

So, dear reader, what should you do? Inflation could take much longer to arrive than most people think. A dull, sinking, dreary economy – like the weather in Ireland today – could be with us for years. The dollar could go up…gold could go down…for many moons.

Are you prepared to wait it out? We will leave you to think about that….

We’re still troubled by Hugh’s comments. The inflation narrative is “too easy to articulate,” he says. Too many people see it coming.

“The market clearly is not worried about inflation right now,” says colleague Chris Mayer. “That is the only way to explain 10-year Treasury yields of 3.30% as of last Friday. The deflationist view is the one that prevails. This view, which makes some compelling and elegant arguments, maintains that the credit losses far surpass the monetary and fiscal stimulus. All those trillions in destroyed debt, plus the yanking of credit from consumers and businesses, overwhelm new money creation.”

Many years ago, we looked at the danger of a “Japan-like slump.” We were early. We’re facing the sushi now. Falling prices. Big output gap. Rising unemployment. On again, off again deflation.

When we considered the risk a few years ago, we came to the conclusion that the United States couldn’t afford to wait it out the way the Japanese have. We have too many people who owe too much money to too many wobbly creditors.

But now we’re in it. The feds are propping up the wobbly creditors just like they did in Japan. The banks have gotten trillions in loans and guarantees.

The feds have been trying to prop up households too. They recently approved 125% mortgage refinancing by Fannie and Freddie. In other words, they now officially condone…and finance…underwater homeowners. If your house is only worth $200,000…and you owe $250,000…the feds will refinance your mortgage in full. No need to sell and take the loss. No need to let the banks foreclose. No need to face reality. Now…you can just stay underwater – indefinitely.

The feds are preparing to keep the whole economy on life support – with oxygen provided by quantitative easing. Eventually, of course, they’ll run out of gas. But that could be far in the future…

Government deficits are getting worse and worse. Tax receipts are falling. The US deficit for June came to $94 billion…a new record. And the budget deficit has topped $1 trillion for the first time ever. This is also exactly what the Japanese did. They ran the biggest deficits in history. And still the yen went up!

As we keep saying…inflation is no sure thing, at least not in the short-run. But Chris Mayer believes that “the problem with the deflation arguments long term, it seems to me, is that you are betting against a government’s ability to destroy its own currency. Governments are seldom good at anything, but one thing they are undeniably good at is destroying their own currencies. The dollar has lost 95% or so of its value since 1913. That’s a pretty darn good job. Other countries have been even more thorough.”

It takes a determined and suicidal central bank to pull off hyperinflation. Like the Central Bank of Zimbabwe, for example.

http://www.lewrockwell.com/bonner/bonner396.html

Deflation in luxuries, inflation in survival stuff, like guns, ammo, and food.

If folks can't/won't borrow, money will be handed to them, or dropped from a hellicopter.

'Printing money will lead to serious problems down the road,' says Jim Rogers

Fri July 17, 2009 11:20 am

INTERNATIONAL. Legendary global investor and chairman of Singapore- based Rogers Holdings, Jim Rogers said on Wednesday the US government’s interventionist economic policy verges on communism.

In an interview with Moneynews's Dan Mangru, Rogers said: "America now owns the car industry. America owns the mortgage industry. America owns a lot of the insurance industry. Karl Marx must be somewhere standing up in his grave cheering. And why is that? America has become a socialist and maybe even communist nation in many ways,” Rogers said.

Addressing the various stimulus packages introduced by the US government, Rogers suggested that President Bush approved two packages, President Obama one, and now there’s talk of a fourth.

“The first stimulus didn’t work. The second stimulus didn’t work. The third stimulus hasn’t worked,” he said.

Rogers is clearly unhappy with the massive monetary easing the Fed has engineered under Chairman Ben Bernanke and he sees inflation and a currecy crisis as a result of these policies

“Printing money has been tried many times throughout history in many countries,” he said. “It has never worked in the long term; it has never worked in the medium-term. Occasionally, it has worked in the short term.”

“Printing money is going to lead to serious problems down the road,” Rogers added.

The amounts involved are staggering, Rogers said. “They’ve already injected huge amounts of money into the system. The Fed has more than tripled its balance sheet in the past year or so.”

The federal government “has increased its own debt by four, five, six times,” he said.

In an interview with India's Economic Times Tuesday Rogers was asked what he was hiding in his pocket in reference to when, in a previous interview, he had a sachet of sugar in his pocket to underscore the point of impending shortage about agricultural commodities.

"I do actually have a silver coin in my pocket. I also have a gold coin, but the silver one is probably my better play. If I were a bright young man, I would be buying sugar now and silver, given the state of the world. That's not a recommendation, but I am just saying I do own some silver. Silver is cheaper than many things on a historic basis and I do own some silver," Rogers said.

Rogers reiterated his stance on the dollar and his expectation of a currency crisis.

"I am not terribly bullish on the dollar in long term. US dollars are a terribly flawed currency and down the road I hope I don't own any US dollars. I still own some of them at the moment, but it's not getting better for the US. The dollar any way is getting worse. The fundamental for commodities continue to improve. The fundamentals for the US dollar do not continue to improve. They are deteriorating."

"The world is full of currency imbalances and economic trade imbalances would have to be resolved or corrected, one way or the other. So, we are going to have some problems in the currency market. I don't know when." said Rogers.

http://www.bi-me.com/main.php?id=39008&t=1&c=62&cg=4&mset=

“The market clearly is not worried about inflation right now,” says colleague Chris Mayer. “That is the only way to explain 10-year Treasury yields of 3.30% as of last Friday. The deflationist view is the one that prevails. This view, which makes some compelling and elegant arguments, maintains that the credit losses far surpass the monetary and fiscal stimulus. All those trillions in destroyed debt, plus the yanking of credit from consumers and businesses, overwhelm new money creation.”

On a recent Financial Times interview an English hedge fund manager was promoting a similar idea, the idea that deflation may be coming rather than inflation because central banks are not printing money fast enough, at the time I thought the guy was raving mad, however if you put into consideration credit losses those guys may have a point, on the short term in any case.

First deflation then inflation that is a fabulous formula to make people poor real fast.

If the deflation scenario comes around, counter to all the stuff you learned in college, on Kitco and from grandma´s stories about the depression, you may actually get fucked for buying gold, silver and commodities, that is a very unpleasant thought, to me all this means that no assets are really safe from heavy losses, that some assets can fall out of favor in the blink of an eye.

Deflation in luxuries, inflation in survival stuff, like guns, ammo, and food.



Bingo , somewhat .

Deflation in wages , houses (common ones ) , personal assets (stocks , funds , bonds ) and personal property (cars , appliances ).

Inflation in food , energy, medical care .......... guns and ammo ( if you can get them ).
Inflation in safe houses , far from urban chaos and non-whites . Also in productive land , crops or livestock .


Most of this money printing 'Quantative easing' ( what a jew term , must have set on the pot a long time , to create that one ). Seems to be flowing into the pockets of the ultra-rich and just passing everyone else .

Who says that you can't have both inflation and deflation , at the same time? It happens all over Latin America and Africa .

Inflation in safe houses , far from urban chaos and non-whites . Also in productive land , crops or livestock .

I have a bit of trouble believing that agriculture will benefit as much as Jim Rogers wishes it would. Hypothetically, when there are economic hard times people will be less wasteful with their food and tend to buy cheaper food, particularly less meat, which requires a lot of investment and land to produce. In the developing world many people, who were previously working in the cities, will return back to the countryside where many may pick up small plot and subsistence farming again thus reducing the need to import food.

