Bitcoin Forum

Placeholder for definitions

The term "Fractional Reserve Banking" does not adequately describe the
process of Banking in the recent past. I am open to suggestions on how
to better describe Banking, particularly the Banking interaction with
Bitcoin. I offer the following definitions, feel free to disagree:

First, a description of Money.

Money: An agreed method and system of payment exclusive of third-party risks.
Gold, Silver, and Bitcoin are Money. Everything else is either credit or a liability.

Banking: The acceptance of deposits, and the provision of, and repayment of,
loans whereby the business transactions normally exceed the Bank's ability to
repay all deposits at any given time. 

Fractional Reserve Banking: The practice of restricting the availability of
credit issued by particular banks such that money on deposit remained above
an agreed fraction (historically one eighth) of the banks loans. In order to
ensure that there was some stability within the banking system as a whole,
the Bank's Reserves, (gold) were transferred to a Central Bank who then issued
banknotes to their value and ensured that prudents levels of lending were
maintained. The Bank of England was the first Central Bank of this type,
founded in 1694, and the Federal Reserve Bank was formed in 1913.
The end of the convertibility of the US currency into gold in 1971 marked
the end of the era of Fractional Reserve Banking.   

Unrestricted Banking: The pressures that brought gold convertibility to an
end did not dissipate with the end of Fractional Reserve Banking, and between
1971 and 2009 bank lending increased exponentially. New regulations and
restrictions were applied to the financial systems and the banks, but these
typically relied on internal systems of risk management and the supposed
discipline of the markets. This proved inadequate in 2008, leading to
accuations that regulators were "asleep at the wheel". 
Haldane, "Why Banks Failed the Stress Test" speech [p12], 2009, summing up
the beyond-laissez-faire ethos perfectly:
"No. There was a much simpler explanation according to one of those present. There
was absolutely no incentive for individuals or teams to run severe stress tests and
show these to management. First, because if there were such a severe shock, they
would likely lose their bonus and possibly their jobs. Second, because in that
event the authorities would step-in anyway to save a bank and others suffering
a similar plight."
http://www.bankofengland.co.uk/publications/speeches/2009/speech374.pdf

Problem Banking: A notional conversation that might have taken place 
in late 2008 between Representatives and the Federal Reserve Bank (and presumably
similarly for the Bank of England and for the ECB)
R: "Why should we make your lack of foresight and planning our problem?"
F: "Because if you don't you will not have an economy tomorrow morning"
Thus Problem Banking came into being and continues from the beginning of 2009
to the present day. We live in the age of Problem Banking.

The intent of these descriptions is to accurately describe the condition of
Banking in the recent past, to add colour, and a range of adjectives available
in our discussions. I am not entirely happy with the above, there are subtleties
across national banking systems and regulation that are not adequately
covered, but these names may be good enough.

You define money to be only sound money.

There is noting wrong with doing it that way. However, I think it may be easier for most people to understand if allow the definition of money to include what most people consider to be money and subdivide it into two groups. Sound money = your definition and unsound money = fiat and its derivatives.

I agree with you that our system is fundamentally different (mostly much worse) than traditional fractional reserve banking with sound money and deserving of its own name one that highlights its unique excesses.
 

To me, unrestricted means anyone can offer banking and the rules are set by that entity.

Problem banking? I have no idea what you mean..."Problem" is too vague a word because it depends on the perspective of the person. One mans problem is another mans solution...

If statistics gives you a headache, just watch the video and skip to the next post.
https://www.youtube.com/watch?v=c7AihnLbw1E
I get a headache too ;-)

The Thought for the Day
"This emerging nonlinear structure forces the system to take, or "collapse" to, one of
its multiple possible realisations, which means that those realisations, actually and
unceasingly replacing one another in a dynamically random, or "chaotic," order are
dynamically symmetric among them, while they always differ in their detailed, partially
irregular structure."
[Universal Symmetry of Complexity and its Manifestations at Different Levels of World Dynamics
Kirilyuk, 2004.]

Picking up from my earlier post:
Haldane comments that "To provide some context, assuming a normal distribution,
a 7.26-sigma daily loss would be expected to occur once every 13.7 billion
or so years. That is roughly the estimated age of the Universe."

How inconvenient. Because when we decide to replace normal, Gaussian, with the
power law relationship, we immediately have a problem. Unless restrictions
are placed on the model, the area under the power law curve can be infinite.
Fortunately, power law relationships are common in nature, are well documented,
and hence some comparisons can be drawn with recent experience in the financial
systems. Most systems that offer exponential growth can be expected to exhibit
other features of power law relationships, including emerging nonlinearities.

The Sand Pile is perhaps the (deceptively) simplest system to understand. Sand
flows at a constant rate onto a pile. The subsequent avalanches that occur fit
a power law relationship. The longer the interval between collapses, the bigger
the expected collapse. Avalanche always happens.

In general, all forms of debt exhibit exponential growth, and unless there is
evidence that financial systems are exceptions to universal laws, the longer the
interval, the greater the expectation of a collapse. Note that interests vested
in financial systems have an incentive to promote the idea that their debt can
never fail, that their "money" is sound but the others cannot be trusted.  

I've read that AAA rated debt carries an expectation of a default every 10,000 years.
Really? I'd be pushed to accept 100 years just based on past civil and world wars,
nuclear proliferation, and the tendency for reserve currencies to have a lifespan
of less than 200 years. Throw in Unrestricted Banking, Problem Banking, uncertainties
around Climate Change, Peak Cheap Oil, Limits to Growth, and 30 years seems to me to
be a believable figure. I picked that figure out of my arse, BTW. (The technique was a
trade secret of the Anglo Irish Bank prior to 2009.) There's more on this later.  

Next up - Dexia Bank Failure - 6 October 2011
http://www.bbc.co.uk/news/business-15180153
"In spite of all this, Dexia passed July's banking stress tests carried out by the
European Banking Authority. This happened because the bank had a core tier one capital
ratio of 10.3%. The measure weighs up a bank's top-notch assets against its more risky
holdings and is used to gauge its financial strength. Dexia's score put it well above
the 6% threshold demanded for a clear pass. So on 15 July, the bank issued a press
release headlined "2011 EU-wide stress test results: no need for Dexia to raise
additional capital"."

Well, that escalated quickly. Fortunately, or unfortunately, Dexia was unable to
print its own banknotes, ran out of credit, so got put on the naughty step, and some
stuff got pushed into a "bad" bank. The privilege of printing Euro Notes belongs to
the European Nation States, who each have the right to print the notes, and then add
an identifying character to the serial numbers, and all under the control of the ECB.

And the meaning of "objective", and "probability" is ?
http://www.zerohedge.com/news/2015-09-03/central-banker-urges-lying-public-about-bank-health
"The optimal level of 'informativeness' ... depends on the objective probability that
the banking sector is vulnerable," authors Wolfgang Gick, from the Free University of
Bozen, and Thilo Pausch, an economist with the Bundesbank, wrote.

Anyone still believe? Anyone think the problems of 2008-2009 are gone forever? Anyone?  

(Red colorization mine.)


(Red colorization mine.)

Your bitcoin in an exchange is not bitcoin, until you withdraw. Similarly, your money in your bank account is not money until you withdraw or spend it

The problem is that most of the people still believe in an illusion that their money is in the bank, because when they try to withdraw or spend it, it works fine

Back to Semantics:

http://www.zerohedge.com/news/2015-08-29/us-debt-age-unrestrained-central-banking
http://bawerk.net/2015/08/28/that-70s-show-episode-4/
"But we digress, in the this episode we will focus on debt levels within the context of unrestrained central banking."

Unrestrained, Unrestricted, which to choose? All the while the hunt for scapegoats
continues. A reporter in China, a lone trader in London, the weaker, easier meat
that strayed from the herd only to be culled as an example to others. Pointing to
a naked Emperor can have consequences.

More on statistics. Sometimes a .jpg and some numbers are worth a thousand words.
These numbers are just for illustrating "normal" vs power law relationships.
Source:
http://streettalklive.com/images/1dailyxchange/misc/MW-September-Performance.jpg

Take the first set of decline days and sort into ascending order:
18 20 24 25 33 35 43 43 63 70 91 96 104 157 162 209 252 288 449 531

Hmmm ... at a stretch, you might think "normal" distribution. Now look at the second
set of recovery days:

32 34 39 42 55 62 67 73 75 84 94 109 118 118 125 144 178 181 527

That 527 is four "standard deviations" away from the "mean", in a sample size of 19.
These are what power law relationships look like. The reader may research the
appearance of "normal" relationships at their leisure.

The exponent in the equation seems to be around 2. That sets expectations on how the
system will behave. Of course, if the exponent is 1.9 or 2.1 things change, and
because this is not a natural system, there are limits to comparisons with avalanche,
sand-piles, and forest fires. There are even good reasons to discount time-invariance
and perhaps to expect a model closer to the wave-particle-wave phenomena demonstrated
by light, but with normal financial transactions exhibiting a brownian chaos, thus
from Complexity Theory change in the form of chaos-order-chaos may emerge.

That, in turn, gives a new meanings to the phrases "New World Order" and "collapse into chaos,"
don't you think? Hold that thought :-) More on Banking next.   

The Thought for the Day

"If you have nothing to hide, you have nothing to fear" - attributed to Goebbels.

Unless, of course you are Anglo Irish Bank, who had plenty to hide and had no fear
of their Regulator, the Irish Central Bank. As the 2009 tape revealed, their figure
"picked out of my arse" was no simple lie about the needed financial support .
Too low a figure, and the Central Bank would insist that ANGL sort its own problems out.
Too high a figure would invite questions, and to tell the truth would reveal a problem
that would have the Central Bank running for the hills, seize the bank, and prompt
questions of legality. What was needed was a credible amount of excess debt, but large
enough that when the Central Bank stepped in with support, it would be unable to
withdraw from its position without compromising the Irish Government.

This was no cavalier act of bravado, but a studied fraud on the Regulator and the
Irish Central Bank. There were plenty of warnings on fraud if you knew where to look,
not just in Ireland but throughout the Western World.  

Prof William K Black, on Control Fraud : "We also know that turning a blind eye to
the mortgage fraud epidemic was the only way the rating agencies could hope to attain
those profits."
http://www.huffingtonpost.com/william-k-black/the-two-documents-everyon_b_169813.html

Thinking about this would lead to an expectation that those financial entities
engaged in fraud would keep two sets of books. One to show to the regulators, and
another to actually manage the business. So where and when does that line get crossed?

Some recent research for the Bundesbank,
http://www.zerohedge.com/news/2015-09-03/central-banker-urges-lying-public-about-bank-health
The Bundesbank's views are not necessarily represented by those who suggest that the
public's perception should be managed within the Overton Window for the benefit of
the Banks, but at least there seems to be no suggestion that today's banking should
run on two sets of books. It seems therefore that Haldane's observation may still apply.
Why give up on a nice little earner, with profits rising like a stairway to heaven,
if you are still secure in the knowledge that the taxpayer will bail you out if you
are unable to deliver on the bets you have placed?

Remember the expectation for larger avalanches given longer time intervals? Do you
think that post 2008 that maybe we just pushed the sand back up the hill? Then,
maybe, because these things are less predictable than most think, the next
avalanche may be big. As in too big for the taxpayer to be able or willing to bear,
and if governemnts and taxpayers are unwilling then creditors can expect a haircut.
Of course, if this is feft to the Banks, the taxpayer will be the last to know.  

The strange thing is, at the limit the financial system is BIBO stable. It can
be fixed, at a finite cost, given the will so to do. It is the will that is weak.

There is a simple test of this thesis: Try to pass legislation that should any
systemically important bank require support form the Central Bank (read taxpayer) a
mandatory 10 year prison sentence is imposed on the Bank's President, CEO, CFO, and
their Regulator. There are already calls for the FED to be audited, and for the present
and past executives to be jailed on evidence of criminal activity, and why stop there?  

After all, if they have nothing to hide, they have absolutely nothing to fear.

"If I had an hour to solve a problem I'd spend 55 minutes thinking about the problem
and 5 minutes thinking about solutions." - Albert Einstein

Thus far the things described are no more than symptoms of a deeper malaise. It is
now time to think about the meaning of Sovereign Default. Sovereign Default happens
when a nation can no longer roll over its debts. It is the place at the end of a
long road paved with good intentions. With each misstep, the debt burden increases,
the credit score worsens, and the interest risk premium increases. Eventually a
line is crossed where debt becomes immediately due with no prospect of a rollover. 

If the debt is owned by the nation's citizens, the chances of repayment after
an interval, possibly in a devalued currency, are high. After all, razing the
infrastructure to the ground would make repayment less likely. Hence the nation's
citizens may, (in the words of Ireland's Finance Minister referring to bondholders).
be fair game, different considerations apply today. In ancient times Greek City
states would go to war if payments ceased, at some times for lesser reasons.

What happens next depends on just how badly the regime has messed up. Theoretically,
the creditors might shrug their shoulders and cut their losses. Iceland was
probably as good as it gets, with less than a dozen bankers going to jail. Within
days the currency had collapsed, the three biggest banks failed as did 80% of
Icelandic businesses as interest on loans soared to 300%. At the other end of the
spectrum lies martial law, and unpaid armies looting, raping, and pillaging until
a new order is in place, as happened in medieval times. Arguably this deficit also
applied to continental Europe and to Japan prior to the Second World War.   

The key question is - How badly has your regime messed up? The credit rating on your
sovereign debt should tell you - good for 10,000 years? According to the ECB, Europe's
sovereign debt carries no risk. Really? And negative interest rates are the new sanity?

History is of limited use when the probability of default follows a power law. Minsky,
when referring to the effects of speculation, suggests that long periods of stability
are destabilising. Power law relationships suggests that natural forces, if suppressed
for any reason, will finally erupt with even greater force. Suppression can take
strange forms and come from unexpected places: 

Since when does a Civil Servant issue threats to an elected Minister of a Sovereign
country that would land an ordinary citizen in jail on terrorism charges? 
http://www.rte.ie/news/2015/0910/726863-banking-inquiry/
"He [Mr Trichet] said if you do that a bomb will go off, and it won't be here, it will
be in Dublin," Mr Noonan told the banking inquiry.

Bear in mind, strictly speaking, this is private debt that is being discussed. That's
the sort of debt - "debt doesn't matter because we owe it to ourselves" - that
doesn't matter (because only taxpayers will be hurt) until it matters. And how does
this relate to Sovereign debt? more on that later :-)

Debt is all about having confidence that the debtor can and will make good on his
promises, and legal structures have developed with each lending initiative to create
a contractual framework to deliver payment in full. Private lending by banks is
usually secured by a claim on the creditor's collateral in the event of default.
Sovereign Debt rarely provides this cushion, instead, a comfort blanket called
"full faith and credit" is provided instead, with the implicit guarantee that that
Nation's taxpayers will pay.

Once upon a time, if Tribute went unpaid, it made economic sense to go to war and
to seize the gold and silver contents of the enemy's Treasury. Today, not so much.
Warfare today is all about seizing natural monopolies : railroads; power stations;
water and sewage infrastructure; banks; toll roads; and airports and ports.
Obviously, the overt use of force to gain control of this infrastructure would likely
damage profitability, hence outright War of the global thermonuclear type would be
the last and final option. Instead today a broad spectrum of economic warfare is
ongoing at this time, disguised as Trade Agreements and Treaties supporting global
and international corporations. As a rough rule of thumb, the greater the military
force applied, the greater underlying economic distress. 

For a Sovereign Nation, given the uneasy relationship of a government to its Central
Bank, the additional demands of external creditors to considerations of how to balance
electoral promises, position on the Laffer curve, manage imports and exports, will be
unwelcome. External creditors may be not only uninterested in the economic success
of a Nation State, they may be incentivised to provoke a default if they think there
may be economic advantage in so doing. Studies suggest that Debt to GDP ratios of
180 percent and above signal significant economic stress within economies. Laffer
suggests that there is an upper limit to the amount of tax that can be usefully
imposed on an economy, usually expressed as a percentage of GDP. It follows that
for a given Debt to GDP ratio, there is an upper limit to the interest rate that a
Nation can pay on its Debt without defaulting within the foreseeable future.

Another factor in play is the currency in which external debt must be repaid. While
Sovereign Debt is, almost by definition, repaid in the Nation's currency, that is
not necessarily the case for liabilities of the Central Bank. Indeed, where a
Central Bank trades in foreign currency, some debt will carry a currency risk. There
is, perhaps, on exception: the US dollar acts as the world's reserve currency. Some
say that the USA can never default on its obligations because more dollars can
always be printed. But "It ain't what you don't know that gets you into trouble.
It's what you know for sure that just ain't so" - Mark Twain.

