Quartermasters of Inflation

Quartermasters of Inflation

That central bankers are the quartermasters of inflation is no longer a controversial assertion. That much was admitted by central banker Alan Greenspan in his speech before the Economic Club of New York on December 19, 2002 (see: www.federalreserve.gov/BoardDocs). He observed that as long as the gold standard was in charge of money-creation the price level was relatively stable. For example, in 1929 it was hardly different from that in 1800. But, after gold was banned and central bankers were put in charge in 1933, the consumer price index nearly doubled in two decades. And in the four decades after that prices quintupled. In other words, under the watch of the gold standard the dollar preserved its purchasing power for a period of one and one third of a century, but under the watch of the central bankers it managed to lose 90 percent of it in half of that time-period.

The Specter of Deflation

Presently the specter of deflation is haunting the world, so much so that central banker Ben Bernanke felt obliged to address the problem in a speech before the National Economists Club in Washington, D.C., on November 21, 2002 (see: www.federalreserve.gov/BoardDocs). He presented a simplistic view of deflation defining it as a general decline in prices. Actually, it would be more accurate to say that deflation manifests itself through a general decline in prices and interest rates. Mr. Bernanke identified the source of deflation as a collapse in aggregate demand — a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers. Of course, this is the view of an unreconstructed Keynesian. But Keynesianism has been brain-dead for some three decades, so we ought to feel emancipated from its tyranny. We identify the source of deflation as reluctance of producers to take the loans that bankers try to push on them through ongoing interest-rate cuts. Uncharacteristically, producers are pessimistic about future profit opportunities. Instead of contracting new debt, they scramble to get out of the old, and try to retrench by reducing inventory.

Guided Tour of the Star Chamber

Messrs. Greenspan and Bernanke claim that the Federal Reserve has the situation firmly in hand. If deflation were to develop, options for aggressive monetary policy response such as lowering interest rates are available. They admit that the zero lower bound on nominal interest rates presents a problem. Even if debtors were able to refinance loans at zero nominal interest, they may still feel excruciating economic pain caused by high and rising real rates due to the falling price level, as shown by their deteriorating balance sheet. However, Messrs. Greenspan and Bernanke reassure us that monetary policy will never lose its ability to stimulate aggregate demand and the economy, zero interest notwithstanding.

Mr. Bernanke gives us a guided tour of the Star Chamber, showing all the instruments of torture and explaining how they are to be used. The first of these is the printing press. Under a fiat money system the central bank generates inflation by this technology allowing it to create as many dollars as it wishes at essentially no cost. But it is not enough to create fiat money; you must also be able to put it into circulation or, at least, to make credible threats (sic!) to do so. Normally the Fed puts newly created fiat money into circulation through asset purchases. This particular torture instrument is used by the Fed to reduce the value of the dollar in terms of goods and services. Under a paper-money system a determined government and its central bank can always generate higher spending and induce positive inflation, we are told.

Pushing on a String

If this has the result of pushing short-term interest rates to zero, the Fed will still not be at the end of its rope. It can further stimulate aggregate spending by expanding the menu of assets that it buys. If we do fall into deflation, we can take comfort in the thought that “the logic of the printing press” will ultimately assert itself. Sufficient injections of new money must eventually reverse a deflation.

So what may the Fed do if its target rate, the overnight federal funds rate, has fallen to zero? Why, it will change the target, that’s what. It will stimulate spending by lowering interest rates further along the maturity spectrum. It will target the two-year rate by committing to make unlimited purchases of securities maturing in two years or less. But suppose that deflation is so stubborn that spending is not stimulated even as the two- year rate is pushed down to zero. Well, then change the target again, this time, say, to the ten-year rate, committing to make unlimited purchases of securities maturing in ten years or less. And so on, ad libitum. Mr. Bernanke says that lower rates over the entire maturity spectrum of public and private securities should strengthen aggregate demand “in the usual ways”, and thus help end deflation.

This betrays our central bankers’ ignorance of the nature of the beast. The Fed may be pushing on a string. People may refuse to spend the money in the “usual ways”. It is one thing to print fiat dollars, and another to make people spend them. No problem, Mr. Bernanke says. If lowering yields on longer-term securities proved insufficient to re- start spending, the Fed might next consider offering fixed-term loans to banks at zero interest, with a wide-range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral.

Operation Helicopter-Drop

But the banks may not use the loans at zero interest in the way intended by the Fed. They may not want to make further loans to their clients whose prospects to turn a profit are dim at best. The banks may find it far more attractive to invest in bonds for the capital gains guaranteed by the central bank’s zero-interest policy. Business lethargy may not react to loans offered at ever lower rates. In this case Mr. Bernanke recommends the helicopter-drop of money, an idea first suggested by Milton Friedman. There must be a way to put fiat money into circulation, if not by hook then by crook! A broad-based tax- cut financed by open market purchases of securities by the Fed should do the trick. This “manna from heaven” should re-start spending. The Federal Reserve and other policymakers are far from helpless in the face of deflation, even if the rate of interest is already pushed all the way to zero.

Taking Risks out of Bond Speculation

All this talk is old hat, except for the fact that heretofore it hasn’t been considered polite behavior for central bankers to flaunt their authority to create fiat money in unlimited quantities, and to boast their power to drive down the value of the dollar in terms of goods and services. More interesting than what these gentlemen say is what they don’t say. They studiously avoid reference to the 100 trillion dollar behemoth: the interest-rate derivatives market, and to bond speculation. Derivatives are a tell-tale, revealing the big picture. Far from trying to prevent or to combat it, the Fed is promoting deflation. It does, in fact, act as the quartermaster of deflation. Every one of the torture instruments in the Star Chamber enumerated above is making deflation worse, not better.

What the $100 trillion derivatives market shows is that the main feature of deflation is the invisible but nonetheless real bull market in bonds. Nobody is talking about it, although the bull market in bonds that started in 1980 has been the largest of all bull markets of all kinds in all history. Fabulous fortunes have been made and will be made before it is over, thanks to the Fed that has taken the risk out of bond speculation.

The speeches of Messrs. Greenspan and Bernanke are the best example to demonstrate the charge. Speculators are told that the Fed is prepared to buy unlimited quantities of securities across the entire maturity spectrum. What is this if not an invitation to get aboard the bandwagon and share the ride to infinite riches? Come and get the bonds before we snap them up. Fear not, your investment is absolutely safe. Your friendly central banker has made bond speculation risk-free. He underwrites the unlimited capital gains you are going to make on your speculative bondholdings (or on your long positions on bond futures, or on your call options on bond futures). The figure $100 trillion shows the extent to which speculators have rallied to the call of the Pied Piper. It measures bets in the aggregate that speculators have made on ever-increasing bond prices or, what is the same to say, on ever falling interest rates.

Multiplying Asset Values a Thousand-fold

Of course, interest rates will never go to zero. They just keep getting halved. The yield on long-term Treasury bonds was 16% in 1980. It has been halved to 8% and will be halved again to 4%, according to the script of Messrs. Greenspan and Bernanke. After that the target at successive halvings will be: 2%, 1%, 0.5%, 0.25%, 0.125%, 0.0625%, etc. As you see, it never gets to 0%. Yet at each halving, the market value of the long-term bond will practically double. Suppose that in 1980 you invested $1,000 in a 30-year bond. Suppose further that the rate of interest would continue to be halved again and again. Your investment after each consecutive halving would increase in value to $2,000, $4,000, $8,000, $16,000, $32,000, $64,000, $128,000, $256,000, $512,000, $1,024,000, etc. On the top of that, by clipping coupons you would be reaping a nice income, too. Thus, as a rule of thumb, the value of your investment would be multiplied by a factor of 1,000 as the rate of interest fell to 0.03%. Although this result cannot be guaranteed, the downside risk is nil, thanks to Messrs. Greenspan and Bernanke. (My example is a simplification for purposes of illustration. In the actual case bond speculators may use strip bonds, and they may roll forward the maturity several times.)