I also don’t believe there is a serious shortage of arable land, in Europe the governments have for years been paying farmers to leave their land fallow, if need be this land could quickly be put back into production. Finally, if farms were suddenly perceived as cash cows they would not long have problems getting loans for production.

I have a bit of trouble believing that agriculture will benefit as much as Jim Rogers wishes it would. Hypothetically, when there are economic hard times people will be less wasteful with their food and tend to buy cheaper food, particularly less meat, which requires a lot of investment and land to produce. In the developing world many people, who were previously working in the cities, will return back to the countryside where many may pick up small plot and subsistence farming again thus reducing the need to import food.

I also don’t believe there is a serious shortage of arable land, in Europe the governments have for years been paying farmers to leave their land fallow, if need be this land could quickly be put back into production. Finally, if farms were suddenly perceived as cash cows they would not long have problems getting loans for production.

Yes, that's all true. But think of how these things will change the culture. If millions of people are gardening, they'll inevitably have thoughts like:

"Hmm, some plants are good, and many many others are bad (weeds). You need to kill the bad plants, so the good plants can thrive. Yes, yes, and maybe this applies to humans, too."

We have been "push-button" people for decades now. Hit the button, get the cheese. Most of us on this board don't remember anything different. Well, if your above scenario comes to fruition, we are going to have a very different world.

In political terms inflation is good for spend as you go ethnics and very bad for prudent whites.However politically inflation is good for whites with a racial imperative.All said and done if the western governments had the trillions for the jew bankers then all economics are bunk.

I have a bit of trouble believing that agriculture will benefit as much as Jim Rogers wishes it would. Hypothetically, when there are economic hard times people will be less wasteful with their food and tend to buy cheaper food, particularly less meat, which requires a lot of investment and land to produce. In the developing world many people, who were previously working in the cities, will return back to the countryside where many may pick up small plot and subsistence farming again thus reducing the need to import food.

I also don’t believe there is a serious shortage of arable land, in Europe the governments have for years been paying farmers to leave their land fallow, if need be this land could quickly be put back into production. Finally, if farms were suddenly perceived as cash cows they would not long have problems getting loans for production.

My error , I wasn't clear .
I generally tend to agree with your statement .
I wasn't thinking in terms of large commercial operations or export markets, but more in terms of a few acres to feed family and friends . The intrinsic value of self-sufficiency in food is priceless . To weather any economic or social turmoil with a full larder will always make the unbearable , bearable.
Being able to raise 'easy meat' , chicken , turkey , game fowl etc. is cheap and relatively easy compared to cattle and hogs .
The barter value of food can be very high , in times of social unrest .

The 'Green Revolution' has given us the historical first of high yields and an overabundance of cheap food . That puts a cap on runaway food prices .

Like you , I am skeptic of Jim Roger's predictions , but China is the wild card.

I remember Jim Roger's prediction that black rule in Zimbabwe would make that country an ideal place to invest .:rolleyes:

He must know how to make money , but he sure doesn't know much about race.

All said and done if the western governments had the trillions for the jew bankers then all economics are bunk.

Agreed !

Sure is strange, they have billions and even trillions for judeo-banking. However , when Americans wanted a border fence with Mexico , the government said it just didn't have the money . ( What a bald-faced lie ! )

A very dangerous thing occurred last Thursday and Friday. The Federal Reserve monetized roughly 40% of the nation's enormous debt. This means that the Fed printed money to flow into the economy in order to cover over 40% of the debt burden the U.S. now carries.

Within days the U.S. government quickly sold off this portion of the debt, creating even more debt, leading Treasury Secretary Timothy Geithner to request from Congress a lifting of the debt ceiling so that we could cover our obligations. That, of course, will create even more debt.

This economic shop talk may sound like gobbledygook to most average citizens, like myself. But the bottom line is that what the Fed did last week will create what is known as 'hyper-inflation.' The cost of goods and services rises so fast that average citizens can't afford the basic essentials of living.

However, the dirty little secret among economists and government bureaucrats is that what's bad for the citizens in this scenario is actually good for the government. In a hyper-inflation scenario the government makes more money due to the tax structure being based upon percentages. Thus, the government makes more money without having to enact an official tax increase.

In a free, Constitutional Republic, a very careful balancing act must be undertaken by government in this situation. The amount of hyper-inflation that benefits government must be carefully balanced with the tolerance level of the public for the ever-rising costs of goods and services, or else the citizens will vote out every politicians who contributed to this dastardly plan.

The salient point here, though, is that we are headed for a round of heavy hyper-inflation. We'd better get set.

But this is not the only troublesome area.

Many economists who closely watch the mortgage and housing markets are saying that we are going to experience yet another major crisis with foreclosures within the next year or two. The reason? Homeowners will owe more on their mortgages than their homes are worth on the market. One economist in particular stated on Fox News that this crisis will not only prevent a recovery but throw the nation back into a deeper recession or even a depression.

Barack Obama has stated, on the record, that the U.S. is 'out of money.'

For once in his life, he told the truth. We are broke. Yet at the worst point in at least 30 years for our economy, Obama and the Democrats wish to pass a 9 trillion-dollar healthcare plan, just so roughly 10 million Americans can have some insurance. And to boot, they want a cap-and-trade plan that will cripple business, decimate jobs, and add $1500-$3000 per year in extra energy costs to the average American family.

There are only 2 ways that the government can cover the costs of such a head-splitting load of debt, on top of the debt we already have. One is to raise taxes. The other is to print more money. Neither solution is acceptable. If inflation is headed through the roof, how will the citizens pay for more taxes? If the government continues to print more money, inflation will only continue to increase.

In short, the Barack Obama plan for the nation is a prescription for chaos. Some would argue we are already sliding into chaos without the healthcare plan or cap & trade. Obama and the Democrats have led us to a point in our history where the very survival of the Republic hangs in the balance. We are edging ever closer to a precipice, and if we fall off of it the Republic will be lost.

Obama and the Democrats who control Congress have given us snake-oil remedies that are leading us closer and closer to that precipice. Perhaps this is a slight hint as to why the citizens who shout at town hall meetings are so passionate.

And perhaps this is why the voices calling for a complete change in Congress, from top to bottom, are growing.


http://www.examiner.com/x-3704-Colum...ing-into-chaos (http://www.examiner.com/x-3704-Columbia-Conservative-Examiner%7Ey2009m8d13-The-nation-quickly-descending-into-chaos)

Does this mean that silver and gold will skyrocket? I've seen silver averaging around $14.75 an ounce the last few days.

Does this mean that silver and gold will skyrocket? I've seen silver averaging around $14.75 an ounce the last few days.

A lot of people predict that it will. When US Treasuries are not a safe haven, when the dollar is toast and the stock markets are now openly manipulated by Big Jew, there are not so many alternatives in the Kwa left, although I guess there is the Euro, oil, etc.

I buy silver as a SHTF purchase item. The only time I played the markets was when I sold off during $8 silver that I had bought for $4+/- to pay for my wedding. Otherwise, I buy and hold.

China reduces holdings in US debt

China reduced its holdings of US government debt by the largest margin in nearly nine years in June, according to data from the US Treasury.

China holds more US government debt than any other country and cut its holdings of US securities by more that 3% in June, said the BBC's Chris Hogg.