"That is, we see again that the presence of Ponzi can destabilise and otherwise
stable equilibrium provided its own growth rate when the economy is deeply depressed
is large enough. But since such equilibrium is economically undesirable we might
say that this particular destabilising effect is rather welcome" -
An Analysis of the Keen model for credit expansion, asset price bubbles and
financial fragilility" -  Grasselli and Costa Lima 2012.

High up on the list of things we know for sure is that Central Banks know their
business. What could be simpler: borrow at 3%, lend at 6%, and be on the golf
course by 3pm? Unfortunately, it is in a Central Bank's interest to have things
appear somewhat more complicated than that, and to get involved in things it should
best avoid.[2] An example:

"The employment rate will rise if economic growth exceeds the sum of population
growth and the growth in labor productivity." - Keen

More jobs good? OK? Well, if your economy is predominantly a service industry the
chances of a significant boost to labor productivity is as near zero as makes no
difference. So, less unemployment means that economic growth must exceed the growth
in the population. That, in turn, probably means that debt has to expand significantly
faster than economic and population growth. So, if a Central Bank wants to keep
credit under control, and keep its job, it is unlikely to tell its public that its
actions are making the unemployment figures worse.

So why not just allow credit to expand? Surely the free market would take action to
punish any bank or financial entity that lent recklessly? Don't commercial banks
have incentives to behave prudently? Well, No. You have read the earlier posts
on this thread haven't you? Besides avarice and greed, here are two other reasons:

More lending means much bigger profits for the banks. What's not to like?

Secondly, it can be difficult to decide when to restrict the growth of credit.
Keen's Minsky model defines Investment, Speculative financing, and Ponzi
financing in mathematical terms, following Minsky's thesis that stability will
encourage progressively greater risk taking. In this context, faith in Central
Banks is destabilising, and the damage to the economy only becomes apparent long
after the last greater fool has bought at the all-time high. This restriction of
credit is usually characterised as taking the punchbowl away before the party gets
too raucous. That may be too late, and who wants to go to a party with no punch bowl
and where the guests get a pat down on arrival followed by the confiscation of hip
flasks and indeed any concealed alcohol?

Put simply, wealth, in the form of good collateral, (claims on natural monopolies,
property, and extractive industries. Not government promises), expands much more
slowly than credit. Eventually the leverage becomes unsustainable and in some part
of the economy where the stress is greatest, collapse begins. If the debt burden is
high enough and the economy is left to fend for itself, the result will be a deep
and progressive depression throughout the entire, possibly global, economy.

As Grasselli and Costa Lima propose, at that point speculative activity and Ponzi
financing are needed provide a welcome boost to economic activity. However well
defined the mathematics may be, it is far from certain how this would play out in
the real world. More on that, later. 

[2] There are things that Central Banks should be involved in, including
cryptocurrencies, that could be helpful, but that is off-topic for this thread.

But "This time is different"? To say that there has to be at minimum, a first
time. Examples from history of economic recovery from a depression, especially a
global depression, are thankfully, rather thin on the ground. Hence there are a
slew of reasons why the following analysis is built on weak foundations. The
crash in 1929 and the subsequent depression is well documented, though there
is some data that is rarely discussed.

Peak Oil was a concern in the early 1920's, particularly in the USA. Production
was steadily increasing as new oilfields were discovered, averaging some ten
percent each year. Prices were volatile, beginning with $3.07 per barrel in 1920,
falling to $1.34 in 1923, and rising to $1.88 in 1926. In 1927, new oil finds
including Oklahoma, pushed the price back down to $1.3 and a year later to
$1.17. From 1920's 442,929,000 barrels, production rose to 1,007,323,000
barrels, priced at $1.27 in 1929. Significantly, in October 1929, "U.S.
commercial crude stocks peaked at a staggering 545 million barrels , following
the discovery of a series of huge new oil fields in Oklahoma, Texas, the rest of
the Southwest and California."

http://www.oilandgaspeople.com/news/1663/us-crude-oil-stocks-return-to-1930s-crisis-levels/

The oil glut was different to the coincident wheat and agriculture glut, in that
once consumed, crude oil cannot be replaced, hence the record (six months)
storage speaks to the psychology of early 1929 in America. It was a recipe for
disaster, though conventional methods of appraising valuation at that time
would suggest "a permanently high plateau had been reached."

That economist obviously was not looking at the state of America's oil industry
when those words were written. That all-time high inventory suggests that a
contraction in crude oil production was a near certainty for late 1929/1930
at a price of $1.19, followed by a collapse in prices in 1931 to $0.65.

Despite an extensive and prolonged search for guilty, no suitable scapegoat for
the crash could be found. It is worth remembering that the argument advanced
some sixteen years earlier claimed that having the Federal Reserve Bank in
place would prevent the periodic booms, busts and crashes of the earlier century
and of the first decade of the 1900's. Somehow, that got forgotten in the
1930's.

Grasselli and Costa Lima's paper expresses concern regarding "collapsing wages and
employment, exploding debt," and given particular initial conditions in the economy
being modelled, an outcome of a final stable equilibrium of zero wages and
zero employment and infinite debt. That seems to be remarkably similar to the
dynamics in play in the period leading into 1932.
 
Excess debt and interest payments were not the only forces depressing the economy. 

If you were a dentist in early 1932, you had limited choices. Progressively more
of your clients become unemployed, and others are unwilling to part with limited
funds even for for dental care. You either work and don't get paid for some work,
or you limit the work available. Either way, cash in circulation is shrinking,
and cutting fees for preventative dental work will not boost economic activity,
since some work is already being done in the hope of retaining clients and
future fee payments. Low prices were not the cure for low prices.   

As well as the extinction of inefficient production and bad loans in 1931, things
continued to get worse, as supply disruptions began to introduce inefficiencies.
Steel production fell steadily to 17% of capacity in July 1932, inviting the
question - if it could fall that far, what stopped it from falling further?
Why not go to zero? bringing with it zero employment and zero wages?

Hold that question for a couple of weeks, OK?

http://www.reuters.com/article/2015/01/29/us-usa-crude-stocks-kemp-idUSKBN0L229920150129
"(Reuters) - U.S. commercial crude oil stocks last week hit their highest level since 1931
- when the opening of giant oil fields in the United States coincided with the Great
Depression to create an enormous glut and sent prices tumbling to just 13 cents per barrel."
"The parallels are not exact because production and consumption are so much higher now than
in the 1930s. In 1931, stocks of 407 million barrels were equivalent to 160 days of
nationwide production, while in 2015, the same stocks are just 44 days of production."
"As the leasing frenzy seized the five counties of the field, Kilgore became the center of
the boom. In that small town, wells were drilled in the yards of homes and derrick legs
touched those of the next drilling unit. One city block in Kilgore contained forty-four
wells. Whether in town or on farms, independent operators were compelled to drill wells
as quickly as possible to prevent neighboring producers from sucking up their oil."
"Within 11 months, no fewer than 1,644 wells had been drilled into the new East Texas field.
Oil prices, which had been 99 cents per barrel when Daisy Bradford No 3 was drilled fell
to just 13 cents by July 1931."
"A group of oilmen in favor of production controls appealed to the governor to declare
martial law. On August 17, 1931 the governor ordered the Texas National Guard and the
Texas Rangers into the oilfield to shut all 1,600 wells and restore order."

The super-giant oil field, whose first well was spudded in May 8 1929, was gradually
revealed to be over 200 square miles in size, the world's largest at that time. In those
early days money was scarce, and drilling continued unsuccessfully until 3rd October 1930,
when the #3 well blew. Over the next 30 years the field would provide 3.5 billion barrels
of oil.

By August 1931 the East Texas oil wells were providing between one third and one half
of all the oil production in the USA, bringing new roads, towns, railroads, pipelines
refineries, jobs and wealth. It seemed that for Texas, the Depression was over.

Elswhere in the USA the Depression was tightening its grip. Oil production fell from
851,081,000 barrels in 1931 to 785,159,000 barrels in 1932. Prices for Crude Oil and
for petroleum products fluctuated widely as the effects from the oil find worked their
way across America. The initial effect was a collapse in prices local to the discovery,
falling to $0.13 per barrel, and a bootleg price of $0.03 per barrel. If you held a
lease, you had no other option but to drill your well as quickly as you could because
if you held back, someone else would suck the oil out from under your patch. The
incentives of the free market pointed to a collapse of the oil industry unless
something was done. The State intervened in August 1931.

After the imposition of Martial Law to control production the price rose close to $1.00
per barrel, then settling to an average of $0.87 in 1932, and falling again to $0.67
in 1933. By then US oil production was running at 905,656,000 barrels per year,
a level last seen in 1929.
 
A dollar of 1933 money would be worth US$18 today.

So, did the discovery of a super-giant oil field in 1931 end the Depression?
Maybe not - crude oil stocks were still near a US all-time high. Something else?

"Everything I thought was right is now proving to be wrong"
April 14 1932 - The Great Depression - A Diary - Benjamin Roth.

The private debt of the USA peaked close to 140 percent of GDP in 1929, falling rapidly
thereafter via eighty percent in 1932 and continuing to a low of thirty percent in 1940.
This fall reflected a transition from a time when everyone expected to become rich, "with
all sense of caution" lost, to one where poverty was prevalent. A feature of the early
days of the collapse was the ability of creditors to call in margin debt, and to
foreclose on property or projects that were unable to pay monies due on time. A further
complication is the ability of creditors to demand additional collateral on certain
loans if the creditor calculates that his debtor has negative equity or a similar
commercial risk. Those clauses in bank loan agreements providing the bank with the
ability to instantly demand repayment are there for a reason.

After the initial shock, people began to look toward a recovery. The fall in the Stock
Market was punctuated by periodic reversals. Blue chip companies maintained their
dividends and pricing while their lesser rivals fell to lower price to earnings ratios.
"The Dow Jones Industrial Average managed to recoup all but a quarter of its losses
 between December 1929 and March 1930." In August 1931 it seemed that it was "hardly
possible that things could get worse." But they did. Foreign investors were selling
stocks and bonds, and in 1932 over a billion dollars in gold left the United States.
In 1930 European countries had begun to collapse, went off the gold standard, and
wanted their gold returned.

Though the stock market bottomed in 1932, deleveraging continued until 1940. The fear
continued for may years afterwards. This final bottoming brought blue chip stocks into
line with their lesser brethren. Many companies were lossmaking in 1932, and some
others suspended dividends. Treasury bonds were perhaps the only safe haven. Banks
became afraid to bankrupt clients, fearing greater losses through the courts. 

"Most of the banks are now almost liquid and these vast resources will soon again be
loaned out for business expansion" - June 21 1932.

"In this 30 day period most of the popular common stocks have doubled or tripled
in value" - August 8 1932.

"Gasoline is selling at 14c per gallon. Out of this 5c goes to Ohio tax; 3c to the
retail gasoline station owner; 2c to wholesaler and 4c to cost of distribution,
and transportation and production. Business in almost every line is being run at a
loss" - January 12 1933 

"Seven banks closed in St Louis yesterday, and a couple more in Kansas. The newspapers
are suppressing news of this kind. Bankruptcy among merchants is on the increase and
is now reaching the large corporations". - January 17 1933.

"The President formally devalues the dollar to 59.04% of its former value making gold
worth $35 per ounce. The stock market rises up from an average of 99 to 104. Yesterday
however it starts down again caused mostly by the precarious continuation of the gold
standard in France. In the meanwhile millions of dollars worth of gold are being rushed
by the fastest ships from Europe to America." - February 8 1934.

- The Great Depression - A Diary - Benjamin Roth.

Something in America changed between April 1932 and June 1932. The downslope of a
Seneca Cliff bottomed and reversed. It did not happen all at once in every town and in
every industry, but because of the interconnected nature of the stock market, that was
where new confidence emerged.

Many talk about confidence as if this were a commodity that could be bought by the
pound. The truth is very different. Confidence has to be internally consistent, and
that was especially true in that atmosphere where fear predominated. Bad debts do not
evaporate overnight, and over a period of thirty months, perhaps as much as sixty
percent of GDP, perceived as wealth but conjured into existence, was extinguished.
Thus maybe $60Bn of functionally equivalent bezzle[3](febezzle)[4] was processed
through the courts, or by other means, until finally real collateral and real wealth
found new owners.

There is a catch with this. As stated above, many businesses were lossmaking, with
no immediate possibility of becoming profitable, and deflation was ongoing in 1932.
A new question appears - where did they find the courage to embark on a new ponzi
scheme, doubling or trebling stock prices, in August 1932?   

[3] The Great Crash 1929 - John Kenneth Galbraith
[4] http://www.valuewalk.com/2014/06/charlie-munger-breakfast-meeting-of-the-philanthropy-round-table/2/

This is a neat and innovative conceptual framework for modern banking, but banking is only half of our core modern problem.

The other half is the government.  The real reason why the debts of "private" banks are implicitly guaranteed by the state, which then under-regulates the banks, is that the political elite has an incentive to allow banks to take risks with taxpayers' money.  If banks didn't dream up innovative assets that savers might buy into, however temporarily, the inflationary effects of public debt (issued by politicians) would expose the weaknesses of the system, and eventually threaten the issuance of public debt from which politicians receive "free" political capital.

The core modern reality is that banks and the state ally with each other to jointly take wealth from the rest of the economy.  The banks contribute innovation and financial know-how, while the state supplies the power required to prop up financial assets.  The central bank's real role is to guarantee the survival of this partnership institutionally.

So, from a long-term point of view, we can basically kiss "good banking regulation" goodbye.  The entire system is wrong.

"The entire system is wrong."
It's one thing to realise that, demonstrating the internal workings is a challenge.

This medium, a series of text messages, supports a logical but narrow structure.
(And it's all produced from the left side of the brain)
It is easy to get sidetracked and then it gets messy. Sometimes it is worthwhile
when a relevant article gets published, even if it's TLDR material.

This recent article on the US 1929 depression includes background information for those
still awake :-)
http://www.zerohedge.com/news/2015-10-28/why-friedmanbernanke-thesis-about-great-depression-was-dead-wrong

Four points omitted that might usefully be included:
* A mathematical outline of processes driving the boom and bust
* A comment on the oil industry and related capital flows
* The role that gold played internationally before and after 1933, and its domestic costs
* The relationship of US domestic banks vs their foreign counterparts

Those omissions aside, I am in broad agreement with larger argument. This was a depression
driven by financial mismanagement, both before and after the crash.

Interesting how fraud is essentially baked into this definition.  This is not a slight on your work, just an observation that the modern state of banking is so warped that failure to balance assets against liabilities is simply assumed.

In theory, Banking is used for deposits, and the provision of, and repayment of,
loans whereby the business transactions normally exceed the Bank's ability to
repay all deposits at any given time.

But in reality Bank is just for saving money with small amount of interest per year. Surely we got any benefit feature like ATM, Credit Card and many other.

And about "Unrestricted Banking", i think all bank 'hope' their will got more and more money from all their clients.
Because Banking can invest that money in a lot place. While client just feel comfort to see number on their Bank Book.

A generalized but rigorous statement of the way the system works is that the values of financial assets (including money) are artificially supported by state power.  The purpose is to benefit the political and financial elites who issue these assets.  But since this over-values the assets, and since the incentives for the elites are to maximize the issuance, the assets have always become so over-valued that the elites eventually have no choice but to allow them to crash.  When that happens, the pain from economic contraction is borne by the public as a whole.

Banks supply the financial knowhow to help this process along by creating innovative assets that the public might believe in, however temporarily, and by creating extra (artificial) demand for the base assets issued by the state, i.e. money and public debt.  Their reward for their part in this enterprise is a public guarantee of their debt, in one way or another.

The bank deposit was one of the classic innovations in financial assets.  Even before deposit insurance, deposits were effectively propped up by the public by allowing supposed competitors to collude and rescue each other when a bank got into trouble.  (Thus removing a major device of market discipline.)  Deposits were further propped up by the gold standard, which ensured that it became disadvantageous for savers to hold gold which was non-interest-bearing, while still living under the inflation due to asset issuance, while the state supports for assets held.

The central bank's real purpose is to ensure the survival of this partnership by making sure neither side jeopardizes it by gorging.  For example, if some top politician happens to decide to issue too much debt, the central bank can refuse to promise to print money to support it.  Individual banks can be kept in line by regulation and by witholding the implicit promise to bail them out.


There's no ultimate difference between commercial bill discounting and "open market operations," in the larger sense that both amount to intervention by central banks to support the value of debt artificially.  Due to the lack of public awareness even in democracies, central banks have really only served the financial and political elites.  What this means is that the incentives for the elites, in both cases, result in financial asset inflation, leading to malinvestments, distortions, pain and long-term economic decline.