Needless to say, bond speculators are very much alive to the risk-free opportunity to multiply the value of their assets 1,000-fold. Already they have amassed wealth greater than any group of speculators has ever done in history. Their combined financial resources exceed that of central banks and governments. Naturally, they have a vested interest, and the financial strength, to keep the merry-go-round going — and they will.

Essence of Deflation

The U.S. government may well be unconcerned about the fact that the liquidation-value of its debt is escalating 1,000-fold due to the falling interest-rate structure. After all, the Fed has the printing press to create dollars with which to liquidate any liability, however large. The producers are not so fortunate. They have to produce more and sell more if they want to get out of debt before maturity. Producing more and selling more in a falling interest-rate environment may not be possible, however. What this shows is that the essence of deflation is not falling prices. Rather, it is falling interest rates, being pushed down by bond speculation that has been made risk-free by the central bank. Falling interest rates bankrupt productive enterprise by rendering it unable to extricate itself from the clutches of debt contracted at higher rates. The debt becomes ever more onerous as its liquidation value threatens to increase 1,000-fold.

What these central bankers don’t understand is that, while they have the power to put unlimited amounts of fiat money into circulation, they have no power to make it flow in the “approved” direction. Money, like water, may refuse to flow uphill. In a deflation money shall not flow to the commodity market to bid up prices as central bankers hope that it will. Instead, it shall flow downhill to the bond market where the fun is, to bid up prices there. When the central bank makes bond speculation risk-free, then the bond market will act like a gigantic vacuum cleaner, sucking up dollars from every nook and cranny of the economy. In putting ever more fiat money into circulation the central bank cuts the figure of a cat chasing its own tail. More fiat money pushes interest rates lower; falling interest rates put more pressure on producers to cut prices, calling for still more fiat money, completing the vicious circle. The interest rate structure and the price level are linked. Subject to leads and lags, they keep moving together in the same direction. It is not funny to watch the Fed chasing its own tail. In doing so it generates a deflationary spiral that may ultimately bankrupt the entire producing sector. Like the Sorcerer’s Apprentice, the central banker can start the march to zero interest, but it hasn’t got a clue how to stop it when the deflationary spiral gets out of control.

Falling Interest Rates Squeeze Profits

Paradoxically, falling interest rates squeeze profits. Conventional wisdom suggests otherwise: lower interest rates are considered salubrious to business. However, we ought to distinguish between a low interest rate structure and a falling one. Only the former is salubrious; the latter is lethal. Falling interest rates reveal that past investments in physical capital have been made at too high a rate of interest in view of lower rates presently available. Furthermore, even the low rates of today will appear too high tomorrow. This explains business lethargy. Expanding production would appear foolhardy as long as the decline in the rate of interest continued. Falling interest rates make the cost of servicing past investments soar. As bond prices rise, the present value of debt will rise as well. So does the cost of liquidating a liability. These increases hit the profit margin, regardless whether the fact is realized by the producers or not. If not realized, the outcome will be that much worse. As the firm is paying out phantom profits in dividends, it is undermining its own financial strength already weakened by the falling price level. At one point the firm will be unable to pay its bills and will be forced to seek bankruptcy protection. Then there is the matter of the domino-effect. Even perfectly healhy firms are hit by deflation: they may find it impossible to collect their receivables and go under after their debtors have — all because of the falling interest rate structure.

Financial Vampirism

In the view presented here deflation is a huge wealth-transfer scheme from the producing sector to the financial sector, denuding the former of its capital, and enriching the latter with risk-free capital gains. Indeed, the beneficiaries of the falling interest-rate structure, making risk-free profits thanks to the zero-interest policy of the central bank, are the principals of the financial sector, chief among them those of the big money-center banks. Their obscene profits do not come out of thin air. Their wealth is not newly created wealth. It is existing wealth siphoned off the balance sheet of producing enterprise, forced into bankruptcy by the falling interest-rate structure. This is modern vampirism practiced by the financial sector, aided and abetted by the central bank, and its victim is the producing sector.

The bear market in stocks is not the cause but the effect of deflation. The cause is the artificial bull market in bonds financed by the central bank. If you ask the bond speculator about his obscene profits while the rest of the economy crumbles around him, he will shrug: “I play by the rules. And I did not make those rules either.”

Bond Speculation Is No Zero-Sum Game

The proof of complicity of the banks in the bond-speculation-scheme is the $100 trillion derivative monster. No small-time speculators could create such a Moloch. It was created by the big money-center banks, for their own benefit, with complete disregard for the disastrous effect it has on the producers of goods and services. The total face value of outstanding bonds falls far short of the colossal figure of $100 trillion. It is against common sense, and an invitation to disaster, to allow speculative long positions to exceed total supply. Messrs. Greenspan and Bernanke have no comment on all this, except to confirm policies that are conducive to further increasing the debt behemoth and further whetting the appetite of the $100 trillion derivatives Moloch.

We are told that the sum of $100 trillion is “only a notional amount”. However, the profits of the bond speculators are not notional. They are payable in cold cash. If indeed interest rates did go down, and the price of bonds did go up, say, one percent, then the speculators’ profit would be $1 trillion in cash. Who is going to pay that?

Economists will tell you that the profit of one bond speculator is the loss of another. Don’t buy that. It would be true only if speculation was a zero-sum game, and it was a case of stabilizing speculation. It is true that some speculative markets answer that description. An example is the commodity market trading agricultural goods. It fits the model of a zero-sum game. This is so because the risks involved in commodity trading are nature-given, having to do with the fickleness of the weather and the unpredictability of natural catastrophes such as a flood or a tornado. Human mortals are not privileged to see the future. Speculators in agricultural commodities make money by resisting the formation of price trends. But in markets where the risks are made (unmade!) by man such as the market for bonds and their derivatives, speculation is not a zero-sum game. There, speculators make money not by resisting price trends but by riding them. This is the case of destabilizing speculation.

But if the profit of one bond speculator is not paid by another, then who is paying it? This is a critical question and it deserves a careful answer. The other side of the bet of A, the bull speculator in bonds, is taken by a banker B for hedging rather than speculative purposes. He has sold the bond to A in order to hedge his exposure in lending money to C, an entrepreneur in the producing sector. His risk is that interest rates might rise before his loan to C matures that would punch a big hole in his balance sheet. With his hedge on, the position of B is neutral with regard to changes in the rate of interest. His position is that of a straddle with a long and a short leg. Losses on one leg are canceled by profits on the other. Therefore, if there is a loss on B’s short leg, as is virtually certain in view of the “threats” made by Mr. Bernanke, then it is simply transferred to C, the counter-party to the long leg of B’s straddle. The loss is charged to C. The profit of bond speculator A is paid by C. This means that, ultimately, the losers paying the $1 trillion in gains to the bond speculators are the producers. To add insult to injury, they are kept in the dark about the existence of Mr. Bernake’s casino where the fleecing takes place.