Japan and the UK - second and third largest holders of US debt - increased their holdings over the same period.

China's holding of US debt is about 7% higher than at the turn of the year.

Inflation fear

In recent months the US government's budget deficit has widened thanks in part to the Obama administration's costly stimulus plan.

Our correspondent in Shanghai says that China is worried about this, and fears the stimulus efforts will fuel inflation in the US, reducing the value of the dollar.

This would then erode the value of the debt China holds in the US currency.

In June, China cut its holdings of US securities by about $25bn, a fall of 3.1%.

'Dollar alternative'

The sales were made as the US treasury secretary was visiting Beijing to try to reassure the Chinese that their investment in his country's government debt is safe.

In 2008, the Chinese increased their holdings in US debt by 52% over 12 months.

"China has said it would like to establish an alternative to the US dollar as the world's favoured currency for foreign exchange reserves," said our correspondent.

"So far there is no evidence that there is a suitable alternative. But these figures suggest they are exploring ways to diversify their investments where they can."

http://news.bbc.co.uk/2/hi/business/8207174.stm

http://eclipptv.com/viewVideo.php?video_id=7958

[Gary North on financial future of ZOG]

The great advantage of political promises is that the politicians who make them will not be in office when the bills come due. The benefits are immediate: votes. The costs are deferred. The supply of promises increases.

These promises rest on assurances. "Treasury debt will continue to have a AAA rating." "Treasury debt is backed by the full faith and credit of the United States." "There is no alternative to the U.S. dollar as a world reserve currency." "We owe it to ourselves." "Deficits don't matter." "Inflation is under control."

With the exception of Austrian School economics, every major school of economic thought believes in at least four of these assurances. Keynesians believe all of them.

So, the supply of promises increases. So does the magnitude of these promises. For as long as investors buy the Treasury debt and the GSE debt (Fannie and Freddie), there will be no reversal of this process.

The advent of the day of reckoning is easy to describe: (1) the upward move of Treasury interest rates, or (2) the upward move of prices in response to the Federal Reserve System's expansion of its balance sheet – monetary base – to hold down rates.

Then will come the wail of the aging mistress: "But you promised!" Indeed, he did, but a younger mistress has come along, and she wants the presents that he had promised the first one. When lenders start tightening up, a philanderer has to pick and choose among his mistresses. Old ones lose.

But what of the faithful wife? When will she finally wise up and divorce the lying SOB?

I am writing this report for her.

WHY DEFAULT WILL COME

You know about the unfunded off-budget liabilities of the Social Security and Medicare programs. If you don't know the numbers, go here.

You know about the size of the on-budget Federal debt. If not, go here.

You presumably know about the size of the officially estimated deficits in the on-budget account: at least $900 billion a year until 2019. If not, go here.

Voters are oblivious. They do not care about anything beyond their next paycheck. Investors are oblivious. They do not care beyond the next quarterly report. Congress is oblivious. They do not care beyond the next election.

Am I saying that Congress has a longer-term perspective than investors? Yes. But why? Because investors believe two things: (1) the existing price of any asset reflects the best judgment of the smartest investors; (2) they will be smarter than all these other investors when it comes time to sell and buy gold.

The average American faces his day of reckoning on the first of every month. Congress faces its day of reckoning in November of even-numbered years. Investors do not believe that they, individually, will ever face a day of reckoning. They think they are smarter than the smartest guys in the room, or else they think Ben Bernanke is, and all those other FED economists are, who will see the crisis coming next time and will take steps to evade it.

Congress also thinks that the FED's economists will find ways to evade the day of reckoning.

Investors and politicians are united. They trust the ability of central banks to evade the costs of political promises. This has been true since 1694, when Parliament granted a monopoly over money to the Bank of England. Parliament wanted a lender of last resort. That was what the head of the Bank of England promised.

The political promises of every nation rest on faith in central banking. The politicians and the investors are united in a confession of faith. This confession of faith rests on an assumption: with fiat money, there can be a free lunch, indefinitely. Every school of economic opinion except the Austrian School also affirms this.

There is a problem with this confession. It is not true. There is no such thing as a free lunch. Fiat money is counterfeit money. It does not create wealth. It destroys wealth.

Congress has promised money. It has also promised wealth. Congress will default on at least one of these promises.

We are back to my original two questions: (1) How? (2) When?

Default has four major forms. We need to consider all of them.

1. OUTRIGHT DEFAULT

This scenario assumes that the central bank refuses to buy the government's debt. This has not happened since 1694.

At some point, the government will not be able to find buyers at low interest rates. Rates will rise. The economy will sink into a depression. Revenues will decline. Expenditures will rise. The government will not be able to pay all of its obligations. So, it will raise taxes. The depression will get worse. Revenues will again fall.

Investors will know that the government is likely to default. No credit-rating service will have the courage to downgrade the government's debt, but rates will rise as if they had. The government will reach the day of reckoning. It will default on all of its debts.

Every institution that has government debt in its portfolio will suffer a loss. Its share price will fall. The depression will get worse. Insurance companies will be hit hard. The largest banks, which swapped their toxic debt with the FED at face value in late 2008 will find that they own the most toxic debt of all.

Foreign central banks will refuse to buy any more American Treasury debt. Technically, their portfolios fall to the extent that they held Treasury debt. Then those governments must decide. Should those banks be allowed to inflate to overcome these losses?

The inverted pyramid of debt will topple. The great default will produce the great depression. Unemployment will rise. Depositors will finally go to their ATMs to draw out currency. The banks will default: no withdrawals of currency.

The division of labor will contract. Everyone will get much poorer.

Because a default on all Treasury debt would have such widespread consequences – immediate consequences – economists have argued that this will not be allowed to happen. The central bank will buy the debt. But if it does, at some point it must stop buying or else create hyperinflation. Hyperinflation has the same consequence as default and deflation: a contraction in the division of labor.

I know of only one economist who predicts an outright default: Jeffrey Rogers Hummel. On August 3, 2009, he published an article on the free market site, Library of Economics and Liberty: "Why Default on U.S. Treasuries is likely." His argument is simple: the only alternative is the Zimbabwe option: hyperinflation.

He goes through the numbers. He makes an impressive case. He does not discuss the level of interest rates that would bring on the crisis, but at some point, the Treasury will have to offer high rates unless the FED intervenes.

He says that the welfare state is going to die, all over the world. I think he is correct. I am not convinced that outright default is likely – not before much higher price inflation arrives.

The strategy of the FED is the same as the strategy of Congress: kick the can.

SELECTIVE DEFAULT

Hummel admits that selective default is a possibility. I think it is more than a possibility. I think it is likely. He writes:

The Zimbabwe option illustrates that other potential outcomes, however unlikely, are equally unprecedented and dramatic. We cannot utterly rule out, for instance, the possibility that the U.S. Congress might repudiate a major portion of promised benefits rather than its debt. If it simply abolished Medicare outright, the unfunded liability of Social Security would become tractable. Indeed, one of the current arguments for the adoption of nationalized health care is that it can reduce Medicare costs. But this argument is based on looking at other welfare States such as Great Britain, where government-provided health care was rationed from the outset rather than subsidized with Medicare. Rationing can indeed drive down health-care costs, but after more than forty years of subsidized health care in the United States, how likely is it that the public will put up with severe rationing or that the politicians will attempt to impose it? And don't kid yourself; the rationing will have to be quite severe to stave off a future fiscal crisis.