It's probably no accident that every bill discounting regime eventually "degenerated" into open market operations.

If everybody knows the crap game is crooked, but they still play because it is the
only game in town, is still fraud? Well yes, but that's not the point. I could go
on to explain the technical difference between bank insolvency and bank illiquidity,
but it really doesn't matter.

Why? Because, to misquote President Bush, when this sucker goes down, it will not
matter if a bank is solvent, liquid, illiquid or insolvent. What will matter is the
advice the politicians get, and for that they will rely on their regulators and their
Central Bank - who are owned by? probably the competitors of the bank under scrutiny.

It actually makes more sense to seize a solvent bank because the good assets can
shore up other banks and the bad assets can be passed to the taxpayer to make good.

But I've skipped ahead a week or so. More next week.

Hindsight, it seems to me, is vastly overrated. I have learned that two people can
look at exactly the same facts and take totally opposed positions. I can only state
that a superficial inspection leads me to the following views:

* Prior to 1929 the US economy had the advantage of rising productivity, especially
agricultural productivity, and a more than adequate supply of crude oil. This led to
a strong dollar, and made US produce expensive compared to other nations.

* In 1929, things that could no longer continue, stopped. That left a residue of excess
debt, ponzi financing, other risky investment, and fraud. These elements were
sufficiently large, and in combination with depressions in other nations, to create
an economic depression over most of continental North America. The US economy
would continue to contract until trust was restored in the financial system.

* The discovery of a supergiant oil-field containing some 5 billion barrels of oil
restored economic confidence and activity in several States. It also created at least
the expectation of $5Bn worth of collateral within the financial system and allowed
the creation and circulation of further monies by fractional reserve accounting.
This drove the stabilising of the Stock market in 1932 via a form of ponzi financing,
and the DJIA first bottomed at 50, then rose to 80. (BTW 5 billion barrels of oil at
2011 $100 per barrel prices is $500Bn - of the same order as TARP).

* While the above was in progress a form of currency war was ongoing. Gold was
shipped to Europe in the years prior to 1933, and in 1934, the US$ was significantly
devalued against gold, and hence against the rest of the world's currencies.
Immediately after the devaluation, gold was shipped from Europe to the USA.
This moved 40% of the claims on wealth from the pockets of US savers to the pockets
of prior recipients of US government spending, and was a de facto default on its
debts. 

* There is no convincing evidence that any of the post 1929 government or Fed Reserve
polices had any long-term effect on the US economy, except for the seizure of gold
and the 1933 devaluation of the dollar.

The lessons to learn from 1929? Be aware that the gold you and your fathers
deposited at your banks has become the property of the banks Central Bank, which
eventually hands it on to your Treasury and public into ownership. Real estate
investment especially and common company shares are the last things you want to own
in a depression. If you want to find your way out of depression, finding the newest,
world's-biggest-ever oil-field in your backyard is a good start. Were the lessons
learned? or were they merely a barrier to profits?

The authorities make sure mainstream money and finance are the only game in town.  Either that, or you gamble or barter.  Bitcoin happens to be allowed (for what I believe is an ulterior motive, which I won't elaborate here,) but the process shows how much power the elites enjoy.  Among the allowed competition, including gold, the authorities make sure dollars and Treasuries still look like the only safe assets to the average person.


Historically, the expropriation of banks by the political elites has been a "risk" and a hurdle against forming the state-bank alliance.  E.g. I believe it happened in Mexico.  In the modern West, the central banks seem to have stamped this out.

If you are a Central Bank, last week's post was not good news. It suggests that, in
the first place, Central Banks should have been killed off in the 1940's because they
were clearly unable to "do what it says on the tin." It turns out that there are a
couple of things that Central Banks excel at:
* Moving wealth from savers into Government (and banker) pockets *
* Creating debt to fund "wars" [5] *

It takes two to tango, and banks have always had a symbiotic relationship to their
government. Maybe Central banks and their regulators have learned from history and
from recent publications. Who knows? maybe they can learn something from that new kid
on the block cryptocurrencies, maybe when they realise this threatens their domain
their minds will be wonderfully concentrated. There again, maybe not.

The rational response to an imminent Seneca Cliff and a power law failure distribution
would likely be to break the system up into smaller, dissimilar pieces, and where
possible, to limit the buildup of the equivalent of flammable undergrowth or snowpack,
as appropriate, for natural power-law catastrope-driven systems. That would ensure
at worst, graceful progressive collapse that could be managed within the wider world.       

Instead, Central Banks have undertaken "Stress Tests" with the intention of primarily
reassuring depositors that it is safe to keep their money in a bank, that taxpayers
need not worry about more bailouts, that risk is low for bond investors, to identify
banks that have excessive exposure to risk, and those banks that need more capital. The
astute will note that these goals are both mutually exclusive and avoid scrutiny of some
of the real risks in the system.

The financial system tends to concentrate risks in the biggest banks. The smaller banks
are forced to merge, and if weak, have to re-capitalise. Smaller stronger banks face
competition, and hence tend to increase leverage and risk. I may be an unwanted
consequence that the Stress Tests expose the margins of safety of smaller stronger banks
and thus encourage risk-taking and leverage. The effect is to move the herd toward the
precipice, except that this precipice tends to move in the wrong direction in times
of crisis.

It is as if random slabs of material placed on a table are gradually formed into
dominoes of various sizes, then aligned and linked together. Linking the banks together
only provides safety from individual errors of judgement and localised shocks. But if the
table is gradually tilted, then a catastrophic collapse can and will happen. 

The point of concern for such a system is not only the damage such a collapse will
cause, but also that where government intervenes to support particular banks, and in
a situation where every bank is at risk of bankruptcy, the choice of which bank lives
and which bank dies is both somewhat arbitrary and also subject to the vagaries of the
political process. 

As ever within the Banking System, the seeming order is something of an illusion. The
ZIRP [6] policies enacted over an extended number of years have created structures that
would, under normal interest rate policy, quickly collapse. More on these later.

The malinvestment is leaking into the real economy as corporate entities use cheap
credit and divert profits to buy back shares instead of investing in research and
development of new products. They do this because the real economy is in trouble.   
Cheap money should theoretically drive investment in distant horizon projects like
nuclear fusion, large scale electricity generation, and development of resources
such as oil-fields. Instead it accumulates in the arteries of the financial system,
waiting for the heart attack to occur.

[5] "war" is used here in its loosest sense, including merely the abrogation of the
normal checks, safeguards, and balances provided by the legal structures to
totalitarian authorities.   
[6] ZIRP is another propaganda scam. They haven't banned usury.

I'm wondering if what you're talking about is similar to US banking in the 19th century.  By a legal quirk the state-bank alliance could only form at the level of individual states.  Financial busts were frequent and painful because individual states tended not to have the fire power to bail out failed banks.  But by the same token, as opposed to countries like Canada and Australia which took after the centralized British system, financial leverage as a whole was minimized over the long term.

I theorize that this last bit was what enabled the US to be a prime candidate for the next global monetary hegemon, once the state-bank alliance went national at the founding of the Fed, after British cumulative leverage looked set to force Britain out of that position.


Thank you for providing this insight.  This reminds me of the way I throw casual clothing over the back of a armchair.  The more clothes I pile on, ironically, the more stable the pile seems to be, since the friction between the pieces tends to hold the smaller pieces together.  But as I pile more and more on, eventually, this very benefit turns instantly into my worst enemy as I can only watch helplessly as the whole pile collapses onto the floor at lightning speed.


Absolutely true.  But I submit that, under a totally healthy system, what constitutes good investment would be determined by the market place.  Any state involvement, either at the micro level ("industrial policy") or macro level (monetary policy) causes malinvestment, simply because centralized authorities have no way to respond properly to all the nuances of supply and demand across the economy, in the way that price signals working under free markets can.

The problem, of course, is that malinvestment is addictive.  If it causes demand to be unstable, all that the centralized authorities can do is to support demand via macro loosening, or else great pain will ensue.  But such loosening only causes more malinvestment, and the cycle continues.

A great example of malinvestment would be all the expensive restaurants in New York that cater to investment bankers (who, we must admit, get rich from what is ultimately a public subsidy.)

A couple of sub-plots before I get to finish. Something (not) completely different . .
https://www.youtube.com/embed/tS_Xbfl03mc (Monty Python + 1929 + economics)

Derivatives. "Financial Weapons of Mass Destruction". Buffet's comment was engendered
by a realisation that it was no longer possible to accurately evaluate bank balance
sheets because the risks brought by derivatives were unknowable. Today, the nominal
value of the world's derivatives is some $600Tn. To paraphrase a prominent economist,
derivatives do not matter because we have bet against ourselves? Well, anything $600Tn
in size matters. These are concentrated in JPM, HSBC, RBS, MS, CA, GS, DB, and a few
others. A quick calculation will suggest that even a modest counter-party risk would
prevent a market in derivatives from functioning - a 2% risk premium is unaffordable.

Forget LTCM and Black-Scholes - IMHO there is no good way to price derivative risk.
The Lehman Bros bankruptcy brought some of the legal issues into sharp focus, even
though the bankruptcy is still playing out and the wheels of the law grind slow. Thus
not too long ago, the banks took the opportunity to cement derivatives into place
near the top of the payout queue when bank assets are in liquidation. They couldn't
and wouldn't price counter-party risk into the derivatives so they want to pass the
risk onto those least able to assess and carry the risk.

You, poor fool, may have placed your money in a bank. The bank now views you as a
liability. If "your" bank is one of the above mentioned, they will check to see that
any withdrawal or transfer you make of _their_ money is going to a worthy cause. Such
as supporting their gambling habit in the banks casino, generally known as the
derivative market. If bankruptcy is declared you get "promoted" from a liability to
the status of an unsecured creditor. Whoopee! You get to queue close behind a whole
bunch of institutions, with "your" bank's gambling buddies closest to the trough.

It doesn't have to be this way. Derivative contracts could be cancelled on entering
bankruptcy, but guess what? Well, my guess is that this would crush the derivatives
market. And would the world be a better place for that?

Just in case you haven't grasped the play here, consider this. Somewhere there is a
casino, exclusive to all but a dozen owner-members. They play roulette, with a
special rule for zero. When the ball falls into that zero, the member with the
nearest bet gets a bailout, and the others divide up the losing bets. Guess who
placed the losing bets? Everybody who isn't a member. That's not an exact analogy,
but close enough.   

bank is a prehistoric tales : old money from people (or spend money from people and create more when they loose).

credit is not necessary provide by bank at the futur world ... enterprise and factory can provide credit to customers.

it's not new ... and it's more fairplay.






like Bitcoin.

Just to dispel any thoughts of paranoia or persecution, I'm stating that I'm doing
my best to avoid judgement of particular nations, banks, and economies. Some stories
are easier to access than others, and that leads to bias. YMMV.

http://www.theguardian.com/business/2014/feb/03/anglo-irish-executives-irish-banking-crisis
"Three leading figures in the defunct and disgraced Anglo Irish Bank - Sean FitzPatrick,
Pat Whelan and William McAteer - will each face 16 charges of unlawfully providing
financial assistance to individuals for the purpose of buying shares in Anglo Irish
in 2008."

Think about that for a few moments.

Then think about company share buybacks. And then about incentives for company
executives whose remuneration is tied to the price paid for share in the stock market.
Company share buybacks are legal, because a legal route exists, and because that
route is transparent, it is reasonable to suppose that market manipulation is near
zero. I'll guess you're comfortable with that.

Suppose the money for the share buyback comes from a subsidiary of the Company.
Still comfortable? What if the Subsidiary is only partially owned by the Company?
And if the Subsidiary is wholly owned by a group of Companies, all of whom have
their shares bought by the Subsidiary? Still comfortable?

What if the Subsidiary is the country's Central Bank, and its owners are the major
in-country Banks? Think that cannot happen?

http://www.zerohedge.com/news/2015-03-25/bank-japans-10-trillion-equity-portfolio-not-large-says-bank-japan
"So after buying 35 billion yen worth of shares yesterday, the BoJ now owns 2% of
the entire market and looks set to square off against GPIF (which, as we noted last
week, is set to move aggressively into stocks at the implicit urging of the BoJ and
the explicit urging of PM Abe) in a battle to become the single largest holder of
Japanese equities. Here's more:"

This is not the place to go into QE and its impact on markets in detail, nor the
variations on a theme played out by the ECB, the FED, the BoE, and the BoJ. It's
kinda like that myth of a "trickle down economy" that stimulates growth by flowing
money from the very wealthy to the masses, except it works in reverse. 

This video is perhaps the best exposition of how QE is supposed to work:
https://www.youtube.com/watch?v=d1Mug1EPaAo (skip the first 6 minutes)

There's just one technical hitch. What happens to all the grossly inflated assets
and to those "sterilised" reserves when the next implosion begins, and bankruptcies
happen? Unless, of course, we are on a "permanently high plateau".

Suppose the worldwide interest rate hit 50% tomorrow. Too Scary? Well, late last year
Russia hit 17%, so maybe 20% is a good figure to work with. Impact: All the interest
rate swaps (derivatives) betting against high interest rates get crushed; The bond
market folds in on itself, eg, 10 year bonds should fall to around 20% of face value;
and mortgage backed securities could become, for investment purposes, worthless.
Government paper would not be far behind.

That's called asset price deflation, and it could happen well before western interest
rates reach 20%. There would be winners and losers in the financial sector, with losses
likely socialised. Capital investment would be immediately curtailed, together with
other economic activity, providing a race to be bottom between production and wages.
 
I'm predicting that production will shrink faster than wages. That particular path
leads eventually to hyperinflation, but obviously, to get there you have to pass
through 20% interest on loans, and through "stranded assets" - production capacity
that has no functioning markets.

https://www.youtube.com/watch?v=j4SRsGn14PI - Someone will have to explain why the
machines cannot be turned back on.

And no, hyperinflation is not going to happen tomorrow, nor next month, nor even next
year - we would finish better off if it did happen that way - that's the end, and this
turning is barely begun.  I'm not alone in thinking there is a precipice out there
somewhere:

https://www.youtube.com/watch?v=Pc-q7D35tpE

Meanwhile I'll be shocked, shocked when I read that this "assistance" is legal. 

"Everybody has a plan until they get punched in the mouth" - Mike Tyson explains that
you are how you react to events.

An economist might express that thusly - here's the end of Hayek's Nobel prize speech:
"The recognition of the insuperable limits to his knowledge ought indeed to teach
the student of society a lesson of humility which should guard him against becoming
an accomplice in men's fatal striving to control society - a striving which makes him
not only a tyrant over his fellows, but which may well make him the destroyer of a
civilisation which no brain has designed but which has grown from the free efforts of
millions of individuals."
http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1974/hayek-lecture.html

It seems that lately, TPTB plans have been getting punched in the mouth - Syria,
Ukraine, Egypt, Afghanistan and others. Despite these setbacks, TPTB keep coming back
for more.

Conspiracy theorists suggest that all this is some sort of master plan to run the world
under one government. This belongs with some other ideas that a four year old child
if asked, would tell you that it just won't work.

Unfortunately, at the moment, I have to add Bitcoin to the list of great ideas with
fundamental flaws. And, that's a big problem. By itself, bitcoin will not scale well
enough to replace fiat currencies when the banking systems break, and if there is no
alternative, civilisations will have to live with the consequences of the failures of
their financial systems.

Bitcoin is vilified by bankers and governments whose own faults are orders of magnitude
greater, some as specifically identified in earlier posts in this thread. We should not
allow our recognition of these faults to blind us to the limitations of Bitcoin, nor
to restrain efforts to produce viable alternative cryptocurrencies of greater utility.

Most recently, there are suggestions that all digital currencies should be suppressed.
That would be tantamount to banning encryption, but that kind of totalitarian
thought will not easily be turned aside.

I began this thread by suggesting that we need better adjectives and a clearer
understanding of their meaning to better discuss banking and related financial
services. I hope I have moved your thoughts on this and on Bitcoin a little
further on. Cryptocurrencies need to be moved to the next level to attract the trust
that money currently enjoys, and there is not that much time left.

In an earlier post, this:
"This emerging nonlinear structure forces the system to take, or "collapse" to, one of
its multiple possible realisations, which means that those realisations, actually and
unceasingly replacing one another in a dynamically random, or "chaotic," order are
dynamically symmetric among them, while they always differ in their detailed, partially
irregular structure."