Power to Create Is Power to Destroy

The producers are sitting ducks in this speculative shoot-out. They have no choice. They must carry the risk of owning productive capital, without which there will be no consumer goods for Mr. Greenspan and Mr. Bernanke, or for you and me. This is an accurate description of the mechanism whereby the capital of the producing sector is surreptitiously siphoned off for the benefit of the financial sector as the rate of interest is driven down to zero. The producing sector is condemned to bankruptcy. It is a victim of plunder sanctioned by the Criminal Code. This is the essence of deflation: speculators aided and abetted by the central bank are allowed to bid bond prices sky-high, in complete disregard for the havoc that falling interest rates will wreak with the capital accounts of the producing sector, not to mention losses inflicted on stockholders. The $100 trillion derivatives market is a monument to the folly of man in delegating unlimited power to the central banker to create as much fiat money as he wishes. Former central banker Paul Volcker knows. He has been there. He is quoted as saying that “the truly unique power of a central bank is to create money and, ultimately, the power to create is the power to destroy.” If the central banker has unlimited power to create, then he has unlimited power to destroy. And destroy he does, especially the savings of ordinary people.

Why Are Economists Silent?

I am aware that my warnings will be received with a great deal of skepticism. The central banker as the quartermaster-general of deflation? Arrant nonsense! Not only does the central bank has its own army of research economists, it also has the benefit of the knowledge and research of the entire profession. There can be no question that the central bank wields its awesome power while enjoying the best economic advice money can buy! Siphoning off wealth from the balance sheet of others is straight out of science fiction, my critics charge. The allegedly injured party, the producing sector, hasn’t complained that its capital is open to pilferage. The media in reporting the crash of Swissair and United did not suggest foul play in plundering the airlines’ balance sheets.

Yet you may dismiss my charges only at your own peril. The awareness is growing that not just the media, but the entire profession of monetary economists has been bought off by the central banking establishment in order to put the best possible spin on our fiat money system. In an interview on December 17, 2002, entitled “Our Dishonest and Corrupt Monetary System” (www.kitco.com), Dr. Larry Parks recalled that John Kenneth Galbraith, the Paul M. Warburg Professor Emeritus of Harvard University, had published a book in 1975 entitled Money, Whence It Came, Where It Went. In this book the professor wrote: “The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it.” In other words, Galbraith is saying that when it comes to money, economists lie! Dr. Parks asks: why do they lie? They have tenure. Why don’t they tell the truth? He concludes that the monetary economists, for the last fifty years or more, have been bought off. With Nobel-prizes, endowed chairs, research grants, board memberships, and other perks. Monetary economists have betrayed their Muse, to serve Mammon.

Off-Balance-Sheet Wizardry

That the profession of the accountants has been bought off by the financial sector came to light recently in the wake of the Wall Street accounting scandals. But in spite of the great publicity given to these scandals by the media, the problem has not been fixed. A few small-time crooks may have been apprehended, but none of the authors of the scheme whereby banks are allowed to cook their books has been charged. The truth is that banks can carry assets, such as bets in the derivatives markets, “off balance sheet”. They do this in order to find shelter from the scrutiny of depositors, creditors, shareholders; more generally, from the scrutiny of taxpayers at large. Accountants, regulators, and bank inspectors know this, but that’s a different matter. Apparently, they have been bribed, too. They are part of the conspiracy. This is how Dr. Parks describes the fraud:

“Fractional reserve lending is jargon for creating money out of nothing. That’s what that means. In the case of derivatives, these are bets that the banks make. The banks today in the aggregate worldwide have made roughly $110 trillion worth of bets. That’s all they are. Banks are making bets and creating money. One of the things that obscures this for everybody is that banks alone do not have to reveal their entire balance sheets, as all other public companies must do under Securities and Exchange Commission regulations. Banks have the option, with some of their assets, to put them in a basket that they call “held for investment”. When they put assets in that basket (they could be stocks, bonds, or whatever), then those assets are held at historical costs, rather than at market value… Nobody else gets away with this except for them. The reason they get away with it is because they say, in effect: ‘If we had to mark everything to market, there would be too much volatility in our earnings. We don’t want you to find out.’ All this is secret. It’s called bank secrecy… There are winners and there are losers. The losers are the ordinary people who lose their pensions, their savings, their jobs. The winners are the financial guys… These guys have no downside… Do you know what the banks took out of the economy last year? Nearly $400 billion. The Wall Street firms who get transaction fees for moving the newly created money around took another roughly $250 billion. Between them they took out nearly three times the amount of money that the auto industry took out. But from the auto industry we got 20 million cars. What did we get from these guys? We got cancelled checks and bank statements. This is monstrous, don’t you think?”
Playing with Fire

I am not predicting that interest rates will keep falling to zero and that the world economy will succumb to deflation. I just want to sound the alarm that it might, in view of the counter-productive monetary policy of central bankers. Other scenarios, no less frightening, are also possible. Paradoxically, the threat of zero-interest (deflation) and that of infinite-interest (hyperinflation) are separated only by the knee-jerk reaction of the marginal bond speculator. He may get scared by the threats of Mr. Bernanke to undermine the purchasing power of the dollar further. As he becomes persuaded by the “logic of the printing press”, the marginal bond speculator may cut and run. Then other bond speculators, especially those abroad, could dump their U.S. Treasury bonds, too, and run for the exit. Quite possibly Mr. Bernanke thought that he was just “fine-tuning” the purchasing power of the dollar. Under this scenario he would destroy it. When the central banker threatens to reduce the value of the dollar in terms of goods and services, as Mr. Bernanke does, he is playing with fire. After dumping the bonds, people may dump the dollars, too. First the foreign and then the domestic holders. They need not be reminded that the central banker has the card to trump deflation — by triggering hyperinflation. How desperate must the specter of deflation appear to Mr. Bernanke that he has seen it fit to flaunt his possession of that card!

Congress, Not the Fed, Has the Solution

It is not too late for the U.S. Congress to act to fend off disaster. It should immediately take away the unlimited power from Messrs. Greenspan and Bernanke to create as much fiat money as they wish, and to drive down the value of the dollar in terms of goods and services. Not only are the present monetary arrangements blatantly unconstitutional, they are responsible for the destabilization of the rate of interest allowing it to swing from one extreme to the other, causing grievous economic damage along its path. The House of Representatives, to which the Constitution delegated the monetary powers, can rectify this by going back to constitutional money. It should stabilize interest rates without any further delay, and remove the threat of both zero and infinite interest, by opening the Mint to gold and silver. This is a Republic based on checks and balances. It has a government of limited and enumerated powers. Neither arm: not the legislative, not the executive, nor the judiciary may claim to have unlimited powers under the Constitution. Why should officers of the Federal Reserve be allowed to make such claims?

Free coinage, a right of the people enshrined in the U.S. Constitution, would remove the greatest threat this Republic has faced in its entire history up to now, greater even than that of foreign terrorists. This is the threat to destroy the capital of the producing sector, through the machinations of the financial sector, aided and abetted by the Federal Reserve.

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The Mother of All Financial Bubbles will be Unimaginably Destructive when it Bursts

Chris Martenson writes: At PeakProsperity.com, we pride ourselves on providing fact-based context to breaking important events.  Within 72 hours of the Japan tsunami in 2011, we had analyzed the situation and concluded with high probability that three core meltdowns had occurred at the Fukushima nuclear plant. While it took years for officials to finally admit to the full extent of the crisis, history has validated our initial analysis.

How did we get it right? By using a science-based approach grounded in observation, deduction and a healthy skepticism of what the “experts” in charge claimed. We also went to great lengths to educate our readers about the science in play, explaining in detail how radioactivity and contamination differ, the health risks from such a nuclear accident, and what concerned folks could do to remain as safe as possible.

When California’s authorities suddenly reversed course and scrambled to evacuate nearly 200,000 residents living downstream of the Oroville dam, within an hour, we had released an analysis of the situation, explaining the critical differences among the primary spillway, the main dam, and the auxiliary spillway.