The rationing will have to be severe. The promises will not come true.

INFLATION

There are two forms: mass (up to 50% per annum) and hyper (the sky's the limit).

Mass inflation seems more likely over the next decade. If the world's central banks can coordinate the expansion of money, thereby funding the national welfare states, the public will not be able to escape. They will pay the inflation tax.

The ways around this are limited to investing in real goods: commodities, small farms, used goods stores, small-town real estate. Not many people will see this in time. Of those who do, few will take action. These escape hatches are for people who are hedging against default. The average voter has no financial reserves. Of the 20% who do have reserves, 80% will be stuck in conventional investments. They will believe the Establishment's Keynesian line. "The government can fix it if you just hang on."

Inflation means the erosion of money. It means a hidden default on the political promises. Why hidden? Because the politicians will blame speculators. They will not blame the Federal Reserve for having bankrolled their promises.

CONCLUSION

Ultimately, it is either the great depression or the Zimbabwe option. Ludwig von Mises called this the crack-up boom. It means the destruction of money and the collapse of the division of labor. It would mean devastation.

I think central banks will at some point refuse to fund governments any longer. They will bail out the largest banks instead. Foreign politicians may force hyperinflation on their central banks, as agents of the government. But as long as the Federal Reserve System maintains its selective independence, it will not adopt hyperinflation as a policy. That would not be in the interest of the largest banks. It would also not be in the interest of central bankers. Their retirement promises would die.

November 2, 2009

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

http://www.lewrockwell.com/north/north778.html

Hi

The inflation rate is so high in the world at this time but some countries can control this rate and mostly cannot control this inflation rate.

YouTube - Understanding Money and Inflation Part 1 (1 of 4)

YouTube - Money As Debt (1 of 5)

I see this happening in 2011 instead. Jews will be heading for Israel T.J.B. and Negroes will be riotingT.N.B..

YouTube - The Day the Dollar Died

Remember that inflation and deflation can happend at the same time.

My error , I wasn't clear .
I generally tend to agree with your statement .
I wasn't thinking in terms of large commercial operations or export markets, but more in terms of a few acres to feed family and friends . The intrinsic value of self-sufficiency in food is priceless . To weather any economic or social turmoil with a full larder will always make the unbearable , bearable.
Being able to raise 'easy meat' , chicken , turkey , game fowl etc. is cheap and relatively easy compared to cattle and hogs .
The barter value of food can be very high , in times of social unrest .



Agreed, with the exception of hogs. Beef cattle are tremendously expensive to raise; prohibitively so in a situation where one is trying to be self-sufficient with food. Unless you have sufficient grassland to sustain them, beef cattle require food suitable for humans -- primarily corn.

Hogs, OTOH, convert waste to pork. You can feed them anything -- apple cores, potatoe peels, chicken bones, milk that has gone bad, corn cobs and other such garden waste, and they convert it to pork.

Agreed, with the exception of hogs. Beef cattle are tremendously expensive to raise; prohibitively so in a situation where one is trying to be self-sufficient with food. Unless you have sufficient grassland to sustain them, beef cattle require food suitable for humans -- primarily corn.

Hogs, OTOH, convert waste to pork. You can feed them anything -- apple cores, potatoe peels, chicken bones, milk that has gone bad, corn cobs and other such garden waste, and they convert it to pork.

Corn is garbage they feed to cattle. It is a waste product, produced by the skewed economic system we live under. Corn has little protein and massive amounts of starch that makes cattle fat and sick (same thing it does to humans). This is why cattle must consume so much of it, because it has little protein.

Cattle are cheaper to raise than hogs. Cattle are ruminants that convert cheap cellulose protein into meat.

Hogs cannot convert cellulose protein into meat, you must feed a hog expensive human digestable protein, so why not just cut out the middle man and eat the protein you would feed the hog, yourself?

Cattle are cheaper to raise than hogs. Cattle are ruminants that convert cheap cellulose protein into meat.

Hogs cannot convert cellulose protein into meat, you must feed a hog expensive human digestable protein, so why not just cut out the middle man and eat the protein you would feed the hog, yourself?

But that cellulose that cattle convert to meat is, generally, grass. If you have the acreage for that then yes, a beef cow would be good thing to have.

The point I was making about hogs is that no matter how careful you are, you will generate waste food products -- apple cores, pea or bean hulls, potato peels -- garbage that would either be composted or wasted completely, that a pig turns into meat.

Inflation is on now. One economist expects tremendous deflation to follow. A report I heard last night says that China's annualized inflation is 60%. The Chinese won't allow that to fester if they don't have to since inflation can lead to "social unrest" which is what the government there really fears.

The link below is for Jim Puplava's site (http://www.financialsense.com/financial-sense-newshour). His audio files on the site feature some pretty interesting interviews covering energy, financials, etc. I would describe Puplava as a moderate doomtard.

This week in her discussions with Jim Puplava, Nicole believes we will see the peaking of oil prices, the next bout of deflation and a looming depression. She sees resource wars as inevitable, given this deflationary scenario. http://www.financialsense.com/financial-sense-newshour/big-picture/2011/04/23/02/nicole-foss/preparing-for-the-next-tsunami

Also, this thread needs a bump. Alex posted some articles seem to be right on the money, so to speak.

Your Rotten Monetary Policy Is Destroying This Country

by Ron Paul

Before the United States House of Representatives Committee on Financial Services, Hearing on 'Monetary Policy and the State of the Economy,' 2/29/2012

Mr. Chairman, thank you for holding this hearing on monetary policy and the state of the economy. I believe that now, more than ever, the American people want to hold the Federal Reserve accountable for its loose monetary policy and want full transparency of the Fed's actions.

While the Fed has certainly released an unprecedented amount of information on its activities, there is still much that remains unknown. And every move towards transparency has been fought against tooth and nail by the Fed. It took disclosure requirements enacted within the Dodd-Frank Act to get the Fed to provide data on the its emergency lending facilities. It took lawsuits filed by Bloomberg and Fox News to provide data on discount window lending during the worst parts of the financial crisis. And it will take further concerted action on the part of Congress, the media, and the public to keep up pressure on the Fed to remain transparent.

Transparency is not a panacea, however, as a fully transparent organization is still capable of engaging in all sorts of mischief, as the Federal Reserve does on a regular basis. Ironically, one of the Fed's more egregious recent actions, adopting an explicit inflation target, was hailed by many as another wonderful example of transparency. Yet if you think about what this supposed 2% inflation target actually is, you realize that it is an explicit policy to devalue the dollar and reduce its purchasing power. Two percent annual price inflation means that prices rise 22% within a decade, and nearly 50% within two decades.

Indeed, if you look at the performance of the consumer price index (CPI) under Chairman Bernanke's tenure, prices have risen at a rate of 2.25% per year. Many, perhaps even most, economists would consider this a modest rise, an example of sober, cautious monetary policy. Some economists of Paul Krugman's persuasion might even argue that this is too tight a monetary policy. However, 2.25% is not too far off from the Fed's new 2% target.

Now look at the performance of the US economy since February 1, 2006, the date Chairman Bernanke took the mantle from Alan Greenspan. Trillions of dollars have been wasted on bailouts, stimulus packages, and other feckless spending. Millions of Americans have lost their jobs and have lost hope of ever regaining employment. The national debt has risen to more than 100% of GDP, as the federal government continues to rack up trillion-dollar deficits, aided and abetted by the Fed's policies of quantitative easing and zero percent interest rates. And we are supposed to believe that a 2% inflation rate, similar to what has prevailed during the worst economic crisis since the Great Depression, is the cure for what ails this economy.