It seems likely that the structure will become more loosely coupled as empire collapses.
The number of viable system states will as a consequence fall significantly, and
transmission across parts of the financial network may become impossible without
significant external effort. As an extreme example, the bitcoin blockchain in the east
could differ from the blockchain in the west. Today, such change seems highly unlikely,
but in fifteen or twentyfive years from now?

To move to where we need to be we need to clearly know where we are now, and to be able
to discuss changes in a way that is easily understood. That's easier said than done.

Just an update to say that things may be moving faster than I had expected.
On the positive side, the number of people starting to ask questions is
growing. Thoughts in the direction of "Financial crisis as a business model"
are starting to appear.

https://www.sprottmoney.com/blog/big-banks-caught-using-credit-default-swaps-to-destroy-nations.html
"Readers were presented with a detailed explanation of the tag-team of fraud which made possible such extreme manipulation of interest rates. It begins with manipulation of the credit default swap "market," a crooked book-making operation where the "bookies" taking the bets not only place most of the bets themselves, they also adjudicate on any disputes on the settlement of bets. More pure fraud ."
"Just to pay the interest on its debt (to the same, Big Bank crime syndicate), the U.S. government would have to begin by shutting down the entire government, and disbanding the U.S. military, in order to bring spending down to zero. Then it would have to double everyone's taxes in order to come up with the full payments to the parasitic bankers. And then, in a few weeks, the U.S. economy would totally collapse - just as Greece's economy did in 2011."
"We have more unequivocal evidence showing that this "probe" is a cover-up, and not a bona fide investigation. It starts with another headline ."

Nothing to see here, move along. In other news, Citibank gets sued re fiduciary responsibility for
toxic mbs and other securities sold 2005-2008. Just the cost of doing business.

What was that business model? remind me?

Restricted investment accounts are thus somewhat similar to mutual funds, but unlike the latter they are not vested in a separate legal entity  The bank's obligation is to pay holders of unrestricted PSIAs their contractual shares of any profit from the investment of their funds

Sometimes, you take a break, get back, and find that all your problems are somehow solved.
Yeah, right. Then some months later, you find that all the things you once worried about were
artfully concealed, and it is now too late to put a fix in. We are not quite there yet.

If you have been paying attention, metals are various fractions of their all time highs of recent
years, and oil is perhaps a quarter of its price in mid 2014, depending. There should be
bankruptcies in progress now. That's how prices recover. The strong devour the weak.

So all the problems are somehow solved? The magic of technology has quadrupled the flow
of oil and of metal without increasing costs? Probably not. The US$ exchange rates have
more than doubled since mid 2014? Clearly not. And if not what?

Leap forward a year or two, with recession, and with low oil and low metal prices. Then comes
a point where mining companies can no longer pretend to be viable, even with unlimited
financial support from their bank. At that point, their bank's solvency may be at risk, even
with not-so-hidden subsidies from their central bank. Think sub-prime II. And this is more than
just one bank, especially if the economy is now in recession, if the strength of the currency
continues. And, just like the miners and the oilers can be kept on life support by their banks,
their banks can be moved onto life support by their central bank and the big banks.

Why do this? you might ask. I'll mention that in this situation a few will decide the fate of the
many. There could be other reasons, inertia, for example, or just having financial crisis as a
business model.

This way, you get two years of throwing fiat money after bad, more malinvestment, and good
opportunities extinguished in exchange for transfers of wealth and power. After that, it gets
worse. 



 

I'm writing this after reading some loose thinking on banking practices, and because it
may become relevant later this year. I've seen "fraud" and "deception" used as if they
meant the same thing, and sometimes the difference is important.

Companies are supposed to be structured with a clear separation of debt and equity.
If you own equity, you are a part owner of the company, and if the company fails,
you lose your money. Theoretically, if a company fails, the debts should be repaid
to the creditors in full because running a ponzi scheme is illegal, to take the concept
to extremes. For most companies, the creditors, usually banks, will make very sure
that the company remains solvent, ie that the value of the equity is greater than zero.
When things look shaky the creditors will ask for collateral against the company's debts.

So, continuing to trade, and drawing a salary while knowing that the debt cannot be
repaid, that is fraud. Selling a dud company to sophisticated investors, that is
deception.

Banks, for historical and other reasons, are somewhat different. Bankruptcies happen.
A model bank in bankruptcy is intended to still have some excess assets above that
needed to repay creditors, implying that common equity is entirely wiped out, and
there should never be an expectation that depositors (creditors) could lose any money.

Clearly, the average depositor is unlikely to be able to any of the TBTF banks and
both ask and receive collateral on concern that all is not going well with that bank's
business. Indeed, bank regulation seems to be constructed to ensure that the
public is unaware of the true state of the bank until well after the fact, if the facts
of 2008 are anything to go by.

An interesting side effect of cryptocurrencies could be to make the bank's balance
sheets both transparent and current, if the contents of their blockchains were
publicly accessible. Now, there's a thought.

To follow up on my earlier post - it may seem obvious that the correct time for bank regulators
to seize a bank is just before it goes insolvent (think WAMU, for example). That does still happen
to smaller banks. Unfortunately, when a bank gets big enough, that becomes problematic, while
at the same time, the more levered, or even insolvent a big bank is, the more money it makes.

What to do? They think they have found the answer:

http://www.zerohedge.com/news/2016-02-10/negative-rates-are-dangerous-oecd-chair-warns-our-entire-system-unstable
“And I think the politicians find it convenient to believe that the central banks have it all under control. But it’s not true,”
“Nevertheless, European experience does point to the merits of less austerity as opposed to more. I particularly think that there are many countries, maybe Portugal is part of this, where there should be a lot more government money spent on infrastructure: the US, Germany, Canada, and the UK would certainly be included.”
“The answer to insolvency is not simply to print more money – it may get you out of the problem in the short-run but it simply makes it worse and worse over time. At some point, maybe where we are now, you truly get to the end of a line. You see that what you have been doing is just a short term palliative that is actually making the disease worse.”
“I think there are a lot of grounds to believe that depreciation works less well than it used to. First, in Greece we know that wages have come down a lot. But the country is characterized by such a degree of oligopoly and rent-seeking that all that’s happened is that profit margins have gone up. As a result, there’s no signal coming through prices to get a change in resource allocation from non-tradables to tradables.”
“My number one fear? That’s the same as asking me where it will start. When you view the economy as a complex, adaptive system, like many other systems, one of the clear findings from the literature is that the trigger doesn’t matter; it’s the system that’s unstable. And I think our system is unstable. Where could it start? Who knows, I’d probably say China but I have no idea and nobody has any idea.” 

Hmmmm  ... they had no problem stuffing money into the pockets of the rich, and now?

http://www.zerohedge.com/news/2016-02-11/war-cash-central-banks-survival-campaign
“To make this clear, I like to paraphrase a famous (and good) quote from Alan Greenspan, back from 1966, during his Ayn Randian days: The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.”
“Negative interest rates mean that your bank account shrinks day by day, automatically. Your $1000 in January becomes $950 by December. And where does that money go? To the banks, of course, and to the government. They syphon your money away, drip by drip, and there’s nothing you can do about it. This accomplishes several things for them at once:”

http://www.zerohedge.com/news/2016-02-10/here-exchange-left-stunned-janet-yellen-looking-deer-headlights
“And since we doubt that Janet would chose a legacy of being the first Fed Chairman thrown in jail, even if it is not that far below a legacy of totally mangling the Fed's attempt at renormalizing rates at a time when the entire world was careening into a recession, we expect absolutely no cooperation by the Fed in this ongoing criminal matter.”

Sooooo ... blow $Trillions in academic experiments and the world is at your feet, but a hint to a hedge fund
could land you in jail ... Got it! Gotta love Central Banking :-)

Do you enjoy fairytales? Some new ones are circulating, are you sitting comfortably?  I'll begin.

A long. long, time ago, in a galaxy to too far away, Ratings Agencies gave reliable appraisals
of AAA rated debt. (For my thoughts on AAA ratings, read my earlier posts). Gentle Asian and
innocent Aryans outsourced their due diligence to these bodies rather than interpret arcane
texts in foreign, to them, language. Such was the trust of these naive marks that products
later described as "toxic waste" and "monkey dung" were eagerly purchased as risk-free
investments.

How did this come about, you ask? People believed that house prices would, except for
brief intervals, always go up. Banks built 5% pa increases into their models, and it was
good politics for everyone, even NINJAs, to own their own home. If you haven't yet seen
"The Big Short", maybe you should to pick up some of the details.

The film, among other things, offers this insight: Rating Agencies, given a choice between
selling their soul, and losing a fee, will choose to give Toxic Waste an AAA rating.

It used to be that AAA ratings were given to government backed securities, and the
debt of a very few select companies. This allowed bankers to sort of lift dockets off the floor
of the bookmakers, bundle them together, and sell them as a bet on Secretariat. or Seabiscuit
trading at face value. The buyers were pension fund managers and inexperienced administrators
in foreign lands. Even so, when things fell apart, the big banks were quick to threaten
armageddon or worse if the government did not make good their losses with taxpayer monies.

True to the tales of yesteryear, the Empire continues to crush rebellion, while promising jam
tomorrow. They even gained some much needed credibility when low oil prices gave a subsidy
running into billions to developed economies ... resulting in 0.4% growth. So no surprise that
the shine is wearing off what once was AAA rated government debt, for example, Italy.

What to Do ??? Draghi to the rescue ... put the ECB (ie the european taxpayer et al ) on the
hook should the whole thing go to hell in a handbasket by booking this stuff as collateral.

So, where's the tale from the Brothers Grim ...

The UK plans a referendum soon to decide yes or no to a Brexit. Suppose the UK peasants
get wind that they might be sold down the river (again - don't mention Greece) and may
run for the hills. Other countries may decide that that thing about not being able to leave
the EuroZone may be left to the lawyers, after all, he who exits first exits best, and maybe
Portugal, Italy, Greece, and Spain would be only too happy to dump their waste into what could
become the world's biggest bad bank..

More of Horror Story don'tcha think?   (Bitcoin excepted ;-))

I have  fuond in web  interesting   article,banks of  future,neobanks,banks desribed on  customere   needs

http://banknxt.com/55286/rise-of-the-neobank/
 (http://banknxt.com/55286/rise-of-the-neobank/)

very much like it has to be

The post clearly describes the upcoming banking technology. Initially it explains the wish of people, which were mostly fulfilled by our technology bitcoin.

If you look carefully, parts of the truth can no longer be hid. Europe is holed below the
waterline, as this article shows in a much better way than my feeble efforts:

http://www.zerohedge.com/news/2016-02-22/there-definitely-something-strange-going-sweden
"If you look at GDP and population growth figures projected by the government, we are seeing something that I had never seen before: projected negative GDP per capita growth rates in a period of economic cycle recovery . The only reason for that is immigration; Sweden is bringing in a lot of people who consume but do not produce much."
"Before historically when we had low 0.5% population growth GDP per capita and total GDP growth were similar numbers. Now with the high population growth we have of more than 2% per year, we need more than 4% GDP growth in total to achieve that historical per capita growth of around 2% per capita."
"Swedes always like to say that "we don't want it like the United States"; I joked it's almost becoming too late for that, now the best Sweden can hope for is "we don't want it like the Game of Thrones". The inability of the European leadership to deal with the crisis is at once surreal and fascinating, almost like witnessing a Donald Duck version of the fall of the Roman Empire in real time."

How long? June and October 2016 will give a much clearer picture.

Some ideas can be expressed simply in mathematics, but are challenging
to present via the written word. When talking about "stability" in
economics, banking, and in finance, words take on meanings more suited
to the world of Alice in Wonderland. Here is some scene setting before I
link to an article on the economics of Wilhelm Ropke that seems to have
been swept aside by the headlong rush to inflate. 

My starting point is one of financial equilibrium. A condition which,
if undisturbed, could continue indefinitely. The goods produced equals
the goods consumed, savings equal investment, and the money supply is
constant.

For this condition to be stable, the rate of interest paid must equal
the rate of capital destruction. When, for example, a fleet of ships
is insured at effectively, interest, the cost of insurance must, in
the long run, equal the cost of ships and cargo lost at sea. If that
balance is lost, the way is open to unrestricted and exponential
growth in money, or more precisely, debt.

When there is a fixed supply of money, eg gold or bitcoin, the system
has a built-in feedback mechanism that over the long run tends to
bring the system back into equilibrium. In the short run, political
and financial imbalances tend to favor particular nodes within the
network. While the creation of money by adding entries to the assets
and to the liabilities columns of a ledger, should theoretically
affect everyone equally, in practice those closest to the change gain
most.

With the abandonment of metallic restrictions on the money supply, and
the suggested abandonment of some paper fiat currencies, it is timely
to ask Why? and to revisit some earlier thoughts on these things:

http://www.epictimes.com/richardebeling/2016/02/wilhelm-ropke-the-economist-who-stood-up-to-hitler/

"But Röpke had no sympathy for Keynes’s belief that the market was inherently unstable and permanently in need of government management of "aggregate demand." In Röpke’s view the Great Depression represented a "rare occurrence" of an "exceptional combination of circumstances" that required "a deliberate policy of additional 'effective demand` into the economic system." But, Röpke continued, Keynes’s construction of a "general theory of employment" based on the exceptional circumstances of the early 1930s was a "counsel of despair" and an extremely dangerous one, because it created a rationale for continuous government tinkering and a strong inflationary bias harmful to the stability of the market economy in the long run. Indeed, Röpke became a leading critic of Keynesian economics after World War II."

Insanity - doing the same thing repeatedly, and expecting a different result ...

Thinking about these statements form the Bank of England, I can't help but wonder
whether they are _that_ stupid. If, as seems likely, this is some sort of diversionary
tactic, there must be desperation bordering on panic to publish this. To be clear, the
three points in question are :

* Bitcoin provides trustless secure transactions. It's entire purpose is to eliminate
the need for trusted third parties in the exchange of goods, services, and money.

* Bitcoin exists because the people who use it trust neither governments nor Central Banks.

* Bitcoin will neither support nor suppress the Business Cycle. To try to use a centralised
cryptocurrency for such a purpose invites disaster.

Read the full article here :
http://www.bankofengland.co.uk/publications/Pages/speeches/2016/886.aspx
"So rather than try and give a lecture on monetary theory, or pre-empt the results of ongoing
thinking on this issue, I'll seek to make only a few very broad, conceptual points, touching on
the following questions:
what is the key innovation in private-sector digital currencies such as bitcoin?
what is a "central bank digital currency"? and
what might be the economic implications of introducing one?
"Acting as a trusted third party is precisely what a central bank does."

As a bonus, some views, mostly on the US economy, on where the world is gone in 2-3 years
http://fass.kingston.ac.uk/downloads/PERG-KFBM-Macroeconomic-Outlook-Issue-1-Feb-2016.pd

When Germany surrendered in 1918, France among others, demanded reparations.
The resulting arrangement could be said to have created the Weimar hyperinflation
and following that, the rise of the Third Reich.
You may have heard that Keynes advised that the Treaty would fail. Now may be a
good time to revisit his reasoning.
Germany had to pay France, and others, in gold. Logic dictates that in order to
make the payments Germany had to export goods and services - to run an export
surplus, and to do that Germany needed a weak currency. Leaving aside the
magnitude of the needed surplus for the moment, France, in particular,
would not permit that because politicians would not survive the massive transfer
of jobs from France to Germany that would result from the imbalance in trade.
I will not attempt to provide any justification for that shortsighted political
failure, except to note that the recent history of the Greek economy suggests
that not much has changed. In both cases they were told it would not work.

Which brings us to today, the migrants, and excessive unemployment among young
unskilled and semi-skilled european men in particular. This time around, though,
it is Germany that imposes conditions, and to date Germany has benefited from
an undervalued currency, and a frugal population. At the moment German, and the
EU still have some options. The most sensible of these is for Germany to stimulate
its domestic consumption - in other words to start spending like a sailor on
shore leave, thus destroying the German export surplus. That's probably not allowed
within the EU, but nevermind.

It's more likely that Germany et al, will continue down the route of competitive
devaluation - weakening the currency with, for example, negative interest rates.
Strangely, there does seem to be some foresight here, or maybe they think frugal
savers are masochists, and otherwise good value for being ripped off. Anyway,
if interest rates become negative enough, the average saver will buy bitcoin,
or gold, or stuff 500 Euro notes into their mattress. Whichever alternative
savers choose, the bankers are likely to lose control, and that would never do.

So, now that cryptocurrencies are no longer the sole perserve of criminality,
large denomination banknotes seem to be the favoured scapegoat for crime and
terror. Ah, if only money could be locked down so that we mortals needed the
permission of a Central Banker like the FED to move it ... dream on Bangladesh ...