Where mainstream media outlets were consumed by covering the Grammy’s, we were able to tweet and blog relevant details to the worried people hungry for information about the dam’s integrity, keeping them both grounded and informed:

By 10:00pm that same Sunday night of February 12th, we had shared a series of updates with schematics, images and conclusions that was more complete, accurate and hysteria-free than any other news source we could find at the time.

By the next morning, we had located and interviewed one of America’s top dam experts, who provided an absolutely spectacular assessment of the situation at Oroville. That podcast has been listened to by nearly 50,000 people at this point, including residents of Oroville who have used its insights to determine whether or not to return home at this time.

And on top of all this, our own community began filling in the blanks with their expertise. One community member, an emergency worker deployed to the dam earlier this week, has been providing us with valuable insider information that state officials have resisted making public.

The reason I’m relating all of this now is because of the instructive lessons involved. It’s worth noting that communications from officials in Oroville transitioned from a steady, repeated stream of “Everything is fine. There’s nothing to worry about” to suddenly “Run for your lives!” within an hour.

Of course, the 188,000 people living downstream from the dam were caught off guard by the mandatory evacuation order. Many left with none of their possessions, only to get hopelessly caught on clogged roads. It was a time of panic and disorder, with no one seemingly in control.

The main lesson from Oroville — or Fukushima, or Katrina —  is that governments do a poor job of relating accurate information to their citizens when big threats are involved. Part of that is likely due to a desire to avoid stoking fear. Part probably due to politics and bureaucracy. And part probably due to plain old incompetence.

Regardless of the cause, it means that the public — even the vigilant ones — suffer information deficits when it matters most. Simply put, the authorities do not share all the facts necessary for making informed decisions.

Why is why our longstanding advice has been a straightforward call to ‘trust yourself’ when assessing crisis risk. In most cases, good old-fashioned common sense and a little sleuthing will get you far closer to the truth, and faster, than 99% of your peers who are relying on being told what’s happening by those in charge.

In most cases, the information you need to assess the truth will be right there, hiding in plain sight but always obvious in retrospect. This means it’s also available to you in real-time, providing you’re willing to trust your own eyes and you know where to look.

Which brings us to one of the truly great risks we’re facing today. One with much more destructive potential than a single failed dam but, like Oroville, one the authorities are desperate to keep us in the dark about.

The Mother Of All Financial Bubbles

We are now living through the mother of all financial bubbles. We’ve been living with it so long now that we have to take three giant steps backwards to even detect its broad outlines.

As a reminder, a bubble exists when asset prices rise beyond what incomes can sustain. Florida swampland in the 1920’s, tech stocks in the late 1990s, or Toronto real estate today — all are fine examples of this.

The US government and the private banking cartel known as the Federal Reserve, in cahoots with a very compliant and complicit mainstream media, are doing everything in their vast and considerable power to convince us that we are living in an golden era of risk-free prosperity. And that tomorrow will be even better.

Now, regular readers of PeakProsperity.com’s reports will know there’s a mountain of evidence contracting this. But it’s critical to understand that this is the same public perception management style as we’ve recently seen at Oroville: Deny, deny, deny… and then finally admit the obvious.

So let’s take those three giant steps backwards and see if we can spot the flaw in the ‘everything is awesome!’ meme that the Fed et al are trying to paint for everyone by flooding the “markets” with so much thin-air liquidity (between $150-$200 billion a month) that nobody has any clue what anything is truly worth anymore.

Giant Step Backwards #1: Infinite growth is impossible.

This is such an easy concept that I’m continually surprised at how poorly appreciated it is and how much resistance it receives when raised. But it works like this: the earth is a sphere and therefore has a defined surface area and a defined amount of resources available for use.

The availability of these resources ranges across a spectrum from dense/concentrated on one end to dilute/useless at the other. Humans have already extracted and consumed most of the easily obtainable stuff. Now it gets harder.

Regardless of the economics of these resources, they are finite. And as our economic requires resources to function, if we want our economy to grow from here, that means consuming more resources at a faster rate then we have been. If resources are finite, then growth will one day prove finite, too.

This should be utterly, blindingly obvious to everyone. But it’s not, apparently. The Federal Reserve and the central banks in other nations are unified in their call for more economic growth, always and forever. That’s plan A. There is no plan B.

Giant step backwards #2: You can’t print your way to prosperity.

History is replete with the failed attempts of nations to print their way to prosperity. The pursuit operates on the same principle as alchemy: trying to get something for nothing. It has invariably and always ended the same way. In tears.

At first it, issuing more currency feels good because those closest to the money printing get stinking rich while doing practically nothing. As that trickles down, everybody initially feel smart and wealthier. Well, not everybody; but those running the system sure do.

After a while, though, all that feel-good activity is revealed as a fraud. It turns out prosperity wasn’t printed, instead it was redistributed. From one party’s pocket into another. And in most cases, from poorer pockets into those of the already-privileged.

The same is happening today with the “thin air” money printing being conducted by the world’s central banks. We are now living with one of the most extreme wealth gaps in US history, with the top 1% (really, the top 0.1%) owning a greater percentage of the nation’s wealth than they ever have.

But it’s even more nefarious than that, because the Fed is not simply stealing from today’s public; it is also stealing the prosperity of future generations. When the party being stolen from hasn’t been born yet, it can’t fight back.

In short, you cannot print your way to prosperity. Yet somehow we’ve forgotten that. And we’re dooming ourselves (and our children and grandchildren) to becoming serfs in the process.

Giant step backwards #3: You can’t grow your debts faster than your income forever.

This, too, should be completely obvious.  You know perfectly well it holds true for your personal life or your business, if you have one. And it’s equally true for a nation, which is simply an aggregation of individuals and businesses. But somehow this simple truth has been either forgotten or deliberately ignored by today’s economists and politicians.

Our grand experiment in debt-based fiat currency — unbacked by anything tangible, like gold — began on August 15th, 1971 when Nixon unilaterally broke the Bretton Woods agreement and forced the entire world off of the gold standard. Not that the world minded much, because this then meant that politicians and monetary hacks everywhere could ignore centuries of economic lessons and begin making exorbitant promises by printing currency like mad.

The giant step towards monetary (and debt) expansion this represented is clear to anybody who can read a chart.

Here’s the total credit market debt in the US. It has exploded higher at a near-perfect exponential rate since that fateful day in 1971:

Total US Debt chart

But what we really need to do is compare debt to income. Remember, you’re not supposed to grow the former at faster rate than the latter. So let’s add (nominal) GDP to our chart and see what comes up:

Debt vs GDP chart

As you can see, those lines began diverging a long time ago (aha! Right around 1971. Imagine that.). They’ve been diverging at an increasing pace for prety much the entire adult lives of everybody in power. At this point, our leaders just assume “This is how the world works.”

“Reagan proved that deficits don’t matter

~ Vice President Dick Cheney

The little wiggle in the exponential curve there, during 2008-2009, was the wiggle that almost destroyed the world. Our entire system of credit and money came very close to full-scale collapse, simply because it didn’t grow for a few brief years. Makes you shudder to think what would have happened had it acutally contracted…

But back to the main point. If we compare the beginning of this wanton debt-binge in 1970 with the state of things today:

Debt 40x chart

We see that debt has shot up by a factor of 40 while income has only increased by a factor of 17. We have indeed grown our debts wildly faster than our income over the past 45 years

And, it should be noted, a lot of that GDP ‘growth’ is the byproduct of borrowing and spending money we don’t have on things we don’t need. Said differently: the debts will remain during any serious future economic downturn but the GDP that is fraudulently based on excessive rates of borrowing will vaporize as if it never existed in the first place.

That, my friends, right there is the very definition of unsustainable.

If something cannot go on, it won’t.

But the Federal Reserve, under the leadership of a pure academic like Janet Yellen, cannot conceive of any approach other than perpetuation the same system that has been in place while she’s built her career.