This explicit 2% target also fails to take into account that whatever measure is used to determine price inflation, be it CPI, core CPI, PCE, etc., will always be chosen with an eye towards underreporting the true rate of inflation and price rises. Pressure will be exerted on those calculating the price indices, so as not to alarm the public when prices begin to accelerate. One need only look at what is taking place in Argentina today, where the government publishes an official CPI figure that is often less than half that reported by private sources.

A similar situation exists in this country, where economists calculating CPI according to the original basket of goods have determined that price inflation has increased 9.5% per year since 2006, rather than the 2.25% reported by the government. Even the government's own data reports price rises of nearly 7% per year since 2006 on such consumer goods as gasoline and eggs. Bread, rice, and ground beef have increased by nearly 6% per year, while bacon and potatoes have increased nearly 5% per year. This means that in a little over half a decade, prices on staple consumer goods have increased 30-50%, all while wages have stagnated and millions of Americans find themselves out of work and without a paycheck. Of course, government officials claim that price increases do not affect the average American because they can always buy hamburger instead of steak, or have cereal instead of bacon. But the American people can see how they are suffering because of the Federal Reserve. The government’s claims that the official statistics show no reason to be concerned about inflation is Marxist – as in Groucho, who famously said: "Who are you going to believe, me or your own eyes?"

The Federal Reserve continues to keep interest rates low in the hopes of boosting lending and consumption. But keeping interest rates at zero discourages saving, particularly as the rate of price inflation continues to rise. Why stick money in a savings account earning 0.05% if it is guaranteed to lose at least 2% of its value every year? And this is a guarantee, as the Fed has promised a 2% rate of increase in price inflation, while also guaranteeing a zero percent federal funds rate through 2014. Retirees living on fixed incomes, dependent on savings, or on interest income from investments will see their savings drawn down as they are forced to consume principal. Young people, hard hit by the recession and struggling to find jobs, will fail to see the virtue of thrift. Saving or investing is an exercise in futility, as parking money in the bank or in CDs will guarantee a loss, while investing in stocks, bonds, or mutual funds will net at best paltry gains, and at worst massive losses in this continuing weak economy.

The longer the Federal Reserve keeps interest rates low and discourages savings and investment, the more societal attitudes will change from being future oriented to present oriented. The Federal Reserve and its policies already served to stimulate and prioritize consumption over saving, creating the largest debt bubble the world has ever known. The extended zero interest rate policy only serves to promote more consumption and debt now, eviscerating thrift and savings – the true building blocks of prosperity. This present-oriented mindset has become pervasive especially among politicians, putting the government in dismal financial shape as Congressmen and Presidents over the years have taken to heart Louis XV's famous saying: "Après moi, le déluge." If the American people follow the same path in their own lives, this country will be ruined. Capital will be depleted, infrastructure will fall into disrepair, and the United States will be a mere shadow of its former self. It is well past time to end the failed monetary policy that encourages this mistaken preference for cheap money now.

http://lewrockwell.com/paul/paul794.html

There has been a real need to accurately gauge inflation. Using a metric such as housing prices is totally inaccurate, because you don't buy a house every day, or even every year. Even if the price of housing is cut by half, that doesn't mean your mortgage is cut by half. You are completely cut off from this "benefit". No one but a first time house buyer gets to enjoy the benefit of deflation in this area, and that's just once in a lifetime. But, deceptive inflation indexes would put that into the calculation and tell you there is deflation.

Same goes for computers. Sure the price of a byte of memory has gone down, but who's going to buy a 90's 166 MHz Gateway to "enjoy" the deflation that has occurred in the computer field? Things like housing and computer prices artificially reduce the inflation numbers in a way that doesn't translate into a consumer's everyday experience.

Thus, there is a need for "truth in inflation statistics".

So, it seems someone has finally come up with an answer: The Everyday Product Index


http://www.cbsnews.com/8301-505144_162-57387655/inflation-not-as-low-as-you-think/

Forget the modest 3.1 percent rise in the Consumer Price Index, the government's widely used measure of inflation. Everyday prices are up some 8 percent over the past year, according to the American Institute for Economic Research.

The not-for-profit research group measures inflation without looking at the big, one-time purchases that can skew the numbers. That means they don't look at the price of houses, furniture, appliances, cars, or computers. Instead, AIER focuses on Americans' typical daily purchases, such as food, gasoline, child care, prescription drugs, phone and television service, and other household products.

The institute contends that to get a good read on inflation's "sticker shock" effect, you must look at the cost of goods that the average household buys at least once a month and factor in only the kinds of expenses that are subject to change. That, too, eliminates the cost of housing because when you finance your home with a fixed-rate mortgage, that expense remains constant until you refinance or move.


The group maintains that this index better measures the real-world impact of price changes, particularly for people on a budget. And, largely as the result of the recent run-up in gas prices, this "everyday price index" (EPI) suggests that Americans are being pinched far more tightly than the official inflation measure would have you believe.

Over the past year, the EPI is up just over 8 percent, according to the economics group. The biggest factor: Motor fuel and transportation costs are up 21.06 percent from year-ago levels. The cost of food, prescription drugs, and tobacco also have increased faster than the government's inflation measure, rising 3.56 percent, 4.21 percent, and 3.4 percent, respectively.

On the bright side, prices of household fuel (natural gas and electricity) and supplies have increased only 2.74 percent; recreation and personal care products are up less than 1 percent; and telephone or Internet services are down 0.66 percent.

Admittedly, the purchases that the EPI tracks make up slightly less than 40 percent of the average household budget. But Steven Cunningham, research and education director at AIER, says these items are what contribute to the "sticker shock at the gasoline pump and the supermarket check-out line."

One can use the postal rates as a proxy:

http://en.wikipedia.org/wiki/History_of_United_States_postage_rates

Inflation is not really rising prices. Inflation is increase in money supply. Inflation (dilution/adulteration) of money causes rising prices. Therefore let us look at money., One of the better is M3, but no longer reported. We can look at M2 (M1, a measure of the money supply; includes currency in circulation plus demand deposits or checking account balances), M2= measure of the money supply; M1 plus net time deposits (other than large certificates of deposit).

Here at Economagic: http://www.economagic.com/em-cgi/data.exe/frbH6/t0102

Year-----M2 annual % change
2012----9765------6.6
2007----7104------5.4
2002----5454------7.3
1997----3829------2.5
1992----3383------6.7
1987----2447------6.7
1982----1770------8.7
1977----1165-----10.2
1972----718-------8.3
1967----482-------7.4
1962----340----------

1962 to 2012 average per year: 6.95% compounded

So the last five years are near the 50 year average.

To REALLY keep up with inflation one should earn 28.7 times as much as in 1962 (9765 divided by 340). Gold has kept up OK.

Parenthetically- Doctor Friedman was calling for rates of adulteration of 3 to 5 percent for a stable price level (The inflation [funny munny] would be soaked up by rises in productivity of around 4%). The actual rate of adulteration (6.95%) is almost 3 percent more than mrs. friedman called for. We got no stable price level. I wonder if there are any rises in productivity since the seventies.