The term "fractional reserve banking" seems to be creeping back into useage
on the pages of this forum. I've given some thought as to why this mistaken
identity persists even among those who should know better. Let me be clear
about this. The term "fractional reserve banking" requires a gold standard or
its equivalent. Fractional reserve banking ceased to exist for all practical
purposes in 1971 when Nixon ended the covertibility of the US dollar into gold.

Now, I have the difficulty of explaining the present system, but I'll not attempt that
because it is best you work it out for yourselves. I'll simply say that you need
to see the wold differently.

One possible reason for the above error in perception may be bitcoin itself.
Bitcoin owners are well aware of the limited ability of the cryptocurrency to
expand, and may confuse the insubstantial but constricted nature of bitcoin for
the various ponzi schemes masquerading as fiat currency. The breaking of the
link between gold and the dollar should give a clue to what is really happening.

It's time to think differently about banking - fractional reserve or otherwise.

A week ago, I posted this in another thread. Apart from one comment
to the effect that "this can't be so" things carried on with the usual
"Capitalist Pigs" and "Socialist Scum" way of thinking. I'm posting
here just for the record:

Y'all make yourselves comfortable, this one will take a little time.

I'll begin with the thought that to really mess up an economy, some
form of centralised decision making is needed. That's very different
from Adam Smith's invisible hand and its implied equal distribution of
power and insight that enable each individual to perfectly understand
the future and to have the fortitude to maximise his or her personal
outcomes irrespective of short term gains. Indeed, that perfection
presupposes that each individual is born into the world with perfect
knowledge. The real world is somewhat different.

In a way reminiscent of the Big Bang theory, microscopic advantages can
play out over long periods of time to create Empires and Catastrophes.
The key to this amplification is referred to in monetary terms as
compound interest. Compound interest sets in motion the idea that
something can grow exponentially forever. In a finite world, and given
differences that are far from microscopic, despite best efforts at
competition, one entity can eventually buy everything. This is the
perfect capitalist monopoly, something the game called "Monopoly" was
intended to demonstrate.

This illusion depends on the assent of a vast majority of the
population. The very idea of money is the outcome of a belief that debt
will be paid, and this in turn depends on social norms collectively
agreed. To the extent that monopoly and competitive capitalism
exists, it owes its existence to these conventions. There is thus
a paradox in the concept of Perfect Communism : The State owns
everything including the individual, but then requires the consent of
everyone for its existence. The Perfect Capitalist has a similar
paradox: his dependence on the legitimate monopoly of violence of the
State for his or her existence, but owning everything not owned by the
State.

Some may find difficulty in understanding that  Perfect Communism and
Perfect Capitalism should coalesce to the same solution, but from the
point of view of an owned individual, these differences are at best,
academic. Individuals find economies of scale in mutual cooperation,
and such conflicts that do arise are settled in a market of buyers
and sellers. The mutual satisfaction of these deals is unavailable in
the winner-takes-all world of grand strategies, that usually forces
war onto one or more of the players.

For the State and the Capitalist, War is a convenience for demanding
complete subservience and loyalty in their populations, while at the
same time diverting attention from the conflicts of interest writ large.
Chief among these are the paradox referred to earlier: the moment that
Perfect Control is manifest, it becomes the moment that collapse begins.

Left to itself, the system would endlessly cycle through the rise of the
Individual, the rise of the State, the rise of the Capitalist, and into
Collapse. As a consequence, political and monetary systems have grown to
mitigate these long wave cycles, seeking to move to a quasi-stable
equilibrium that maximises the wellbeing of elite sectors within
populations. Despite protestations, it is clearly not in the best
interests of any elite that resources, information and power structures
should be diffused through the population because that would strengthen
the invisible hand of the majority to produce an outcome that may more
effectively promotes the interests of society as a whole.

Consider Durkheim's New Religion of the West: The cult of the Individual,
finding expression in the Enlightenment, in the French Revolution, and
more recently in the youth movements of 1960's, and 1970's. Did
prosperity bring individual freedom, or did individual freedom bring
prosperity? Can proof by contradiction provide an answer?   

Consider, for example, the waging of war. As explained above, war is
almost never in the interests of the mass of individuals but most often
an unintended outcome of the narrow concentration of wealth and power.
Those waging war are certainly conscious of the enormous costs, but
calculate that the burden of these costs is either worth paying or
will be paid by others. Rarely are the costs paid for in advance, but
almost always by increases in public debt. Indeed, in today's world,
public debt, that burden upon the taxpayer, is the only available
recourse. Were the elite forced to pay for that war themselves it would
entirely negate the reason for their existence. 

Thus the Elite faces a choice: War, and poverty for the masses, or share
as an individual and invite prosperity. Thus, individual freedom comes
first and prosperity for all follows.

Well, that's the theory. How does this work out in practice?
In the long run, you get a steady drift toward totalitarianism and the
pretence of economic "stability" followed by catastrophic collapse and
war. Keep an eye on economic inequality as this tracks the progress of
power moving into the hands of the PriviLeged.

In the near term? That depends on where you live. Nothing says
instability like the gulf between the actions of the ECB in propping
up the EuroZone's financial structure, and action in real life to
forestall a wave of migrants seeking a home in Europe. There are less
obvious contradictions in Asia, and in North America, but Europe is
the game in play at the moment. To state the obvious, Germany could
have transferred work to Greece, but preferred to keep the work
within its borders and to invite migrants from outside the EU to
grow its GDP. Weren't the Spaniards, Irish, Poles, Ukrainian workers
good enough, or desperate enough?

I'll give the EuroZone another two years, a little less if the UK votes
to exit this year, could be longer if they get lucky. All of the
leaders that could potentially hold the thing together are now damaged
goods, and well past their sell-by date. But to try to keep things under
control, there will be more pressure to reduce individual freedoms.
"We are all in this together" - well Mr Cameron, some are more "in it"
than others, and as Mr Hollande (18% popularity) found out, Edicts do not
always pass. 

And what do the migrants, perhaps 80% young unskilled men do once
they set foot on a southern Mediterranean shore where the unemployment
rate among young unskilled nationals approaches 50%? Make matters
much worse, and they will keep coming until the balance of economics
compels them to stay in their home country, or migrate elsewhere.
That is almost as absurd as paying people to dig holes and others to
fill them in again thus boosting GDP and giving a fake impression of
growth. Or, in a more technically advanced setting, bomb a country's
infrastructure back to the stone age and them provide billions in aid
to rebuild it in exchange for resources.

Ah, yes, resources. Scarce resources. When resources become scarce,
they either get rationed or monopolised, and my bets are for more
rationing, which means more controls, more government, less freedom.
And that in turn means less growth, specifically, lower global
productivity, and down that road lies collapse via hyperinflation
and depression. Everywhere.

Hang onto your bitcoin, and neither a debtor nor a lender be. 
 
PS: And the latest? There seems to be competition to see who can cause
the biggest unnecessary crisis in Greece (see IMF). Do they actually
think they are in control of this? 

It's likely that "neither a debtor nor a lender be" needs some further
explanation, though I should point out that money was not the intended
focus of my earlier post.

If you are in business, borrowing and lending (extending credit) is
unavoidable. It goes with the territory. The advice really makes the
point that you should avoid placing your future in someone else's hands,
and most certainly to avoid borrowing in order to extend a loan
because that is the business of banks. 

Today, much of the stigma is gone from being in debt, and the linkage
between debt and prison is gone. While forms of slavery still exist
in the world today, to most of humanity, the idea of owning another
person is repugnant. That enlightenment is recent, perhaps less than
200 years, and is perhaps the result of machines costing less than
people. It perhaps the benign face of Capitalism.

Regarding the question of why money must increase, the time preference
of consumers and others is the answer. See here :
http://www.zerohedge.com/news/2016-04-01/path-final-crisis
"Market interest rates consist of the natural interest rate plus two
additional components: a price (or inflation) premium that reflects the
expected decline in money's purchasing power, and a risk premium or
entrepreneurial profit premium that reflects the perceptions of lenders
of a borrower's creditworthiness and generates an entrepreneurial profit
for those engaged in lending."

Maybe later I'll write something on the return of privilege (separate
legal status) for the Elite in Europe and elsewhere.

Recent news on tax havens got me thinking about bitcoin - but see this:

http://amlcft.com/fincen-and-nar-jointly-release-voluntary-aml-guidelines-for-real-estate-professionals/
"The National Association of Realtors (NAR) has just published a paper entitled: Anti-Money Laundering Guidelines for Real Estate Professionals. The fact sheet and suggested voluntary guidelines were developed over the past several months in collaboration with the U.S. Department of the Treasury. In February of this year, Treasury issued regulations for non-bank financial institutions requiring certain plans and documentation for anti-money laundering actions. At that time Treasury exempted the real estate industry from the regulations because most cash involved in real estate transactions is regulated through other entities."

So, Real Esatate purchases in, for example, New York, or London get a
pass from the legislators but bitcoin gets hit with AML and KYC, both barrels?
Clearly bitcoin exchanges are not making the right "noises" in the halls of
power, or maybe terrorists, criminals and paedofiles just do not buy property?

There may be a simpler explanation for this and it has to do with PriviLege
and taxation. You may, or may not, be surprised to hear that those working for
the European Commission, the IMF, the UN, and some other bodies are, for all
practical purposes, above the laws of their host country. Mostly, there are
sensible reasons for this - raping your maid is not one of them BTW. Unfortunately,
this does, of necessity, create a "Them" and "Us" and those of "Us" with
sociopatic or psychopathic tendencies by their very nature will want to transit
to "Them" status to carry on their activities with fewer restrictions, such as
having to pay taxes, or explaining how the money got into their bank account.
Hence in a world where the Central Bankers are busy doing asset price inflation,
the PriviLeged would like to have as few questions asked about their property
purchases, and their legislators seem happy to oblige - and I chose that word
carefully.

I put this up front because it is too easy to become focussed on the mechanics
of money laundering and of tax evasion when it is the people involved who matter.

So, 2.6TB, 11+ million records worked on by 400 journalists . . .
http://www.irishtimes.com/business/financial-services/who-are-mossack-fonseca-1.2593760
"Today, Mossack Fonseca is considered one of the world's five biggest wholesalers of offshore secrecy. It has more than more than 500 employees and collaborators in more than 40 offices around the world, including three in Switzerland and eight in China."
And no outcry in the main stream media about hacking, or national security, or
copyright or trade secrets, the sort of things that bitcoin gets pilloried for
when the MSM is having a quiet day. Could it be because the legislators want
this sunk quickly and quietly? Obama and Cameron and others have loudly proclaimed
that something will be done to get everyone to pay their taxes, but nothing gets
done. I seem to recall that certain resources got cut just as they appeared to be
getting somewhere. And see this:
http://www.zerohedge.com/news/2016-04-06/panama-tax-haven-leak-bigger-picture
"The consequence of its operations is that money laundering is now at such levels and so widespread that the authorities have recently admitted defeat in its battle of attrition by stating openly it has been completely overwhelmed and lost control. Keith Bristow Director-General of the UK’s National Crime Agency said just six months ago that the sheer scale of crime and its subsequent money laundering operations was "a strategic threat" to the country's economy and reputation and that "high-end money laundering is a major risk"."
To judge from the comment "one of the world's five biggest" it's possible to say
that millions of high net worth individuals are hiding their ownership of property.

I'm fond of privacy myself, and that's one of the reasons I own bitcoin, but I've
paid my taxes. It goes with the territory, so to speak - in ancient Rome for example
"Every five years a citizen had to register himself there. He had to declare the
name of his wife, the number of his children, his property, his possessions, from
his slaves to his ready cash to his wife's jewels and clothes. The State had a right
to know everything, for the Romans believed that even "personal tastes and appetites
should be subject to surveillance and review."[1]" Hence, to maintain a balance
between power and responsibility, those with the most should be the most open -
however, surveillance as a method of control and of oppression is an entirely different
matter.

Let me suggest that the world is moving from a time of plenty to a time of famine.
The incoming changes are too complex to deal with here, but clearly, benefits
promised will be unable to be delivered. Worse still, the privacy and PriviLege
outlined above will make grave situations worse. "They" will evade taxation while what
little we have will be taken from us by the State. This system needs to be changed
and change will come neither quickly nor easily to the Leona Hemsleys of the world
who ensure "only the little people pay taxes".

Oh, and BTW, "much of the leaked information will remain private"
You didn't think they would let us know their secrets did you? You'll hear just
enough to divert attention from what's really going on.

[1] Plutarch, Cato the Elder, 16.

Our bitcoin technology can be described as a unrestricted bank, as there is not much restrictions as well flaws. Problem bank were very minimal as most banks of the country has improved their services.

Just for the humor

http://www.zerohedge.com/news/2016-04-10/italy-seeks-last-resort-bailout-fund-ringfence-troubled-banks-meeting-monday
"Italian bank shares have lost almost half their value so far this year amid investor worries over a E360bn pile of non-performing loans - equivalent to about a fifth of GDP. Lenders' profitability has been hit by a crippling three-year recession."
Comments :
"SumTing Wong : Why am I seeing Monty Python's bit about "bring out your dead" in my mind?"
"CarpetShag : How about a "cordon sanitaire""
"gatorengineer : Kinda like the cartoon monster swallowing the dynamite."
"Yen Cross : You can't make this shit up... Ohh wait... " Yes you can"."

Does Kuroda still believe in PeterPan? Who knows?

A Modest Proposal : Double Liability and the Re-Capitalisation of Banks.

First, some history. Prior to the Wall Street Crash of 1929, there were
some interesting conditions attached to the ownership of US Banks.
Cognisant of the dangers of unfettered banking, and incentives before
the owners of the Banks, i.e. the Shareholders, the State placed an
additional burden on Equity.  

If the bank went into bankruptcy, not only did the Shareholders lose
their investment, they also had to make good the losses of the creditors
up to the original value of the Equity. Put simply, if a bank went
bankrupt, the investor lost twice his investment.

After the Wall Street Crash happened, "[t]he regime of bank double liability
was rejected and and abandoned on three grounds: (1) that it failed to protect
bank creditors; (2) that is did not maintain public confidence in the banking
system; and (3) that deposit insurance was a far preferable means for
accomplishing the regulatory objectives." [1]
"History shows that the Nation took a wrong turn when it abandoned double
liability for a system of governmentally administered deposit insurance."

The prosperous times of the 1920's encouraged widespread shareholding among
the US general public, and those with family or employment connections to a
bank purchased shares without insider knowledge or insight of their potential
liability in the event of bank failure. The result as noted in 1936 was that
"many innocent stockholders who have taken no part in the management or control
of the bank" became bankrupt. The legislation was progressively repealed
starting in 1933.  

Today's taxpayer is the one who makes good not only the Creditors but
also the Equity holders of these banks via the process of quantitative easing.
More recent news suggests that eight years on from the last crisis, the
necessary remedies are not yet in place.

https://www.fdic.gov/news/news/press/2016/pr16031.html
"The agencies have jointly determined that each of the 2015 resolution plans of Bank of America, Bank of New York Mellon, JP Morgan Chase, State Street, and Wells Fargo was not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code, the statutory standard established in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The agencies have issued joint notices of deficiencies to these five firms detailing the deficiencies in their plans and the actions the firms must take to address them. Each firm must remediate its deficiencies by October 1, 2016. If a firm has not done so, it may be subject to more stringent prudential requirements."

Put simply, under double liability, the bank's management is incentivised to
behave responsibly and to take the bank into voluntary insolvency before
depositors and creditors funds are put at risk. Further, those funding
margin lending and related activities are incentivised to monitor the
activities of their clients and to manage their lending appropriately.
It is too easy for a bank to lend funds to investors for the purchase of equity
in the bank.

[1]http://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=2677&context=fss_papers
http://www.jstor.org/stable/2673878

Do you like Science Fiction? Can you imagine yourself standing on the
shore of some strange planet in a parallel universe, watching a wave
wash up at your feet, knowing that the wave comes from an asteroid that
has not yet hit the planet?

Welcome to the world called Finance :-)

Maybe it helps to know that you got here via a singularity called NIRP,
and that in this world, money is a liability. The more money you have,
the more interest you pay. In that world do you still want to be rich?