Conclusion

The Fed is desperately seeking to keep the status quo in place, praying that somehow things turn out OK, and clearly scared to death behind the scenes. But, just like the officials at Oroville, when the cameras are on her, Yellen smiles and tells us that all is well.

The Fed has printed as much money as it has dared for the time being. It has since handed the baton over the ECB, and the Bank of Japan, who have stepped in to keep the wheels of the world’s debt production well-greased.

Around and around the baton gets passed. And we’re told by our government and media that this is all in our best interests. However, the only thing these central banks are truly doing is stealing from savers and the elderly today, and pretty much everyone tomorrow.

What have they done with the trillions in “thin air” currency they have printed up? They handed them to the big banks, to speculators and the already wealthy. Which should come as little surprise. These are the people they count on for their high-status jobs, as well as the big payouts awaiting them when they return to the private sector.

In the meantime, they’ve blown the Mother Of All Financial Bubbles.

This is primarily a bubble in debt (i.e., the bond market). But in its making, new bubbles in real estate, stocks and a whole slew of other asset classes were created.

When these bubbles burst, and they must, it will be a massively destructive event. There will literally be nowhere to hide from the repercussions.

You simply cannot count on anyone in power giving you anything like timely warning or useful advice in advance. You need to find accurate, trustworthy indicators on your own, and then decide how you’re going to position yourself, your loved ones, and your wealth accordingly.

In Part 2: How Bad Will It Get? we detail the tremendous scale of the losses that will result when this Mother Of All Financial Bubbles bursts. It will be a traumatizing time for society, and many, many people will see their wealth vaporize.

The key objective at this time is to position yourself for physical and financial safety. For those who do will be in a position to prosper greatly, as well as offer much-needed support to others, when the coming reset arrives.
The Market Oracle

How Start A Business to Invest in a Renewable Energy Future


View full post on coin collecting investment – Google News

$XAU – Retesting the 200 Day Moving Average – Video

Mining stocks have broken their daily cycle trend line and are likely to retest their 200 day moving average over the next week or so. This would potentially allow the daily RSI(5) to push down to an oversold reading near/below 30, give the rising 50 day moving average more time to catch up to price, and trigger the stops of traders who bought the breakout above the 200 day moving average within the past month. This is a normal corrective move that is unlikely to last much more than a week.
The Market Oracle

Deep State Power vs Trump

America’s deep state is divided on Trump. He couldn’t have been elected without enough support. Post-inauguration, things changed. The balance of power shifted against him, leaving him vulnerable, already weakened this early in his tenure, unprecedented for a US president. His record so far in office is another matter, though too soon to judge him definitively. Still, disturbing signs aren’t encouraging. More on this below.

Jack Kennedy transformed himself from a warrior to a peacemaker. He paid the supreme price.

Trump is no Jack Kennedy – never was, never will be. JFK surrounded himself with young intellectuals as advisors, a cadre he called “the best and the brightest.”

He advocated progressive taxation, increased social welfare including more low-cost public housing, civil rights legislation, medical care for the elderly at a time it was affordable, and federal aid for public and higher education.

He wanted nuclear weapons abolished, the Cold War ended, followed by a “general and complete disarmament.” Heady stuff!

He opposed imperial wars, notably in Southeast Asia. He wanted all US forces out of Vietnam by December 1965.

He believed America should no longer use its might to enforce Pax Americana worldwide. He fired CIA director Allen Dulles and his assistant general Charles Cabell. He wanted to “splinter the CIA into a thousand pieces and scatter it to the winds,” reason enough to kill him.

He supported Palestinian rights. He opposed Israel’s nuclear weapons program. He offended energy giants, wanting their oil depletion allowance cut or eliminated.

Throughout the 1962 Cuban missile crisis, he said he “never had the slightest intention of attacking” the island state.

He favored Federal Reserve reform. His Executive Order 11110 authorized replacing central bank notes with silver certificates.

It’s believed he wanted United States notes issued, returning money creation power to Congress as the Constitution mandates.

Had he lived and won reelection, imagine the possibilities of a transformational administration, unlike any before or since in US history.

Trump’s first month in office wasn’t encouraging. Killing TPP and likely TTIP leaves the proposed Trade in Services Agreement (TISA) unaddressed.

Covering over two-thirds of world trade in services, it aims for deregulating global financial services markets more than already – allowing unrestricted exchange of personal and financial data.

Global Trade Watch director Lori Wallach explained it’ll “roll back the improvements made after the global financial crisis to safeguard consumers and financial stability and cement us into the extreme deregulatory model of the 1990s that led to the crisis in the first place and the billions in losses to consumers and governments.”

Lawyers and lobbyists for bankers and other financial interests wrote the legislation – a wish list for them at the expense of the general welfare, including supranational rules overriding national laws.

Imperial wars still rage in multiple theaters, continuing the horrors under the Clintons, Bush/Cheney and Obama. Trump’s war on immigrants is all about politics, unrelated to protecting America’s borders and national security.

Accomplishing these objectives requires no longer attacking other countries, ending support for ISIS and other terrorist groups, waging peace, not war, as well as fair, not free, trade – creating, not destroying jobs.

Firing Michael Flynn eliminated his key foreign policy advisor, leaving others in his administration vulnerable including himself.

It likely shattered hopes for improved ties with Russia other than possible changes to minor to matter.

Hostile comments from Mike Pence, Nikki Haley and Sean Spicer aren’t what turning a new leaf in bilateral relations is all about – especially given a hostile Congress and major media.

Trump and key administration officials expressed disturbing hostility toward China and Iran. He wants increased spending for America’s bloated military, including boosting its nuclear capability.

After bashing NATO earlier, he now calls himself a “fan” of the alliance. He wants so-called safe zones in Syria Bashar al-Assad opposes. So does Russia without his authorization.

He wants Wall Street deregulated, enabling financial giants to be more predatory than already.

His executive orders on crime fighting and keeping America safe sound ominously like increasing police state powers.

His new FCC chairman said Net Neutrality’s days are numbered. His education secretary wants public education destroyed. His plan to repeal and replace Obamacare promises something worse instead.

His defense secretary is a hardened warrior. James Mattis didn’t earn four stars by waging peace. He and Secretary of State Rex Tillerson expressed hostility toward Russia, China and Iran.

Trump’s first few weeks in office were disturbing, likely indicating what’s to come.

Lofty rhetoric is one thing, policymaking another. America should be great for everyone.

Rising equity prices suggest Trump wants things better for the privileged few – the way it’s always been.
The Market Oracle

Unemployment: Human Sacrifice on the Altar of Mammon

The Great Depression of the 1930s bringing unprecedented world-wide unemployment in its wake was not caused by the “contractionist nature” of the gold standard as alleged by John M. Keynes. Nor was it caused by “fractional reserve banking” as alleged by Murray N. Rothbard. It was caused by national governments sabotaging the clearing system of the international gold standard, the bill market, thereby destroying the wage fund of workers employed in the production and distribution of consumer goods. In throwing out the bath-water of real bills governments have thrown out the baby of full employment. Unemployment is the modern version of the earlier religious practice of making human sacrifice on the altar of Mammon

The tale of the cuckoo’s egg

1909 was a milestone in the history of money. That year, in preparation for the coming war, the note issues of the Bank of France and of the Reichsbank of Germany were made legal tender. Most people did not even notice the subtle change. Gold coins stayed in circulation for another five years. It was not the disappearance of gold coins from circulation that heralded the destruction of the world’s monetary and payments system. There was an early warning: the German and French government’s decision to make bank notes legal tender that would effectively sabotage the clearing system of the international gold standard, the bill market.