But the American people can see how they are suffering because of the Federal Reserve. The government’s claims that the official statistics show no reason to be concerned about inflation is Marxist – as in Groucho, who famously said: "Who are you going to believe, me or your own eyes?"
Why aren't the entire jewish Rothschild family members in prison awaiting public hangings and lengthy dry outs from large cranes?

Why aren't the entire jewish Rothschild family members in prison awaiting public hangings and lengthy dry outs from large cranes?

Good Question.

Only a small percentage of the White population are thinking people. Of the thinking Whites, most do not know about the Rothschilds or the Jewish control of the international banking elites.

About the masses... As long as the refrigerators are full and the ball games are on TV, a gradual decline is hardly noticeable.

I wish i could be more positive and provide a solution.

People Are Being Led To The Slaughter By Their Own Governments. By Gregory Mannarino - YouTube

http://lewrockwell.com/orig11/1913-dollar.jpg


http://lewrockwell.com/orig11/silver-roman-denarius.jpg

"Rally Cheers Goldman; Banksters Optimistic"
After the big run-up, prices will "crash." Itz the same old story.

Are there any recent examples of massive deflation occurring in an economy, and how it affected everyday living for average folks?

I'd take a guess that inflation is almost always worse due to the working class feeling the effects. But I could see how deflation could possibly lead to layoffs at companies/businesses. Many States have labor laws saying you can't give someone a pay cut. But you can still fire them for any reason you want to.

Are there any recent examples of massive deflation occurring in an economy, and how it affected everyday living for average folks?

I'd take a guess that inflation is almost always worse due to the working class feeling the effects. But I could see how deflation could possibly lead to layoffs at companies/businesses. Many States have labor laws saying you can't give someone a pay cut. But you can still fire them for any reason you want to.

'Great Depression' - and the deflation of wheat prices in the 1930s might serve as an example , subsequent bank foreclosures on properties and the effect on towns in the Midwest, places like the panhandle of OK .

Selgin and co. (2010) cite an interesting study by Atkeson and Kehoe showing no correlation between deflation and depression :

Historically, benign deflation has been the far more common type. Surveying the 20th-century experience of 17 countries, including the United States, Atkeson and Kehoe (2004, p. 99) find “many more periods of deflation with reasonable growth than with depression, and many more periods of depression with inflation than with deflation.” Indeed, they conclude “that the only episode in which there is evidence of a link between deflation and depression is the Great Depression (1929-1934).”

http://mises.org/community/forums/p/31149/488313.aspx

". . .But I could see how deflation could possibly lead to layoffs at companies/businesses. Many States have labor laws saying you can't give someone a pay cut. But you can still fire them for any reason you want to. . ."

Exactly correct. The deflation (deflation is a reduction in money supply) raises the value of each unit of money. If wages don't fall, they will be forced above the market level, causing unemployment. The New Deal folks tried to "keep wages up"- meaning above the market clearing level. This to keep purchasing power up.

But a small drop in wages leads to even larger hiring and more purchasing power, keeping the economy in balance. (Technically this means the demand for labor is elastic) The Keynesians think deflation or falling wages will result in a death spiral. Low wages mean less to spend. Other firms must lay off workers due to low sales. These workers don't have money to buy from still other firms. The way out is more purchasing power- gained by government spending- as "obviously" the market wouldn't provide it.

But the market wasn't there. Government was used to CAUSE unemployment, even though they claimed they were trying to reduce it. (Great Depression).

Deflation can be survived rather easily if no attempt is made to force wages above the market rates.

True, but say a farmer borrowed to buy equipment and a mortgage when wheat was going for $4 a bushel, and the price drops to $1 , so his wage didn't cover interest payments to the banker. Back then a lot of people, what they did was still work the land.

What factors do they use to determine the value of the dollar? Where do they get their prices? From what products? The reason I ask, is that there is a vast difference in pricing, depending on what you buy, and where you buy it.

What factors do they use to determine the value of the dollar? Where do they get their prices? From what products? The reason I ask, is that there is a vast difference in pricing, depending on what you buy, and where you buy it.

There are several measures of inflation. One of the most commonly cited ones is the CPI. http://www.bls.gov/cpi/

http://en.wikipedia.org/wiki/Consumer_price_index

https://sphotos-a.xx.fbcdn.net/hphotos-ash4/s480x480/488238_442989182452387_1674957187_n.jpg

THE MADNESS OF A LOST SOCIETY 3 - YouTube




CYPRUS: A Sign of the Bad Things To Come - Bix Weir - YouTube

The Federal Reserve Is Going To Destroy The World. By Gregory Mannarino - YouTube



RadicalTraditionalist Says:

4 April, 2013 at 12:47 am

“The Federal Reserve System is not federal; it has no reserves; and it is not a system at all, but rather, a criminal syndicate.” –Eustace Mullins, Secrets of the Federal Reserve (1947)

fd Says:

4 April, 2013 at 10:15 am

Germany found out the hard way what the Confederacy had already experienced:

“The war wasn’t only about abolishing fascism, but to conquer sales markets. We could have, if we had intended so, prevented this war from breaking out without doing one shot, but we didn’t want to.” — Winston Churchill to Truman (Fultun, USA March 1946)

“Germany’s unforgivable crime before WW2 was its attempt to loosen its economy out of the world trade system and to build up an independent exchange system from which the world-finance couldn’t profit anymore. …We butchered the wrong pig.” — Winston Churchill (The Second World War – Bern, 1960)

“We made a monster, a devil out of Hitler. Therefore we couldn’t disavow it after the war. After all, we mobilized the masses against the devil himself. So we were forced to play our part in this diabolic scenario after the war. In no way we could have pointed out to our people that the war only was an economic preventive measure.” — US foreign minister James Baker (1992)

Important Updates, Future Money Trends Interview, FREE eBook, MORE! By Gregory Mannarino - YouTube

Eric Sprott: Price of Gold and Silver are Being Suppressed & No Gold in the Treasury - YouTube

Robert White 4 days ago

Flooding ALL White countries and ONLY White countries with non-Whites and then forcing assimilation is a program of White genocide.

Africa will still be full of Africans

Asia will still be full of Asians.

Only White children will suffer from this.

Read the UN genocide conventions: It is genocide, White Genocide.

They say they are anti-racist. What they are is anti-White.

Anti-racist is a code word for anti-White.
Reply ·





naturesavatar 5 days ago

i have no doubt there IS no gold in the treasury, it's in the sky, the upper atmosphere to be exact, it's in the "chemtrails" protecting the earth from the sun, because our ozone layer has disappeared for the most part...and if you doubt this information do some research and come to your own conclussion.
Reply ·





Rafi111sf 1 week ago

yes it is. 
Reply ·

in reply to 4exgold (Show the comment)



Rafi111sf 1 week ago

"When" doesnt really matter....
Reply ·

in reply to notpcone (Show the comment)



NIPSZ 3 weeks ago

Who cares if the price of silver and gold is being suppressed. The price of coins is still much higher than spot. If you buy any silver or gold it sells for an extremely higher amount than the spot price. The actual price does not mean anything except for Comex paper silver and the stock market. The price of coins is extremely overvalued due to the current demand.
Reply ·

I don’t recall any point in history where debt monetization has ever ended well for the currency of that particular nation. In fact, it has always led to the collapse of currencies.

But what we are seeing right now is the price of commodities continues to fall in spite of massive money printing, and it has central planners concerned because their tools are becoming less and less effective.