Whether banks can survive there is an interesting question, closely
followed by how to regulate them? Some interesting research is ongoing
here at the moment - see "Complexity Theory and financial regulation"
"In addition to data, understanding the effects of interconnections also relies on integrative quantitative metrics and concepts that reveal important network aspects, such as systemic repercussions of the failure of individual nodes. For example, DebtRank, which measures the systemic importance of individual institutions in a financial network (8), shows that the issue of too-central-to-fail may be even more important than too-big-to-fail."
http://science.sciencemag.org/content/351/6275/818.full

Such methods may work on some distant planet, but in this real world,
that's not how these things work. Bluntly - in a world where GDP
growth is negative, banks - all banks - become insolvent[1]. In case you
haven't noticed, it's been "all hands to the pumps" since 2008, all
busy pumping the interest that savings should have received into the
banks balance sheets to keep them afloat. That's on the premise that
"escape velocity" will be achieved and growth - aka inflation - will
resume.

An intravenous drip of monetary viagra and MSM opiates has merely
concealed the progress of systemic gangrene while keeping the
patient on the operating table.[2] As for growth - that's looking
quite limp[3]:
https://www.frbatlanta.org/-/media/Documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf
 
When growth fails, there is a delay while TPTB move to higher ground,
trying to get there before the crisis floodgates open. Then when savings
and pensions and deposits are under threat, it's "do as we say or
"tanks in the street"." That means some banks get saved as the outcome of
a political process and not through the oversight of a privately owned
regulator via an objective risk assessment seeking the greater good of
the you or I.

So, what's in this for you? What's the trade? Should you buy or should
you sell?

Before considering that, a simple question : Have you sold everything
you own and given the money to the poor? [4]

Now, that's a whole different planet, isn't it?

[1] In Theory the regulators sould seize the banks before they become
insolvent. In practice that rarely happens. Banking depends on lending
long and borrowing short, and that tends to mean liabilities (eg bonds)
are fixed while assets (eg equity) vary with the fortunes of the economy.
Typically, an "adverse scenario" will model zero GDP growth over the
period with the intention of identifying individual bank weaknesses,
but this does not address the possibility of contagion and systemic failure.     

[2] search for  "The Risks From Further ECB and BOJ Easing" - Deutsche Bank.

[3] Unfortunately, once the true horror of the picture emerges, well,
Mr Nicholson put it thus: "You can't handle the truth". Which will be
interesting because the Atalanta FED already published how their
GDP forecasting model works.

[4] see Matthew 19:21

Some useful bank and complexity links:
 
"DebtRank: Too Central to Fail? Financial Networks, the FED and Systemic Risk"
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3412322/

https://financialresearch.gov/gsib-scores-chart/

https://financialresearch.gov/working-papers/files/OFRwp-2016-01_Stressed-to-the-Core.pdf

https://financialresearch.gov/from-the-management-team/2016/03/08/ofr-working-paper-shows-impact-of-credit-default-swap-stress-across-the-banking-system/

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq415.pdf

http://www.zerohedge.com/news/2016-04-15/fed-sends-frightening-letter-jpmorgan-corporate-media-yawns
"How could one bank, even one as big and global as JPMorgan Chase, bring down the whole financial stability of the United States? Because, as the U.S. Treasury's Office of Financial Research (OFR) has explained in detail and plotted in pictures (see below), five big banks in the U.S. have high contagion risk to each other. Which bank poses the highest contagion risk? JPMorgan Chase."

For a primer on bank contagion see my post :
https://bitcointalk.org/index.php?topic=355212.msg12253705#msg12253705

On QE and Money

Professor Steve Keen explains why QE doesn't cause inflation:
https://www.youtube.com/watch?v=d1Mug1EPaAo


There is a surprising lack of understanding of fiat money by bitcoiners eg
"Of course the current QE doesnt inject money, they just inject loans not money."

The difference between debt and money is that the liabilities go on the
left column in double entry book-keeping. Got it?

What we think of as money is a note that says something like
"I promise to pay the bearer on demand the sum of one pound"

The first thing to realise is that the government has no means of paying,
except via their monopoly of violence. So to deliver your pound, the
government simply points a tax (or gun) at somebody and demands a pound.
Or a dollar, since the US government is the gunslinger du jour,

And somewhere a pound gets deleted from the liabilities and from the
assets sides of a balance sheet. Got that? Good.

Maybe it's time to move on from ideas such as "Little girls are made
of sugar and spice and all things nice - little boys are made of snips
and snails and puppy dogs tails" and away from the politics of
Capitalism and Socialism and this artificial divide promoted by the MSM.

Money, essentially debit and credit, is both good and bad. To keep things
simple, think of the Roman Denarius in the early Roman Empire. This
provided a secure anonymous method of payment to the value of produce
anywhere in the empire. The cost of wheat in Rome and in Egypt could
be easily and accurately compared and investment decisions made.

The downside is that collapse is a feature of all monetary systems,
and is independent of whether it is labelled as Socialist, or Capitalist.
I'd guess this is something of a paradox to Martin Armstrong since
he understands the cyclic nature of our world, but is opposed to
"Socialism".   

Now, I'm going to move onto something I don't understand. I've found
that when something looks wrong, there's usually a good explanation.
This time, it's bank debt, specifically, inter-bank lending.

I've earlier referenced the interconnectedness of banks. On balance,
this seems to make the financial systems less stable. So what are the
incentives to become more connected?

I'm hoping that someone with direct knowledge can explain all the
factors. My guess is that bankers are incentivised to lend money.
Thus if bankerA in bankA lends $100 to bankerB at bankB, he gets a
bonus. If bankerB then lends $100 to bankerA at bankA, bankerB
also gets a bonus. Both bankerA and bankerB are happy, but bankA
is now connected to bankB, the leverage of both banks has increased,
and similarly so has GDP.

While the lending described above probably doesn't happen in real life,
what about lending via more than one intermediary? BankA to bankB to
bankC to bankD to bankA? Why not simply offset inter-bank loans
already on the books? Would cancelling these also destroy bonuses?
 
The result seems to be a network that self adjusts to cause the
maximum systemic damage when it fails. To quote Mr Bernanke,
"tanks in the street" but other Central Bankers offer much the same
sentiments.

This seems absurd. The financial sector is uninvolved in the
physical world. Theoretically, if every bank magically vanished
overnight, there is no reason why everyone else should not go to
work as normal the next day. So why do we allow this absurdity to
continue?

There has to be a better way. Bitcoin is a good start, but more
is needed for a workable system.

Does Kuroda still believe in PeterPan? Who knows? No no more,nvestors already has lost his trust in Central Banks,markets ae stying flat in fact,but what will FED do now whan USA is entering in recession
Print more to make makets even more happy,that economy is already living with zero value
no problems we gonna make less than zero a new value,new fnancial era
possible or economy will be frozen,below zero is ice,and finally death

Not strictly about economics, banking or bitcoin, but
we'll see how this goes. The incoming vote within the
UK to decide to either remain in the European Union or
to exit, is not far off. I'll set out a few thoughts on
that but first "What has the EU ever done for us?"

The EU has improved the environment. The UK's standards of
cleanliness and control are often the subject of censure
and financial penalties by the EU, forcing Westminster
and local governments to clean up their acts.

The EU has championed privacy and free speech. Both the
Conservative and the Labour political establishments have
progressively suppressed dissenting voices to the point
of embarrassment. The EU has set the standards, pushing back
against worldwide surveillance and control.

The EU has acted as a restraint against unjust wars, while
the UK has almost without exception supported costly
and ineffective aggression, including the extra-judicial
killing of its own citizens.

With that background why leave the EU?

It may be a straight choice of identity : European or British.
Make no mistake here, the European Project is all about
subsuming national identities into a common view of the world.
That view gives every European the right and expectation to
be your neighbour, and to be welcomed as such.

European legislation is designed for Europe. Already some 60%+
of UK legislation is driven by decisions made by Brussels, and
if the UK decides to remain, that percentage will increase.
There are circumstances peculiar to the UK that are not shared
by the majority of the EU: the UK is an island nation; with a
maritime climate; English is an international language; and
the UK still has significant reserves of oil, gas and coal. 
 
Voting yes to remaining will make it difficult to resist further
integration within the EU both fiscal and political. Which
would you prefer for your monetary system: Greece or Iceland?

One of the arguments for Remain, is that the UK would be better
able to influence EU decisions and international matters as part
of a greater Europe. One need only look at the secret and
secretive processes surrounding the negotiations for the TTIP,
for every member of the European Union to realise the absurdity
of that argument. And the European Commission has done itself
no favours by it's recent decisions and standards such as
"When things get serious you have to lie".

More to the point, what would Brexit mean for Bitcoin?

A vote to stay in the EU, with its implicit decision toward
further integration, would suggest a diminishing role for
the pound sterling. Further, offshore UK supports Bitcoin,
and that would likely spread to the UK mainland with
increasing use of the Euro. With Brexit, not much would
change.

These are the rational arguments. For the irrational argument
see the scene from "Downfall" and a review of EC responses to
the migrants. Hitler addresses the Generals "What are you now
proposing we do?" A General "We plan to give every migrant
an IOU for Euro75,000.00 - that will solve the problems of
falling GDP growth, of deflation, and provide for the migrants
while they are within the EU until they find employment".
Hitler "Everyone not in the European Commission or the ECB
leave the room now"   
"What f****g use is an IOU? What difference is there between
that and a bundle of the Euro500 notes that you want to ban
because they can only used for criminal activities? The
banknotes would be better. If we just gave them the money
they might just **** off back where they came from".
And Scene

Note: Economists argue that economic migration is always good
for an economy. That argument ignores the fact that throughout
history migration (excluding invasion) was always subject
to controls. When it was not beneficial, immigration was stopped.
When it is uncontrolled it is called "invasion".
Just sayin'.
 

This post resulted from a comment to the effect that global corporations
seemed to be beyond the ability of governments to control them. I was
struck by some similarities (and some differences) between today's trade
deficits, global industry and the story of the East India Company.
Some background history.
Following the defeat of the Spanish Armada, within months, merchants in
the City of London set up and received Royal Assent for an exclusive trade
agreement to the East Indies. This led to the setting up of the Crown
Corporation, and later the East India Company.
Some fifty years after the Royal Assent, The King, King Charles, decided
to solve his national debt problem by seizing (as a loan) gold stored
at the Royal Mint.
Nine years later King Charles was executed. Later, the Monarchy ceded
control of the City of London, and of the Crown Corporation to the Merchants.
The East India Company continued to expand, rivalling smaller nations in
its scope and power, until, in the mid 19th Century, it controlled half the
world's trade. Unsurprisingly, limits began to appear.
The East India Company was buying tea and silks in China, shipping these
to India, and from there shipping spices and finished goods to England and
Europe. 
For a while, the trade deficit could be filled by shipping precious metals,
mostly silver, to China. That couldn't last, and China was uninterested
in helping solve the problem by either importing goods of inferior quality
or by importing Western services. What to do?
It seems likely that any similarity between today's problems and those of
the mid nineteenth century ends at that point, but here's what happened. 
The East India Company began shipping opium in ever increasing quantities
to China. When the Emperor objected, British gunboats destroyed China's
Navy, and British and Indian troops seized China's cities.
Despite the military success, financial problems continued to plague the
East India Company, and over the next decades its resources and powers
were transferred to the Crown Corporation. In 1874 the East India
Company was dissolved.
An early form of Bail-In, and arguably an example of the parasite
destroying the host. 
Today, many global corporations do not seem fit for purpose, and bankruptcies
are on the rise.  The lesson to take away from all this is that when these
Corporations (and banks) fail, they cause a great deal of collateral damage
to those least able to bear it. This time the play may be different, but
it's difficult to see how the outcome can be changed. 

Okay, let's start with money


Explain in a few words how gold and silver are free from third-party risks, and what exactly do you understand by these risks. Gold as well as silver can be counterfeited, does it pass as a third-party risk?

Please, be concise, specific, and avoid vague terms that lost their meaning long ago

Interesting questions - I might have asked these some years ago.

Regarding third party risks: Silver and gold are in the same asset class,
so (unless there is something I haven't thought out,) the answers for gold
will apply to silver.

Obviously, gold is gold, and tungsten is tungsten. A sufficiently good
attempt to deceive may succeed in passing on a quantity of tungsten
where gold was purchased or was stored. The end effect is much the same
as that achieved by the use of force: an illegal transfer of ownership
of the gold.

Herein lies the difference: third party risks generally do not give
rise to criminal charges. Such risks are broadly defined as arising
from a contract between parties where one (or more) party breaks the
contract. Hence, nobody goes to jail, and the Justice System has no
mandate to pursue the matter via the criminal courts.

Thus, though the effect on a bank balance may be equivalent, passing
off a toxic MBS as good collateral has less risk when compared to
selling tungsten disguised as gold. To the extent that these acts
seem to be the same reflects the confusion in most people's minds
regarding credit and money. This "confusion" was perhaps the basis
for the film "The Big Short".

Thereby, I conclude that you should exclude gold (and silver, for that matter) from consideration as true money since they are liable to counterfeiting, i.e. to third party risks. On the other hand, digital fiat, like Bitcoin, can't be counterfeited, so it does meet the requirements of what you consider as money. Otherwise, you should clarify what you actually mean by a third party risk, and how it is related to your concept of money...

I simply can't fathom how violation of a contract by a party to the contract can be deemed as a third party risk (emphasis added)

"Such risks are broadly defined as arising from a contract between parties where one (or more) party breaks the
contract."

Suppose I agree to pay you one pound of silver around 1850AD, and I give you a "Pound Note" payable
in 2016 by the British Government. Your "Third Party" is the British Government. Good luck suing them.

Ok, maybe I'm missing something, how do you counterfeit gold? Pass off 0.998 purity instead of 0.999?
I think you mean something else, and theft is theft whether by force or by fraud. I think once you try to
be specific, you will fail.

And you think that Bitcoin cannot be stolen by force or fraud, I think the risks are higher there.
 

How can such a risk be a third party risk when a party to the contract breaks the contract (what follows from your definition)? This is not a third party risk by any means, it is a direct risk of the other party not fulfilling its contract obligations

Okay, you pay me in gold for something circa 1345. In a few years the Black Death kills half of the European population. There is a devastating famine all over the continent soon thereafter, and gold loses 90% of its value. Now with your gold I can only buy 1/10th of what I could have bought just a few years ago...

Does this constitute a third party risk?

If I agree to pay you a pound of silver, there are only two parties.
If I agree to pay you a pound of silver via a promissory note underwritten
by a third party, there are three parties to the contract. You and I rely
on the goodwill, reputation, full faith and credit etc of a third party in our
contract.

Regarding gold and the Black death, to some extent it depends on whether
the contract was for a specific weight of gold or for, say, gold coin.
Hmmmm .... is an Act of God a "Third Party Risk"? I'd need to read the contract :-)

But the same thing could happen to Bitcoin. It's not a Third Party Risk.

BTW, I'm not a lawyer, and this is not legal advice.

So, if silver loses its value (against what you can buy with it) due to various factors, it can't be considered as a third party risk, right? But what is it then, force majeure?

Would you continue to consider it as money when, in fact, it may have stopped being it?

Okay, but then you should admit that your concept of money as something free of third party risk is lame at best, since it is not free from risk as such while the outcome is essentially the same (i.e. devaluation of money)...

Which seems to have been your point

Unrestricted banking for me is what bitcoins offers today, bitcoin has a blockchain which is the bank, with it being centralized we can monitor our transactions transparently, with its low cost banking it can attract lots of people especially in the other country to do their remittances thru bitcoins.

As an aside, gold (silver) coins in medieval times were worth the amount of gold (silver) contained, so it is irrelevant. You could take a nugget to the royal mint and stamp royal coins for a small fee. If the court debased the coin (i.e. diminished the content of precious metal), its real worth would still equal the actual amount of precious metal it contained. In other words, you wouldn't buy with such a coin more than you would buy with just a piece of gold or silver. On the other hand, the devaluation of gold itself meant the devaluation of coin as well...

And the pound sterling meant just this, i.e. one pound weight of sterling silver (https://en.wikipedia.org/wiki/Sterling_silver)

The question about third party risks got me thinking about identifying
the risks that gold and bitcon face. Why prefer one over the other given
that they share similar adavantages and yet are so different physically?

One objective method is to look at the price volatility for each. More
volatility suggests higher risks. I haven't pursued this in any detail because
any derived figures will give a false sense of accuracy. There is enough
there though, IMHO, to suggest that both gold and bitcoin face similar
levels of risk. Despite their different track records, for example 3000 years
vs seven years in circulation, it seems probable that a big chunk of the risk
to their price, if not existence, comes from one part of the economic system
itself.[1]

To understand this threat, think about the purpose of money outside its
ability to provide a store of value. Its real value is its ability to
circulate, to act as the invisible hand that guides people to act in their
own best interests. It does this by providing a medium within which markets
have a near frictionless operation. Except that both gold and bitcoin
barely circulate as money - it seems that Gresham's law in in full flood
with bad money driving good coin out of circulation.  