Real bills drawn on consumer goods in urgent demand circulated world-wide without let or hindrance before 1909. As goods were moving to the ultimate gold-paying consumer, bills drawn on them matured, as it were, into gold coins, that is to say, into a present good. It is readily seen that the notion of a bill maturing into a legal tender bank note is preposterous. The bank note is not a present good but, like the bill itself, a future good. Furthermore, legal tender means coercion enforced within a given jurisdiction but unenforceable outside. At any rate, legal tender bank notes were incompatible with the voluntary system based on the bill of exchange payable in gold coin at maturity. They were bound to paralyze the market in real bills. The monkey wrench has been thrown into the clearing system of the international gold standard.

The bank of issue continued to use the bill of exchange as an earning asset to back the legal tender bank note issue. But other subtle changes would alter the character of the world’s monetary system beyond recognition. The cuckoo has invaded the neighboring nest to lay her egg surreptitiously. In addition to bank notes originating in bills of exchange bank notes originating in financial bills have made their appearance for the first time. In due course the cuckoo chick would hatch and push the native chick out of the nest. In five years the entire portfolio of the bank of issue consisting of real bills exclusively would be replaced by one consisting of financial bills, including treasury bills. The real bill has become an endangered species. In another five years it would become extinct.

Bank notes as self-liquidating credit

Previous to 1909 circulating capital for the production of consumer goods in urgent demand had been financed, not out of savings, but through discounting real bills at a commercial bank which would then rediscount them at the bank of issue that supplied the country with bank notes. To be sure, these bank notes represented self-liquidating credit. They were merely a more convenient form of the bill of exchange from which they derived their strength. They came in standard denomination round figures. Unlike the bill of exchange they could without hassle and loss be broken up into smaller units. The great convenience they offered was valued by the public so much that people were willing to pay for it in the form of forgone discount.

When the bill matured and was paid, the bank note was retired. For this very reason it was not inflationary, not any more than the real bill itself. The bank of issue would under no circumstances prolong credit beyond the maturity date of the rediscounted bill. If the underlying merchandise could not be sold in 91 days then, for the stronger reason, it would not be sold in 365 days, certainly not before the same season of the year came around once more. But by that time the merchandise would be stale and could only be sold at a loss. Prolonging credit on a mature bill would violate the letter and spirit of the law governing central banking in Germany prior to 1909.

Could a commercial bank, nevertheless, roll over a real bill at maturity? On strictly economic grounds it wouldn’t. First of all, it would forfeit its rediscounting privileges at the bank of issue if it did. Secondly, it would make its portfolio less liquid and so it could no longer compete successfully with more liquid banks. Having said this, we must admit that in practice some banks may have been guilty of rolling over mature real bills for various reasons. At the benign end of the spectrum the reason could be a false sense of loyalty to clients; at the malignant, conspiracy with them in speculative ventures. It was this latter practice that could be properly condemned as “credit expansion”. However, the unethical behavior of some banks should be no grounds for issuing a blanket condemnation of all banks and calling the legitimate practice of discounting real bills “credit expansion” with a disapproving connotation.

Real bills versus financial bills

The changeover from bank notes backed by real bills to bank notes backed by financial bills was the last nail in the coffin of the clearing system of the international gold standard. Monetary scientists and others with intellectual power to grasp the intricacies of bank note circulation raised their voice condemning the new paradigm making financial bills eligible for rediscount, a practice that had previously been prohibited by law with severe penalties for non-compliance. Most people could not understand what the fuss was about. But there was a world of a difference between rediscounting real bills as opposed to financial bills. It was the difference between self-liquidating credit and non-self-liquidating credit. Real bills were backed by a huge international bill market with its practically inexhaustible demand for liquid earning assets. Financial bills were backed by the odds that speculative inventory of goods and equities or investment in brick and mortar may be unwound without a loss. If the odds did not play out in time, then at maturity the financial bills would have to be rolled over. This was borrowing short and lending long through the back door, carrier of the seeds of self-destruction.

The chimera of “fractional reserve banking”

Financial bills made the asset portfolio of the bank of issue illiquid. The bank could no longer satisfy potential demand for gold coins, should holders of bank notes decide to exercise their legal right to redeem them. To take away this right was the reason for making bank notes legal tender in the first place. Redemption wouldn’t be a problem as long as the asset portfolio consisted of real bills exclusively. Every single day one-ninetieth of the outstanding bank notes matured into gold coins which were available for redemption. This would normally suffice to satisfy daily demand. But what about abnormal demand for gold coins?

A real bill is the most liquid earning asset in existence. At any time somewhere in the world there is demand for it. In particular, banks that have a temporary overflow of gold would be more than anxious to exchange it for real bills. The bank of issue would not have the slightest difficulty to get gold in exchange for real bills in the international bill market. Once upon a time the Bank of England boasted that “it could draw gold from the moon by raising the rediscount rate to 5%.” The assumption that there will always be takers for real bills offered is just as safe as the assumption that people will want to eat, get clad, keep themselves warm and sheltered tomorrow and every day thereafter.

This explodes the blanket condemnation of “fractional reserve banking”, a stand so popular nowadays in some circles. Detractors of fractional reserve banking are barking up the wrong tree. They should condemn the practice of rediscounting financial bills on the same terms as real bills. The latter were self-liquidating, while the former had impaired liquidity: under certain circumstances they might become unsaleable even in peacetime. They were simply unsuitable to serve as bank reserves.

Prior to 1909 the charter of every bank of issue explicitly made financial bills ineligible for rediscounting. The laws governing central banking prohibited the use of these bills for the purposes of backing the note issue, and prescribed heavy penalties for non-compliance. This was not a controversial issue. Informed people could distinguish between safe banking that utilized real bills and unsafe banking that utilized financial bills to back the note issue. That judgment is epitomized by the old saying that “the easiest profession in the world is that of the banker, provided that he can tell a bill and a mortgage apart”.

Reflux

The process of retiring the bank note after the merchandise serving as the basis for its issue has been removed from the market by the ultimate gold-paying consumer is called “reflux”. Some authors ridiculed the concept calling it a deus ex machina. They argued that the banks were only interested in credit expansion, not in reflux. They would not for one moment think of withdrawing a corresponding amount of bank notes from circulation when the real bill matured. Instead, they would lend them out at interest to enrich themselves at the expense of the public. For the stronger reason, you could also ridicule the entire legal system asking the rhetorical question: “what is the point in making laws when they will be broken anyhow?” This is not a valid argument. You can’t judge the merit of an institution by the behavior of those who are set upon destroying it.

Let us follow the trail of gold coins through the path of reflux. Our description is necessarily schematic. For the sake of simplicity we assume that only distributor-on-retailer bills are discounted. This is reasonable as these bills are more liquid than producer-on-distributor bills, or higher-order-producer-on-lower-order-producer bills. We also assume that the retailer is expected to pay his bill with gold coins flowing to him from the consumers. The gold is considered proof that the merchandise underlying the bill has been sold to the ultimate consumer and is not held, contrary to the purpose of bill circulation, in speculative stores in anticipation of a price rise. Finally, our description follows the practice of the German banking system as it was before 1909. The practice elsewhere may have been different, but the essential idea was the same: with the sale of merchandise the gold coin was recycled from the consumer through the retail merchant to the commercial bank, from where it would be withdrawn by producers in order to pay wages, thus putting the gold coin back into the hand of the consumers. Then the cycle of supplying the consumer with urgently demanded merchandise could start all over again.

In more details, as gold coins flowed from the consumer to the retail merchant, they were deposited at the commercial bank. When he was ready to replenish his depleted inventory, the retailer ordered a fresh supply and, after endorsing the bill he returned it to the distributor. The latter would discount it at the commercial bank taking the proceeds in the form of bank notes which the commercial bank obtained from the bank of issue through rediscounting.