In a debt based economy, if you don’t have a constant increase in borrowing, and if you don’t have a constant increase in the amount of debt that consumers are willing to take on, then the economy contracts. That’s what we are dealing with here.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/4/17_If_This_Continues_The_Currencies_Will_Literally_Collapse.html

Yesterday's Stock Market Flash Crash Was Coordinated Attack, More Are Coming. By Gregory Mannarino - YouTube

Fed Desperately Concerned About the Dollar-Paul Craig Roberts - YouTube

Paul Craig Roberts

There is a lousy anti White commercial at the start.

Are you ready to pay the debt ?

All the White's who have never lifted a finger to oppose the hostile non White open borders invasion, along with all sorts of looting for security and war are now going to have to pay the piper.

Hey, NPR fan's how are your dance steps going to be once the music starts ? If you don't have money or food no problem, but you will have plenty of your divershitty savage's howling around you.

Good dancing to you.

Bail-in's Are Coming. Kiss Your Money/Savings Goodbye! By Gregory Mannarino - YouTube

Rubber hose media has to have a woman dressed as trash IMO, and yapping around in circles IMO.

This is not by chance what is happening.


Peter Schiff HYPERINFLATION Is Here...Prepare For Economic Collapse w Peter Schiff Today - YouTube
Listen to his last words.

http://jewishfaces.com/china.html

http://www.sonnet.com/usr/kidogo/witherspoon.html

Kidogo's World: Fraudulent money and the shift of power

Essay on Money
As a Medium of Commerce; With Remarks on the Advantages and Disadvantages of Paper Admitted into General Circulation.
by John Witherspoon

This essay may have planted the seed that germinated in the mind of Roger Sherman and became what is known as the "hard money clause" of the Constitution, Article 1, Section 10. In any case, it surely influenced its passage in the Convention.

* * *
THEORY OF MONEY

Essay on Money I

What gave rise to money, its nature and use
The first necessity: a standard of computation
Some sign or signs must be agreed upon

The nature and meaning of these signs
The sign the nature of a promissory note
Signs facilitate commerce
All mere signs are deficient

Essay on Money II

Gold and silver, answer all three ends
Qualities money should possess

1 Value
Either necessary or remarkably useful or desirable
Ductility, durability, and other qualities, make gold and silver exceedingly fit for domestic utensils
Eminent contrary opinions and intrinsic value

Essay on Money III

2 Rarity
3 Portability
4 Divisibility
5 Durability

All united, in gold and silver
Gold, silver, and copper, were the most ancient metals
Use of baser metals

* * *
INFERENCES DERIVED FROM THE THEORY

Essay on Money IV

"Scarcity of Circulating Medium" is Nonsense
Money itself must be a commodity as well as sign and standard

Depreciation because of quantity increase is irregular
Depreciation results from industry and trade, but pernicious when from increased circulating medium not related to industry
Paper money is not money; legal tender is an absurdity

Essay on Money V

Commerce founded upon Contract
Essential condition of lawful contract is that it be free and mutual
An Attempt to apply authority to that which is not its proper object
Privilege, license, and voluntary engagement
Counter-ProductiveLaws
Tender laws contradict the very first principles of commerce

Essay on Money VI

Paper circulating as a medium of commerce is a promissory note -- not money.
It is the public opinion that must ultimately give them currency

Proper use of paper currency
Over-abundance of gold and silver

Essay on Money VII

Benefits of Paper
Facilitating commerce
Extending credit

Essay on Money VIII

Evil done by paper Evil of doubtful paper

Resolution of the question of paper money Principles on which it ought to be conducted



Advantages of Bank Paper
Objection Against Banks
A defect in the system

Proposal
Answer to Objection

[URL]Essay on Money X

Summing Up
Conclusion
Biographical Note: John Witherspoon


Dr. John Witherspoon (1723-1794), Signer of the Declaration of Independence and educator of James Madison and other founders of our nation, was the author of the well-reasoned Essay on Money, which undoubtedly gave respected support to Roger Sherman's igenious hard money clause in Article I, Section 10, of the Constitution -- that most remarkable remedy that rescued our nation from near oblivion in its infancy. This is "must" reading for anyone who entertains any illusions about government-issue "money," wonderful as "free of interest to the Fed" may sound. (Dr. Witherspoon's impressive credentials are detailed in the Biographical Note at the end.)

(Roger Sherman's own definitive treatise, A Caveat Against Injustice, or An Inquiry into the Evils of a Fluctuating Medium of Exchange, rescued from the obscurity of only two copies in existence and republished by Spencer Judd, can be found in The Treasury, which is bound with Remarkable Remedy.)

http://www.rogershermansociety.org/caveat.htm

http://www.rogershermansociety.org/images/rsherman.jpg

Forasmuch, as there have been many disputes arisen of late concerning the medium of exchange in this colony, which have been occasioned chiefly by reason of our having such large quantities of paper Bills of Credit on some of the neighboring governments passing in payments among us, and some of those governments having issued much larger sums of Bills than were necessary to supply themselves with a competent medium of exchange, and not having supplied their treasuries with any fund for maintaining the credit of such Bills; they have therefore been continually depreciating and growing less in their value, and have been the principal means of the depreciation of the Bills of Credit emitted by this colony, by their passing promiscuously with them; and so have been the occasion of much embarrassment and injustice in the trade and commerce of the colony, and many people — and especially widows and orphans — have been great sufferers thereby.

But our Legislature having at length taken effectual care to prevent further depreciation of the Bills of this colony, and the other governments not having taken the prudent care, their Bills of Credit are still sinking in their value, and have in fact sunk much below the value of the Bills of this colony.

Yet some people among us, by long custom, are so far prejudiced in favor of a sinking medium, and others not being really sensible of the true state of the case, are inclined to think that Bills of Credit on the neighboring governments ought to be a legal tender in payments in this colony for all debts due by Book and otherwise where there is no special contract expressly mentioning some other currency, and others being of a different opinion, the disputes have been carried on so far as to occasion some expense in the law, and may be likely to occasion much more, unless prevented by those prejudices being some way removed. And since it is a cause wherein everyone is more or less interested, I have ventured to show my opinion, with a sincere desire to have peace and justice maintained and promoted in the colony. I do not desire any person to approve of my observations any further than he finds them agreeable to the principles of justice and right reason.

[Oops! Google Chrome could not find essay on money i]

[Links could be tried-- to see if they actually work- but that would ]

http://www.sonnet.com/usr/kidogo/witherspoon.html

Washington Signals Dollar Deep Concerns — Paul Craig Roberts
May 18, 2013 |


Over the past month there has been a statistically improbable concurrence of events that can only be explained as a conspiracy to protect the dollar from the Federal Reserve’s policy of Quantitative Easing (QE).

Quantitative Easing is the term given to the Federal Reserve’s policy of printing 1,000 billion new dollars annually in order to finance the US budget deficit by purchasing US Treasury bonds and to keep the prices high of debt-related derivatives on the “banks too big to fail” (BTBF) balance sheets by purchasing mortgage-backed derivatives. Without QE, interest rates would be much higher, and values on the banks’ balance sheets would be much lower.

Quantitative Easing has been underway since December 2008. During these 54 months, the Federal Reserve has created several trillion new dollars with which the Fed has monetized the same amount of debt.

One result of this policy is that most real US interest rates are negative. Another result is that the supply of dollars has outstripped the world’s demand for dollars.