At this point I will say that there are other risks to bitcoin and to
gold. All of these are the subject of daily speculation and chatter.
Here, this quotation seems particularly relevant "talk is cheap,
show me the code" - earlier I pointed to some banking practices that
bring serious problems, and to recent work in Complexity to try to
better understand these risks. Here I want to take a more global
view of the economy, the role of banking within this, and to get
a glimpse of The Powers That Be. Some links, but see the video:

https://www.youtube.com/embed/NgbqXsA62Qs

http://independenttrader.org/global-structure-of-ownership-result-of-4-year-long-research.html
"Some time ago I posted an article about methods used by banks to influence and govern the world. Some of you may have put that between conspiracy theories. For proving my point I got my hands on very interesting report. 'The Network of Global Corporate Control'. Prepared by Swiss organisation lead by James Glattfelder and Stefano Battistona. Since 2007 till 2011 they investigated capital connections from 43 thousand global corporations. Below I present their results."

http://www.wired.co.uk/news/archive/2014-06/03/james-glattfelder
"This is something that shouldn't be there if you look at standard or classical economic theory."

The phrase used by Glattfield to describe the network is "The Bow Tie".
This is not a particularly good or useful description, but the method has the
benefit of at least some mathematical certainty. The Bow Tie exists, and it is
both a risk and an opportunity for bitcoin, for gold and for assets with a
similar exposure to the vagaries of financial irresponsibility.

This is already old news, and the rabbit hole is getting deeper
all the time ...

[1] Yes, gold doesn't halve, cut me some slack here ...

Maintaining account balances and facilitating transfers is just one part of banking.
What about lending and getting the economy going. Bitcoin has not played a part there.

Getting the economy going? That's partially answered by my post, above, but
I'll open a new topic. "Getting the Economy Going"

I really ought to write something on the origins of money, but
we live in interesting times, so, it's interest that I'm
thinking about. 

More precisely, a view on some implications of a rise in the
US Federal Funds Rate, initially, an increase to one percent.

In any normal economy an increase in rates would reflect the
pressures of growth within an economy, and the risk taken by
the investor. A rate rise to one percent suggests that a sick
economy is merely being taken off the critical list and that
it will take some time before normal service can be resumed.

Now that the idea of an abnormal economy is shimmering in the
distance like a mirage, let's approach a little closer and try
to see more clearly. Take a look at the money in your wallet.
The paper money bears a promise to pay. The "money" in your bank
account, not so much. When I think about it I realize that 99%
or so of the world's reserve currency looks very similar to a
gigantic alt cryptocurrency.

Now, imagine that you are the developer of the alt currency
known as the dollar. What about that rate rise mentioned
earlier? Holders of bonds and stocks are about to lose money
running into trillions. Still feel like raising interest rates?

Maybe that interest rate can be kept near zero a little
longer. But what happens to liquidity preference - money that
is easily traded carries a lower interest rate? That's the
reason people prefer dollars to gold, given similar rates of
interest paid - dollars are easier to exchange for goods.

Hmmmm ... soooo, what about bitcoin? It may not pay interest
but it's been appreciating faster than gold vs the US dollar?
Let me put it like this, if I lived in the Middle East and had
oil to sell, bitcoin would be my first preference ;-)

There's a lot more to be said about interest, and why profits
are not flowing into the pockets of savers, but that's a topic
for another day.

Now for something bitcoin excels at - Foreign Exchange:

http://www.zerohedge.com/news/2016-06-18/fx-next-market-normalize-after-iex-approval
"That means - for those who do not understand clearly - the Forex market itself is an interbank market where banks trade with other banks, and some non-bank participants such as Hotspot (now owned by BATS). That means, they don't have to worry about Reg NMS or other SEC rules, interpretations, comment letters, or policies. They need only worry about a big lawsuit - and when we say 'big' we mean "FX Big" - just one case so far the fines are up to over $5 Billion. One doesn't need a PhD degree from MIT in mathematics to calculate that if the banks have agreed to pay $5+ Billion in fines, the amount of money they are making in FX fleecing customers is 50x or 100x or 200x that. If you don't understand this logic, ask a class action law firm about settlement math, companies always agree to pay out settlements that are pennies on the dollar what their underlying business generates, otherwise it wouldn't make sense for them to do so."
"In the case of the United States, they practically made retail FX illegal - making it so difficult and cumbersome with so many rules and regulations that it makes any strategy barely profitable.  And since the regulators squeezed out decent FX brokers - the only ones left are semi-legit companies that even if there's no default risk, the chances of having a fair shot trading at these firms is minimal."


What would the numbers look like if bitcoin was functioning as the world's
reserve currency. It would need a market capitalisation of over US$21Tn.
That's over $1,000,000 per bitcoin.
What would that mean for transaction fees? Suppose, as an initial guess,
the fee was 0.001, or $1,000 per transaction. At the maximum theoretical
rate of 10 transactions per second, there would be over 300 million
transactions per year, that's $315Bn per year, and just under 1000
transactions per day, or about three times the current peak level.

How much electricity does $315Bn pa buy? At $0.03 per KWh, that's about
three China's. Or 1000x a rational level of electricity consumption.

Taking the above figures for FX, $5Bn x100 = $500Bn, so the transaction costs
are initially, kinda in the right ballpark. It looks like bitcoin could
bring honesty to the FX exchange market for much less than $1Bn per year
in transaction costs. Of course, that excludes the cost of compliance with
all government regulations, a not inconsiderable cost.

The other matter that becomes clear from the above is that bitcoin alone
cannot provide a complete cryptcocurrency solution to the world's needs.
For Bitcoin to succeed, newer solutions must be put in place. Further,
it seems likely that bitcoin will struggle to raise its price above
$1000 per coin. The reason for that is this: if in the example above,
bitcoin reaches $1,000,000 per coin and a market capitalisation of $21Tn,
control over that fortune would be exercised by a mere $300M of electricity
per annum. It would only take an antagonist with access to $1Bn or so to
subvert the entire process. Reduce that for lesser amounts.

It looks like that Bitcoin's role in FX will always be limited. 


 

Maybe the time has come for ZIRP (Zero Interest Rate Policy). No, really, ZIRP!
As in nobody gets to charge interest. During the Middle Ages, that was they way
things worked. In those days, money was for trade, paying armies, and not much else.
Debasing the currency was a Capital offence, and without interest, banking and
moneylending were niche industries.

So, suppose the artificial divide between those who can and those who can't borrow
at zero interest rates disappears. Well, the first impact would be to credit card
companies and payday lenders. Their business model is trashed. Do dry your eyes
dear reader. There's more.

Banks would have a problem. Eighty percent of their business is mortgage lending,
that would be just before they package the toxic stuff with a wrapper of AA and
flog it to some "sophisticated" pension fund desperate for yield. Did I mention
Ratings Agencies might actually have to work for a living? House prices would fall,
and banks would be out of the mortgage business because they just could not afford
the risks they are currently financing. Banks would be one fifth their present
size, perhaps less, because business would have to replace large chunks of their
debts with equity. If, as a private lender, you get no return on a loan to a
business the loan will not be made, so business will be forced towards retained
earnings and equity.

All this may seem strange when compared with the world today. Companies are using
cheap debt to buy back their shares to boost P/E ratios to push up share prices
to increase the value of management's stock options irrespective of the long
term implications for shareholders. Similarly for other asset price inflation
such as real estate. That, dear reader, is the point. Central Banks are buying
up assets and putting it on your tab. If not onto your tax bill, certainly
out of your pension fund and savings account. They are moving from AAA rated
paper into toxic waste and into monkey dung. Best of all, if ZIRP wasn't just
for the rich and well-connected, there would be no need for a Central Bank.

OK, maybe just a tiny unrecognisable barbaric relic of a Central Bank. Maybe.

One final point: Interest on loans is, in most cases, a business expense. The
business does not pay tax on the interest. Unlike Dividends. So if you invest
in equity you get taxed twice, first by corporation tax, then by income tax.
And guess what, if you have an offshore account, a loan is the way to go.
 
BTW, I suspect US price inflation will be ~5% by mid 2017
I'm thinking I might go long popcorn, deckchairs, and bicycle clips.

Banks are going to exposed their bad sides if they use bitcoins.  But banks are going to use and exploit bitcoins and we will suffer. It's best if bitcoin and banks will not merge. We want banks to leave us alone. We enjoy independence in bitcoin far away from greedy banks and unfair financial system.

A bank's alleged inability to pay the deposits is not fraud. First, this wouldn't be a problem if the bank could demand to immediately return all the loans it lent out previously (then the bank balance sheet would shrink to the size of its chartered capital). Second, in today's world there is no such problem even if a situation like that could potentially arise...

Since there is always a lender of last resort behind the bank's back

Just to point the discussion on fraud in the right direction ...

http://edition.cnn.com/2004/LAW/09/17/mortgage.fraud/index.html?_s=PM:LAW
"From Terry Frieden CNN Washington Bureau Friday, September 17, 2004 Posted: 2144 GMT (0544 HKT) Assistant FBI Director Chris Swecker said the booming mortgage market, fueled by low interest rates and soaring home values, has attracted unscrupulous professionals and criminal groups whose fraudulent activities could cause multibillion-dollar losses to financial institutions. "It has the potential to be an epidemic," said Swecker, who heads the Criminal Division at FBI headquarters in Washington. "We think we can prevent a problem that could have as much impact as the S&L crisis," he said."

https://ourfuture.org/20150911/now-the-justice-department-admits-they-got-it-wrong
"By issuing its new memorandum Thursday, the Justice Department is tacitly admitting that its experiment in refusing to prosecute the senior bankers that led the fraud epidemics that caused our economic crisis failed. The result was the death of accountability, of justice, and of deterrence. The result was a wave of recidivism in which elite bankers continued to defraud the public after promising to cease their crimes."

I'm shocked, shocked, to find that gambling is going on in these places.
But you knew all this already (I hope) and could have found these references
in a few seconds with a simple search.

I'm coming to the view that the biggest deception practiced by the banks is
that we need the banks, the bankers, and the financial sector.

There's a simple equation that suggests that TPTB will never allow helicopter money.
I'll post something later, but If you have any thoughts on that feel free to post.here. 

"The tragedy of investment is that it causes crisis because it is useful.
Doubtless many people will consider this paradoxical. But it is not the theory
which is paradoxical, but its subject - the capitalist economy." Kalecki

As an example, see US net government lending, $Bn starting in 2007:
-354.9  -781.8  -1476.7 -1509.5 -1400.1 -1214.8 -698.3  -681.4  -602.3
So, from 2008 to 2012, some $2.7Tn of excess deficit went into the US economy.

"One of the more enlightening things you learn from a sound understanding of macro is the
Kalecki profits equation which shows that corporate profits are the result of the following equation:"
Profits = Investment - Household Savings - Government Savings - Foreign Savings + Dividends

http://www.pragcap.com/why-hasnt-the-budget-deficit-decline-hurt-corporate-profits-more/

That suggests that the $5.6Tn that the US government borrowed between 2008-2012,
if all other things were unchanged, became profit somewhere in the economy.
And the Stock Market soared. Since then, from 2013-2016, the Stock market has some $2Tn
less in government funded profits, and is presumably buoyed up only because the
Federal Reserve Bank is cornering the market for Lemons.

http://www.nytimes.com/2010/11/24/business/economy/24econ.html
"American businesses earned profits at an annual rate of $1.659 trillion in the third quarter"

http://www.nytimes.com/2010/11/24/business/economy/24econ.html
"Corporate profits have been doing extremely well for a while. Since their cyclical
low in the fourth quarter of 2008, profits have grown for seven consecutive quarters,
at some of the fastest rates in history. As a share of gross domestic product, corporate
profits also have been increasing, and they now represent 11.2 percent of total output.
That is the highest share since the fourth quarter of 2006, when they accounted for
11.7 percent of output.
This breakneck pace can be partly attributed to strong productivity growth - which
means companies have been able to make more with less - as well as the fact that
some of the profits of American companies come from abroad. Economic conditions in the
United States may still be sluggish, but many emerging markets like India and China
are expanding rapidly."

"This breakneck pace can be partly attributed to people getting fired" - FIFY.

Before moving on, note the borrowing requirement in 2007, $354.9Bn, the difference
between spending and taxation, in broad terms, and contrast the values for later years.  

You may be curious as to how borrowing got reduced 2013 - 2015? Here are the tax revenues:
2660.8   2505.7   2230.1   2391.7   2516.7   2663   3141.3   3265.2   3434.9 (US$Bn)
The change is accounted for neatly by an increase in taxation in one form or another,
rather than any reduction in government spending.

This seems to be a widespread paradox - "capitalist" economies whose profits are often
entirely funded by governments. Those 2010 accounts are entirely coincidental :-)

Any thoughts on "Helicopter Money" yet? We're getting to the endgame, and the equation above
provides a hint of things that just aren't gonna happen.  

An inhabitant of the Bank for International Settlements claims bankers are "Magic People"

Kuroda-San insists that if the Japanese people would only believe :
"I trust that many of you are familiar with the story of Peter Pan, in which it says,
'the moment you doubt whether you can fly, you cease forever to be able to do it,'"
all would be well with the Japanese economy.

What next? "attempts to kill goats by staring at them."? (and more)
"The Men Who Stare at Goats (2004) is a book by Jon Ronson concerning the U.S. Army's
exploration of New Age concepts and the potential military applications of the paranormal."
https://en.wikipedia.org/wiki/The_Men_Who_Stare_at_Goats

Maybe even "Helicopter Money"? - Seriously? - How might this work in practice?

Soooo, you have thought this through, and maybe created "Streetwalkers Inc",
(for the tax advantage.) While walking down main street, your corporation
finds a newly issued $1 bill. What do you do? You enter it into your P&L account:

Profit from walking down street : $1

Wonderful. Profits, unfortunately, do not just appear out of thin air.
How to even know that this is a profit? Let's simplify Levy's total profits equation:

TNP = TVI + t4b + t5b + t6b + cCr + aL - cCrl -cs + TpCNP + BT + BI - Tdp - ex -dep + ETC -vOt7 + vOt8

Yuck. But all we need from the equation is this :

TNP = TVI

TNP = Total Net Profits (all corporations)
TVI = change in the value of money over the time in examination.

Since the quantity of goods that can be bought is unchanged, the profit is
created by an increase - $1 - in the quantity of money. And, since the
quantity of goods is unchanged, there must be a loss somewhere. In this case,
the bank that printed and issued the money - it now has a loss to account for.

Thus, "Helicopter Money", in current parlance, will be paid out of the
pockets of the owners of the banks, most probably the owners of the
Central Bank - TPTB. About as likely as (1+1 ne 2) IMHO.[1]

So, if governments (ie, you, dear taxpayer) are not going to fund
"Helicopter Money" what is really going on? (Taxpayer funding makes as much
sense as some of the projects referred to earlier) - A non-mathematical,
non-economic, conspiracy-theory explanation should have the fewest assumptions.
"Occam's Razor : Among competing hypotheses, the one with the fewest assumptions
should be selected." The TPTB are involved, soooo, maybe this?

The World is being conditioned to drop its trousers and grab its ankles
anytime the phrase "Helicopter Money" is broadcast. Oh! One other thing:

Don't forget to say "Thank You Ben Bernanke!" [2][3]

If, by now, you are curious as the the competence and motivation of these monetary gods,
the concluding remarks of a report on the Lehman debacle may crystallize those doubts:
"Their explanations for their actions rest on flawed economic and legal reasoning and dubious factual claims."
http://www.econ2.jhu.edu/People/Ball/Lehman.pdf

[1] for example see "Exploring Complex Dynamic Systems" Cheng, Zhang
J System Simulation 2002 14(11): 1147-1149

[2] Feel free to substitute your choice of Central Banker.

[3] Your guess at what happens next?

thats true, banking with bitcoins is unrestricted, every person can be their own bank and use their money whenever they want thats why i like bitcoins that much

I'm struggling to keep up with the flow of news. This is some weeks old, it's on
the IMF and the Greek economy - some background - I don't have
transcripts for some of this, so feel free to jump in:

Around 2009-2010 everyone knew that Greece was going to default on its debts.
Then, it got a bailout. And another, and another... In the midst of all this,
Yanis Varoufakis became the Greek Finance Minister, and began to put together
an economic plan.

We were spared the details of his proposals, as he quickly found that the Troika,
- the ECB, IMF and European Commission, none of whom were elected to any position
of power, (and in effect the council of Finance Ministers) - were diametrically opposed
to his proposals. The Troika wanted austerity, while at the same time imposing
conditions that almost certainly ensured that the objective would not be met,
despite, or perhaps because of, the likely collateral damage to the Greek economy
and the need for further bailouts.