The distributor would use the bank notes to pay the producer of first order goods for supplies. The latter would use them to pay the producer of second order goods for supplies, and so on. But when it came to paying wages, all these producers had to draw out gold coins from the commercial bank against bank notes. Upon maturity the commercial bank paid the rediscounted bill with bank notes which the bank of issue was under obligation to retire. It could not lend them out at interest. If it did, it would violate the law, and would have to pay heavy penalties. The only purpose the retired bank notes could be used for was to rediscount fresh bills drawn on new consumer goods moving to the ultimate gold-paying consumer. This was not the same as lending them out at interest, since lending and discounting were two entirely different banking functions.

Now the gold coin was in the hands of the wage-earner. As he spent it in buying consumer goods he enabled the retail merchant to make payments on his discounted bill at the commercial bank with gold. When paid in full, it was returned to the retail merchant and the bill’s ephemeral life as a means of payment has come to an end. But the march of gold coins would continue. They would be withdrawn by the producers to pay wages, and the cycle of supplying wage-earners with consumer goods against payment in gold coin could start all over again.

Mistaking the back-seat driver for the boss in the driver seat

The havoc that the silent monetary revolution of 1909 would wreak upon society had not been foreseen. Nor was the causal relation between the expulsion of real bills and massive unemployment recognized in retrospect after the worst happened and almost 50% of trade union members, or 8 million people, lost their jobs in Germany alone.

Real bills finance the movement of consumer goods, including wages paid to people handling the maturing merchandise through the various stages of production and distribution. The size of circulating capital needed to move the mass of consumer goods through these stages, if financed out of savings, would be staggering. Quite simply, it could not be done. No conceivable economy would produce savings so generously as to be able to finance all circulating capital that society needed in order to flourish at present levels of comfort and security. To move a $100 item all the way to the consumer may, in an extreme case, require savings in the order of $5000, or 50 times retail value!

Fortunately, there is no need to employ savings in such a wasteful manner. It is true that fixed capital must be financed out of savings. As a result, creation of fixed capital depends on the propensity to save. Not so circulating capital, provided that the merchandise moves fast enough to the ultimate gold-paying consumer. It can be financed through self-liquidating credit which depends on the propensity to consume, but is independent from the propensity to save.

The discovery of this fact is one of the great achievements of the human spirit and intellect, on a par with the discovery of indirect exchange. The impact on human life of the invention of the circulating bill of exchange is fully commensurate with that of the invention of the wheel. The detractors of the Real Bills Doctrine have missed one of the most exciting developments of our civilization: the discovery of self-liquidating credit in the wake of the disappearance of risks in the production process as the maturing good gets within earshot of the final gold-paying consumer.

Pari passu with the emergence of the need for consumer goods the means to finance their production and distribution emerges as well. It is in the form of the bill of exchange. Retailers and distributors hardly ever pay cash for supplies of consumer goods. “91 days net” is invariably part of the deal, to give ample time for the merchandise to reach the ultimate gold-paying consumer. Producers of higher-order goods could fold tent and go out of business if they insisted on cash payment for the supplies they provide. Producers of lower-order goods were the boss by virtue of being that much closer to the ultimate consumer and his gold coin. They would laugh you out of court if you told them that they have just been granted a loan and the discount is just interest taken out of the proceeds in advance. They know better. They know that self-liquidating credit is theirs for the taking. They know that the discount rate has nothing to do with the rate of interest. For a consideration they may be willing to prepay their bill before maturity. The privilege is theirs. The discount is just the consideration to tempt them. Those who insist that the producer of the higher-order good is the lender and that of the lower-order good is the borrower are mistaking the back-seat driver for the boss in the driver seat.

The biggest job-destruction ever

Let us now see how the governments destroyed the wage fund of workers employed in the sector providing goods and services to the consumer. These workers’ wages were financed through the trade in real bills. The emerging consumer good they handled would not be sold to the ultimate consumer for 91 days at the latest. Yet in the meantime these workers had to eat, get clad, keep themselves warm and sheltered. If they could, it was only because real bills trading would keep replenishing their wage fund.

In order to create a job capital must be accumulated through savings. This applies to the fixed capital deployed in making both producer goods and consumer goods. In case of the former it applies to circulating capital as well. But if circulating capital had to be accumulated through savings in the latter case, too, then jobs in the consumer goods sector would be few and far in between. In the event jobs were plentiful in that sector because of the fact that circulating capital supporting them could be financed through self-liquidating credit that did not tie up savings. By contrast, jobs in the producers good sector could not be financed in this way, explaining why they were not nearly as plentiful nor as easily available.

When governments locked out real bills from the payments system, they inadvertently destroyed the wage fund of workers employed in the sector providing goods and services for the consumer. Unless they were prepared to assume responsibility for paying wages, there would be unemployment on a massive scale that would spill over to all other sectors as well. Eventually the governments, to avoid undermining social peace, decided to do just that. They invented the so-called “welfare state” paying so-called “unemployment insurance” to people who could have easily found employment had the clearing system of the gold standard, the bill market, been allowed to make a come-back after World War I. What has been hailed as a heroic job-creation program appears, in the present light, as a miserable effort at damage control by the same government that has destroyed those jobs in the first place. Economists share responsibility for the disaster. They have never examined the 1909 decision to make bank notes legal tender from the point of view of its effect on employment. They should have demanded that, instead of treating the symptoms, the government remove the cause in reinstating the international gold standard and its clearing system, the bill market. They should have demanded that the government abolish the legal tender privilege of bank notes forthwith.

It took 20 years for the chickens of 1909 to come home to roost. But come home they did with a vengeance. However, by 1929 the memory of the 1909 coercive manipulation of bank notes faded, and virtually no one realized that a causal relationship existed between the two events: making bank notes legal tender and the wholesale destruction of jobs twenty years later.

The father of revisionist theory and history of money

One man who did, and whom we salute as the father of revisionist theory and history of money, was Professor Heinrich Rittershausen of Germany. In his 1930 book Arbeitslosigkeit und Kapitalbildung (Unemployment and Capital Formation) he predicted not only the imminent collapse of the gold standard but also the wholesale destruction of jobs world-wide as a result of the explosion of the time bomb planted in 1909, wrecking the clearing system of the international gold standard, the bill market. The horrible unemployment Rittershausen predicted would continue to haunt the world for the rest of the 20th century and beyond.

If we want to exorcise the world of the incubus of unemployment with which it has been saddled by greedy governments making bank notes legal tender in their worship of Mammon, not only must we return to the international gold standard, but we must also rehabilitate its clearing system, the bill market. In this way the fund, out of which wages to all those eager to earn them for work in providing the consumer with goods and services can be paid, will be resurrected. Then, and only then, can the so-called welfare state paying workers for not working and farmers for not farming be dismantled.

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2 Stocks to Consider to Invest in a Renewable Energy Future – Bloomington Pantagraph

2 Stocks to Consider to Invest in a Renewable Energy Future
Bloomington Pantagraph
Find out what makes both companies such compelling investments, how energy yieldcos work and why 8point3's dividend yield is a whopping 7.4%, how GE's merger with Baker Hughes (NYSE: BHI) will affect the energy giant, two pieces of general advice for

and more »

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Stock Market Crash 2017; Reality or all Hype

“A man profits more by the sight of an idiot than by the orations of the learned.” ~ Arabian Proverb We have one expert after another predicting that it is time for the markets to crash; mind you these same chaps sang this same terrible song of Gloom in 2015, 2016 and now they are singing it with the same passion in 2017. There is one noteworthy factor, though; a few former Bulls have joined the pack.  Does this now mean that the markets are going to crash? Apparently not, well, at least if you look at the indices, as of Jan the market continues to trend higher. Furthermore, what is a crash or for that matter a pullback or a correction? Does it not all boil down to a perception?
The Market Oracle

3 Stocks to Buy Before the iPhone 8 is Revealed

This article originally was published here: https://www.wealthdaily.com/articles/3-stocks-to-buy-before-the-iphone-8-is-revealed/8527

Apple Inc. (NASDAQ: AAPL) is widely expected to release its newest iPhone at some point during the fall later this year. While it’s still more than several months away, rumors are already flying as to what features the “iPhone 8,” or, as some are now calling it, the “iPhone X,” will entail.