These two results are the reason that the Federal Reserve’s policy of printing money with which to purchase Treasury bonds and mortgage backed derivatives threatens the dollar’s exchange value and, thus, the dollar’s role as world reserve currency.

To be the world reserve currency means that the dollar can be used to pay any and every country’s oil bills and trade deficit. The dollar is the medium of international payment.

This is very helpful to the US and is the main source of US power. Because the dollar is the reserve currency, the US can cover its import costs and pay for its cost of operation simply by creating its own paper money.

If the dollar were not the reserve currency, Washington would not be able to finance its wars or continue to run large trade and budget deficits. Therefore, protecting the exchange value of the dollar is Washington’s prime concern if it is to remain a superpower.

The threats to the dollar are alternative monies--currencies that are not being created in enormous quantities, gold and silver, and Bitcoins, a digital currency.

The Bitcoin threat was eliminated on May 17 when the Gestapo Department of Homeland Security seized Bitcoin’s accounts. The excuse was that Bitcoin had failed to register in keeping with the US Treasury’s anti-money laundering requirements.

Washington has stifled the threat from other currencies by convincing other large currencies to out-print the dollar. Japan has complied, and the European Central Bank, though somewhat constrained by Germany, has entered the printing mode in order to bail out the private banks endangered by the “sovereign debt crisis.”

That leaves gold and silver. The enormous increase in the prices of gold and silver over the last decade convinced Washington that there are a number of miscreants who do not trust the dollar and whose numbers must not be permitted to increase.

The price of gold rose from $272 an ounce in December 2000 to $1,917.50 on August 23, 2011. The financial gangsters who own and run America panicked. With the price of the dollar collapsing in relation to historical real money, how could the dollar’s exchange rate to other currencies be valid? If the dollar’s exchange value came under attack, the Federal Reserve would have to stop printing and would lose control over interest rates.

The bond and stock market bubbles would pop, and the interest payments on the federal debt would explode, leaving Washington even more indebted and unable to finance its wars, police state, and bankster bailouts.

Something had to be done about the rising price of gold and silver.

There are two bullion markets. One is a paper market in New York, Comex, where paper claims to gold are traded. The other is the physical market where personal possession is taken of the metal--coin shops, bullion dealers, jewelry stores.

The way the banksters have it set up, the price of bullion is not set in the markets in which people actually take possession of the metals. The price is set in the paper market where speculators gamble.

This bifurcated market gave the Federal Reserve the ability to protect the dollar from its printing press.

On Friday, April 12, 2013, short sales of gold hit the New York market in an amount estimated to have been somewhere between 124 and 400 tons of gold. This enormous and unprecedented sale implies an illegal conspiracy of sellers intent on rigging the market or action by the Federal Reserve through its agents, the BTBF that are the bullion banks.

The enormous sales of naked shorts drove down the gold price, triggering stop-loss orders and margin calls. The attack continued on Monday, April 15, and has continued since.

Before going further, note that there are position limits imposed on the number of contracts that traders can sell at one time. The 124 tons figure would have required 14 traders with no open interest on the exchange to sell all together in the same few minutes 40,000 futures contracts. The likelihood of so many traders deciding to short at the same moment at the maximum permitted is not believable. This was an attack ordered by the Federal Reserve, which is why there is no investigation of the illegality.

Note also that no seller that wanted out of a position would give himself a low price by dumping an enormous amount all at once unless the goal was not profit but to smash the bullion price.

Since the April 12-15 attack on the gold price, subsequent attacks have occurred at 2pm Hong Kong time and 2 am New York time. At this time activity is light, waiting on London to begin operating. As William S.Kaye has observed, no entity concerned about profits would choose this time to sell 20,000 to 30,000 futures contracts, but this is what has been happening.

Who can be unconcerned with losing money in this way? Only a central bank that can print it.

Now we come to the physical market where people take possession of bullion instead of betting on paper instruments. Look at this chart from ZeroHedge. http://www.zerohedge.com/news/2013-05-16/gold-demand-one-chart-physical-vs-etf The demand for physical possession is high, despite the assault on gold that began in 2011, but as the price is set in the non-real paper market, orchestrated short sales, as in the current quarter of 2013, can drive down the price regardless of the fact that the actual demand for gold and silver cannot be met.

While the corrupt Western financial press urges people to abandon bullion, everyone is trying to purchase more, and the premiums above the spot price have risen. Around the world there is a shortage of gold and silver in the forms, such as one-ounce coins and ten-ounce bars, that individuals demand.

That the decline in gold and silver prices is an orchestration is apparent from the fact that the demand for bullion in the physical market has increased while naked short sales in the paper market imply a flight from bullion.

What does this illegal manipulation of markets by the Federal Reserve tell us? It tells us that the Federal Reserve sees no way out of printing money in order to support the federal deficit and the insolvent banks. If the dollar came under attack and the Federal Reserve had to stop printing dollars, interest rates would rise. The bond and stock markets would collapse. The dollar would be abandoned as reserve currency. Washington would no longer be able to pay its bills and would lose its hegemony. The world of hubristic Washington would collapse.

It remains to be seen whether Washington can prevail over the world demand for gold and silver. Can the dollar remain supreme when offshoring has deprived the US of the ability to cover its imports with exports? Can the dollar remain supreme when the Federal reserve is creating 1,000 billion new ones each year, while the BRICS, China and Japan, China and Australia, and China and Russia are making deals to settle their trade balances without the use of the dollar?

If the consumption-based US economy deprived of consumer income by jobs offshoring takes a further dip down in the third or fourth quarter--a downturn that cannot be masked by phony statistical releases--the federal deficit will rise. What will be the effect on the dollar if the Federal Reserve has to increase its Quantitative Easing?

A perfect storm has been prepared for America. Real interest rates are negative, but debt and money are being created hand over foot. The dollar’s demise awaits the world’s decision how to get out of it. The Federal Reserve can print dollars with which to keep the bond and stock markets high, but the Federal Reserve cannot print foreign currencies with which to keep the dollar afloat.

When the dollar goes, Washington’s power goes, which is why the bullion market is rigged. Protect the power. That is the agenda. Is it another Washington over-reach?


Bitcoin Note: On May 16, PCWorld reported: “The seizure of funds of the largest bitcoin exchange, Mt. Gox, was triggered by an alleged failure of the company to comply with U.S. financial regulations, according to a federal court document. The U.S. District Court in Maryland on Tuesday ordered the seizure of Mt. Gox’s funds, which were in an account with Dwolla, a payments company that transferred money from U.S. citizens to Mt. Gox for buying and selling the virtual currency bitcoin.”
Reports subsequent to my column suggest that instead of funds being seized, a money transfer mechanism was shut down. Whatever happened, the government has demonstrated that it can disable or destroy Bitcoin at will. Bitcoin might be tolerated unless it becomes widely used. If the government regards Bitcoin as a refuge from the dollar, it can simply have its agents buy up the Bitcoins, driving the price skyhigh, and then dump the purchases all at once, just as tons of gold shorts were dumped on the gold market.
Bitcoin showed its vulnerability in April when, according to news reports, someone gave away $13,627 worth of Bitcoins, and Bitcoin values crashed from $265 to $105. Some people who watch this market concluded that the exercise was a covert central bank stress test.
The fact that I reported on Bitcoin does not mean that I oppose Bitcoin. The point of my article is to demonstrate that the government will take all steps to protect the dollar from Quantitative Easing.

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