For the many Apple fanboys and techies out there, knowing the exact details about the iPhone 8 in advance is a great matter of interest. For investors like us, it’s also a matter of business.

That is, the more you know about the upcoming iPhone as an investor, the better you can respond to impending shifts in the consumer electronics market. The iPhone, after all, goes far beyond what we see on the surface: there is an entire ecosystem of companies that benefits from its existence.

Apple Suppliers %24WATT %24GLW %24OLED

Every time Apple releases a new iPhone, the consumer electronics market veers in various directions. The bigger the design changes, the more individual suppliers will move, which obviously represents a number of unique opportunities for investors.

We’ve seen it happen before with major Apple suppliers like Broadcom (NASDAQ: AVGO), InvenSense (NYSE: INVN), and Qualcomm (NASDAQ: QCOM), and we’ll see it happen again with other firms this time around.

For those who like to trade options, these situations can be particularly compelling. Not only is the time frame relatively clear with the iPhone routinely releasing in the fall, but you also gain additional leverage on price movements through call and put contracts.

In any case, though, it pays to pay attention. This is especially true today considering the number of major design changes rumored for the iPhone 8.

That being the case, we’re going to dedicate the following space to a few potential winners (and losers) based on what we know about the iPhone 8 so far. We’ll start with what’s most likely and take a look at what’s more speculative as we move down the line.

What We Know: A Whole New Display

While ultimately nothing is guaranteed, there is at lease one aspect about the upcoming iPhone that we can count on with a high degree of certainty, and that’s an OLED screen.

As the Korea Herald reported earlier this week:

Samsung Display has received a display panel order from Apple for an additional 5 trillion won ($ 4.35 billion) in organic light-emitting diodes. Totaling 13 trillion won so far, Samsung Display has proved a major supplier for Apple’s upcoming iPhone models, sources said Monday.

According to sources from the display industry, Samsung Display recently won the order for 60 million OLED panels.

Considering the Korean display maker had already clinched a deal to supply 100 million flexible OLED panels at 8 trillion won last April, the latest order will make Samsung the biggest supplier for Apple’s next smartphone, which is expected to be launched in the fall.

Market watchers estimate that Samsung would be supplying about 80 percent of the total demand for iPhone display panels, given that each iPhone series has sold more than 200 million units.

While not officially confirmed, the information comes from a trustworthy internal resource (the Korea Herald has a record of accurately reporting OLED shipments). Not to mention, when asked about the order, a spokesman at Samsung indirectly confirmed its existence in saying, “We can’t officially comment on anything related to the order.”

At least that’s how we read it…

Now, Samsung is obviously the big winner here, but trading the South Korean company isn’t exactly a viable option for most investors. Not to mention, Samsung is a widely diversified firm with so many other product lines that OLED wont move the needle too much.

Fortunately, investors have a better option in Universal Display Corp. (NASDAQ: OLED), the company that licenses its OLED technology to both Samsung Display and, more recently, LG Display (NYSE: LPL).

With Apple very likely to be adopting organic diodes, momentum is certainly working in Universal Display’s direction.

What We Think: Fewer Buttons, More Glass

In addition to an OLED screen, the iPhone 8 is widely rumored to feature a “glass sandwich,” bigger screen, and a borderless display with no physical home button. While any combination of these rumors may be true, the underlying theme here is clear (no pun intended): more LCD glass.

Though it may not all seem too high-tech on the surface, advancements in the physical properties of glass substrate have been a key driver of modern consumer technology. Glass panels for premium smartphones need optimal optics, shatter resistance, and touch capabilities. Not just any supplier can make the cut.

In fact, there is effectively just one glass supplier that Apple can look to for the iPhone 8, and that’s Corning Inc. (NYSE: GLW). Thanks to its incredibly strong intellectual property and manufacturing footprint, Corning and its subsidiaries have managed to grab over 50% of the LCD glass market.

Not to mention, Corning’s flagship Gorilla Glass has been the go-to choice for Apple ever since Steve Jobs first demanded the product just weeks before the original iPhone’s production ramp. With a rumored “glass sandwich” design and additional screen space, Corning could potentially be providing twice the amount of substrate that it currently is for the iPhone7.

Yet while Corning would likely benefit from all this additional screen space, Taiwan Semiconductor (NYSE: TSM) might not turn out so lucky. As mentioned above, rumors suggest the removal of a physical home button, and thereby the fingerprint sensor that TSMC currently provides to Apple.

Of course, TSMC could end up providing biometric capabilities in another form (some rumors suggest a laser scanner), but the threat to its current offering is worth noting nonetheless.

What Could Be: Wireless Charging

A less likely but certainly feasible design rumor is that Apple will also be adding wireless charging to the iPhone 8, following in the footsteps of competing premium handset maker Samsung.

While speculation on wireless charging in the iPhone has been circulating for years, the feature became far more probable this week when Apple joined the Wireless Power Consortium, which governs the Qi standard in most devices with wireless charging.

Not only that, but adding wireless charging to the iPhone just makes sense. As IHS Technology analyst Vicky Yussuff points out, “The success of wireless charging adoption from Apple’s competitors is something that Apple can no longer ignore.”

Further, in a consumer survey, IHS found that a staggering 90% of the consumers want wireless charging on their next device. Eventually, Apple is bound to follow suit.

As for potential benefactors, investors are heavily speculating on Energous Corp. (NASDAQ: WATT). For over a year now, there have been rumors that Apple and Energous have been exploring a partnership for long-range charging.

While there is no hard evidence, there are currently a number of loose connections between the two firms.

For one, Billy Manning joined Energous in September 2016 as Director of Regulatory Operations. Before taking that position, Manning served as Apple’s Regulatory Certification Program Manager for seven years.

Also in December 2016, Energous partnered with longtime Apple supplier Dialog Semiconductor. In a statement to Fast Company, Energous CEO Steve Rizzone shared the following comment: “All the Energous technology will be sold under the Dialog branding and all sales orders will be going through Dialog.”

This all bodes well for Energous, especially when you consider that over two-thirds of Dialog’s revenue comes from Apple. Not to mention that in January, Energous told The Verge its first wireless transmitters will begin shipping by the end of 2017, right around the time the iPhone is expected to release.

Of course, only time will tell which of these features make its way into the next iPhone, but Energous (NASDAQ: WATT), Corning (NYSE: GLW), and Universal Display Corp. (NASDAQ: OLED) are all good speculative bets unless these rumors are ruled out.

Until next time,

  JS Sig

Jason Stutman

follow basic @JasonStutman on Twitter

Jason Stutman is Wealth Daily’s senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and The Cutting Edge. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.

Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.

Outside the office Jason is a lover of science fiction and the outdoors, and an amateur squash player at best. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.

This article originally was published here: https://www.wealthdaily.com/articles/3-stocks-to-buy-before-the-iphone-8-is-revealed/8527

3 Stocks to Buy Before the iPhone 8 is Revealed originally appeared in Wealth Daily. Fortune Favors the Bold


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