Mr Varoufakis pressed the dozen or so key EU Finance Ministers and found that, in
private, the Ministers were quite knowledgeable, and acknowledged the strength of his
arguments. Singly, in private, they assured him of their support for his case, but as
soon as these Ministers appeared in public, their understanding disappeared, and they
were back onto the Troika's message.

More curiously, Mr Varoufakis had appealed for help in tacking corruption, a
widely publicised barrier to improving the Greek economy, and pursuing tax
payments, essential for achieving the Troika's stated objectives. No help
was forthcoming, despite dubious financial transactions with other EU member
state's banks. Thus Greece could use only its own resources to fix its problems,
despite a clear implication that other nations were benefiting from misdeeds.

I'll briefly mention that my recent earlier post highlighted the relationship
between government deficit spending and the profits of private companies. That
logic would suggest that a sudden drive for government budget surplus would
result in private, and public, companies running at a loss, and possibly
into bankruptcy. The Troika's policies made the Greek situation worse.

All the above suggests that, at best, the Troika's decisions were driven by
politics rather than economics. Other interpretation placed on the Torika's
motives could be much more concerning for the future of the Eurozone.

Recently, support for Greece and for Mr Varoufakis, now the exFinance Minister,
has appeared from an unexpected source - the IMF. 

"What the IEO report makes very clear is that the IMF should never have agreed,
as part of the Troika, to assist the EU in forcing austerity upon Greece without
insisting on significant debt relief, in the shape of a haircut, or
(a) debt writedown(s)....
The IMF's long established policy is that both MUST happen together."
"And Europe's grip on the IMF is exactly what the report is about,
in that it accuses Lagarde et al of bowing to EU pressure,
to the extent that it abandons its own guiding 'laws'.
It acted like it was the European Monetary Fund, not the international one."
"That would seem to leave the IMF just one option: to apologize profoundly to Greece,
to demand from the EU that all unjust measures be reversed and annulled,
and to set up a very large fund (how about $1 trillion) specifically to support
the Greek people, including retribution of lost funds, repair of the health care system,
reinstatement of a pension system that can actually keep people alive and so on and so forth."

http://www.zerohedge.com/news/2016-08-02/end-imf-credibility-or-why-christine-lagarde-should-be-fired-wont-be
https://www.theautomaticearth.com/2016/08/why-should-the-imf-care-about-its-credibility/
http://www.ieo-imf.org/ieo/pages/CompletedEvaluation267.aspx

So, what to take away from all this? That the IMF, the ECB, and the European Commission
are subservient to an unknown unelected body seemingly unconcerned by inter-national
corruption to the extent of hundreds of billions of Euros? If it were not for
prior art in the form of Operation Gladio, such a conspiracy theory would sound
ridiculous. 

If, after researching Operation Gladio, you can afford a further three hours,
see 'After Dark British Intelligence' - though it is off topic for this thread.
http://www.youtube.com/watch?v=caUG4L-3S30
I'm mentioning this only as background material on the relationship between
an elected representative government and the notional Deep State.

I hate lies. Lies get good people killed. That's lies, dammed lies and government statistics.
So, when some government statistics "got revised", something just didn't smell right.
I haven't, yet, worked out what is going on, but along the way I came across this:

http://www.marketskeptics.com/2011/04/government-financial-innovation-caused-2008-financial-crisis.html
"Below are two videos showing how the federal government (not wall street) caused 2008 Financial Crisis."
https://www.youtube.com/watch?v=cNXyBIPAJqQ
"1) Bundled toxic (subprime) loans into securities
2) Used financial alchemy to make risk "disappear"
3) Designed complex financial structures to hide the fraud
4) Developed insanely optimistic evaluation models to inflate ratings on toxic securities
5) Marketing these toxic securities to an unsuspecting public"
https://www.youtube.com/watch?v=i4PE1gZn7s4
"1) Created the entire infrastructure necessary for the subprime market to function
2) Decimated state authority to regulate the financial sector
3) Shielded subprime lenders from prosecution
4) Encouraged banks to buy toxic CDOs and to get rid of safer assets"

I'll compress this into a few lines. Bucket shops began in the late 1800's, expanded
in the 1920's and were outright banned in the USA in 1929.
"In other words, they were fraudsters." - jmalmberg March 5, 2009
Then, after the USA's Savings and Loans crisis (1986-1995), parts of the US government
found toxic debt on their books - similar to the subprime stuff of 2008 that had 40%
delinquency rates, and to the 30% delinquency rates of the 1930's.
When you have a load of fish sitting in the sun, and nowhere to put them, what do you do?
In the case of this debt, the government cooked the books, then twisted the arms
of the Ratings Agencies to change their models, and, as if by magic, toxic debt
took on the appearance of investment grade government paper. 
Cue scene from "The Wolf of Wall Street", and a modern day bucket shop was born.
Contrary to the current "What Everybody Knows" the Government had to twist Wall Street's
arms pretty hard to get them to do their bidding. Even the US Justice Department
began to throw up when they found out about this.
In 2000, as part of the race to the bottom, this:
"This act shall supersede and preempt the application of any state
or local law that prohibits gaming or the operation of bucket shops"

http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html
"Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no."
"... it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers."

The above narrative fits the description of "Control Fraud" to a "T".
That's maybe not the best move when your economy depends on a fiat based currency. 

Eliot Spitzer Governor of New York resigned on March 17 2008 amid threats of impeachment.
Just. Another. Coincidence.

And my original query? It's still in play. And a couple of other things:

After you read up on the above, you may want to compare with this:
http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf
"the real causes of the economic crash"???
 
Also, an earlier post mentioned that the FED was a "monopoly purchaser
of lemons". Sounds like the hole RTC found itself in all those years ago.

I won't say fiat created the economic crash, we could be using bitcoins and still have an economic crash. It's more of an administrative anomaly than something tied to fiat.

I'll summarize some of the points of these recent posts, because mainstream and
most alt-media reporting seems to skip over important background details.

Bucket shops were banned in 1929 because they were fraudsters. It was too easy
to suck clients in on a momentum trade, and at an appropriate moment, to short
the stock, causing a crash and wiping out clients trading on margin.

The Savings and Loan Crisis (1986-1995) sent many bankers to jail. There were two
other outcomes:
the US government seized toxic loans, and as a consequence of attempting to sell
these at a profit, forced unsafe practices onto the financial sector, and forced
the Ratings Agencies to underestimate risk.
the financial sector moved to protect itself from prosecution, seeking "deregulation"
and "light touch regulation". Besides the removal of Glass-Stegall, the prohibition
on "bucket shops" was removed. Fraud was now legal (again!).

While the deregulation issue was broadly internationally understood, the repricing
of risk and its effects was hidden. Financial instruments rated 'AAA' are
expected to default once in 10,000 years. That number suggests that it is pointless
to insure against default because your counterparty is more likely to fail than the
bond. Initially, there was no market for that insurance (CDO's) because the risk
was correctly priced. That changed, in part because of US government pressure,
beginning with sub-prime.[1]   

In 2004 the FBI was warning that mortgage fraud in America was endemic. 

In 2005, Washington Mutual was reducing its mortgage lending, and in doing so,
its profits suffered, weakening the bank.
"More backers piled in with time, and by May 2005, Mr. Burry closed the first deal on
subprime credit default swaps with Deutsche Bank."
http://dealbook.nytimes.com/2010/03/01/michael-burry-the-man-who-shorted-subprime/

In 2006 John Paulson took an artisan industry and industrialised it. Goldman Sachs,
satisfied itself with its cut of the trade between the buyers and the sellers of CDO's.

The lack of risk of going to jail, and the mispricing of risk mandated by US
government pressure and practice meant that the more toxic the debt, the greater
the likely profits all down the food chain.

http://www.nakedcapitalism.com/2015/12/debunking-the-big-short-how-michael-lewis-turned-the-real-villains-of-the-crisis-into-heros.html
"So it wasntt just that these speculators were harmful, and Lewis gave them a free pass.
He failed to clue in his readers that the actions of his chosen heroes drove the demand
for the worst sort of mortgages and turned what would otherwise have been a "contained"
problem into a systemic crisis."
"Both market participant estimates and repeated, conservative analyses indicate that
Magnetar's CDO program drove the demand for between 35% and 60% of toxic subprime bond demand."
"For the most part, the dealers themselves. Without going into mind-numbing detail, the apparent
risklessness of an AAA instrument hedged by an AAA counterparty (in this case, a monoline)
substantially reduced the capital a dealer needed to support a position. As a result,
holding AAA CDOs hedged by AAA guarantors was treated, on a profit and loss basis on the
relevant dealing desks, as vastly more attractive than finding investors to take the other
side of the trade. In other words, this was massive gaming of the banks' own bonus systems."

Think of it like this: If the government mandated fitting faulty brakes to cars, and then
repealed all the laws relating to speeding and traffic violations, would you be surprised
when a few accidents occur in good weather? followed by massive pileups on motorways when
winter sets in? (It's not just the US Government BTW, they had help).

[1] The Ratings Agencies agreed to change their models in 1997. Within ten years, problems
began to appear: http://www.bankofengland.co.uk/publications/speeches/2009/speech374.pdf
The sort of problem that, according to statistics, as Haldane comments "To provide some context,
assuming a normal distribution, a 7.26-sigma daily loss would be expected to occur once every
13.7 billion or so years. That is roughly the estimated age of the Universe."   
In good times failure rates can be fitted to a normal, gaussian distribution. That model
would seem to be optimistic by a factor of four when the hard times reappear - the "fat tail"
or power law distribution.

banks and the never ending printing of the money created it, thats why i hate the economic system we have at the moment, i hope it will change in the future though

Banks always were and always will be thew main cause of all economic crises in the world. And they are still running this world, so at the moment I don't know what could changew that. Bitcoin, unfortunately, can't..

well it kinda was because of the money we have right now thats why i want bitcoin to replace all the banks and fiat we have at the moment

actually, fiat and nothing else created the crrash we had and i think the crash but bigger one will happen any time soon, it is really crazy

"Be not afraid of greatness. Some are born great, some achieve greatness, and some have
greatness thrust upon them" - Shakespeare

A day or two back, I'm told that we are now in a "post-heroic Age". This in the context
that we are more likely to die in a household accident, such as falling off a chair,
than in a terrorist attack. Add to this threats such as organised crime, drug trafficking,
sex slavery, paedophilia, as headlined by the main stream media, and one would assume that
the mass of the population is traumatised into fear of its own shadow. Ever wondered
why they carry out polls to find out what scares you most?

It's time to raise your eyes from this dark path and stare into the abyss nearby. Does that
frighten you? Those of you still with me are probably asking. which abyss?
there are so many? This one: "Stability" ... OK, dive in.

For most of recorded history, 0 < beta + alpha. The population increased, and they found better
ways to make stuff. The economy grew. The times when that didn't happen were dark times:
the fall of the Roman Empire; the Black Death, ...  you get the picture. Hence the willingness
of politicians to talk about "growth" and "stability". Their audience translated this as
more jobs, and more money, and that's what they voted for: Infinite Growth.

But, Central Banks cannot create babies, nor even an increase in the economically active
population. They might have contributed to an increase in innovation and productivity by
ensuring that the most inefficient abusers of capital got pushed into creative destruction,
but signally failed to do that. They cannot directly improve productivity or innovation.
Which begs the question: Absent some magical event, what are the chances of both productivity
and population growth turning down in the none-too-distant future? Quite high, perhaps, see here:

http://sustainable.unimelb.edu.au/sites/default/files/docs/MSSI-ResearchPaper-4_Turner_2014.pdf

The paper follows up work carried out 1972-1974 "Limits to Growth", finds that the "Business as
Usual" scenario is followed reasonably closely up to the date of publication (2014) and expects
a decline in world industrial production to begin soon. And if growth continues, the collapse
will be steeper and deeper.

I'm inclined to believe that the outcome will not be as dire as some forecast. However, the
point is made that we cannot expect 0 < beta + alpha to prevail much longer. What happens
as we transit this trajectory? The world's economies move into instability, with unpredictable
interactions. If the central banks were well prepared with low debt and plenty of munitions,
they might be of some help. Frankly, they look like a liability.

I'm thinking that this is hard to take in, that economics as we know it, free market capitalism,
could just stop working. Maybe one word will explain : RATIONING. Got it? Everything falling
into place? Good. Any Questions? Confirmations?

I do expect one or more financial "events" before we get to that point. Whether we get a repeat
of 2008, maybe better, maybe worse, remains to be seen. The last event saw a transfer of wealth
to the one percent. Next time there will be many more people with little to lose.

"Be not afraid of greatness", as this New Age of Heroes gets thrust upon our newest generation.
The New Heroic Age.

This is the central banks' strategy at this point:

Maintain what's left of the asset bubble until:

1. Big growth comes from somewhere.  This is the preferred path.  Growth doesn't have to be a giant technological breakthrough; it can be a big, newly industrialized country (or countries) coming on stream to provide real goods and services to support the financial assets already or about to be issued.

2. Big war or terrorism happens.  The current condition is a de-facto continuous injection of pain into vulnerable populations until something breaks.  The US-led West will ride in shining armor to bring 'final' defeat to terrorists and/or tyrants.  And it just happens that such a great victory will allow the US to dictate the postwar financial order (as in 1945,) get the level of financial repression it wants (as the post-1945 Bretton Woods system moved the world further from the gold standard to the dollar standard,) and blame any 'financial irregularities' on the conflict.

3. If neither 1 nor 2 materialize before the asset bubble must collapse, then wipe out all debt.  The most likely method will be 'helicopter money.'  (Really big amounts, not the timid QEs so far.)  This will push inflation so high that past debt will no longer be constraining central bank and government stimulus efforts.  Finally, as during 'normal' times, the public will believe in the authorities' determination and ability to generate inflation, and they will start spending and lending on their own.  This financial reset will be the last resort since it won't do any good to the reputation of the assets issued by the elites.

Granted, this is not on the same long-term basis on which your trajectory of civilization is being discussed.  And I am absolutely no fan of the modern system.  But the elites are not yet at their wit's end, at least in the medium term.

The easiest way to define money is as a value-exchange. It's the denominated amount of a widely circulated currency (gold, currency, BTC) for which one party is willing to trade for a set amount of goods, services or labor to a counter-party. The difference between currency and "hard coin" is that currency has zero intrinsic value. Gold has intrinsic value, so does BTC. Even labor goods and services have intrinsic value. The problem for BTC in general is that since the public can't hold it in their hands, and because it's only existed for a short period of time, to them it has no intrinsic value.

The difference between hard and soft money is not 'intrinsic value,' whatever that means.  The difference is 'who gets to say what value it has.'

With state-issued money, the public authorities get to say, and therein lies all the perverse and destructive incentives.

With non-state-issued money, no matter what determines the money's value, the authorities do not get to say.

And that, it turns out, is the most important attribute, in the real world.

That is undoubtedly an important attribute. However in the past there has been state-issued money in the form of gold and silver coins that had intrinsic value because of the precious metal content. Of course also in this case the value was somehow standardized, i.e. fixed. But I think it's fair to say that these forms of currency where at least partially "honest" compared to what we have today with unlimited debt-driven growth of the monetary base.

I agree with you that we need a free market for money. That means the state monopoly of money creation must be abolished and everyone should have the right to issue his/her own money as he/she sees fit. The market forces will quickly distinguish between good and bad money and fraudulent forms of money will loose acceptance sooner or later.

Fortunately we have Bitcoin, which is private money and a perfect first step in ending the parasitic age of debt-based governance and central banks.

ya.ya.yo!

i think it actually did because fiat is really bad and it is making the inflation bigger and bigger, thats why i like bitcoins more than just regular fiat

'Partially honest' seems a fair description, since gold and silver standards (especially when gold coins circulated as currency alongside paper money) did play a role in slowing down the state-driven financial inflation.

But when we talk about what a truly theft-free system looks like, there either are perverse incentives, or there aren't.  The speed of theft, while important, is not fundamentally a factor here.

The metallic standards does incentivize the authorities to issue each additional unit of paper money.  This issuance is free wealth or power for the elites, while the standard holds.

Historically, Britain must count as the best custodian of metallic standards.  Even there, by the eve of World War I, Britain only had 3% of the gold required to redeem its total outstanding paper money.  (The pound took another hundred years to reach its current value, which is 1/230 of its value against gold, under the gold standard.  This is even worse than the dollar, which has shrunk 'only' to 1/64 of its former self by the same yardstick.)

You could say that the public could watch the authorities, and that metallic standards have market forces built in to suppress financial inflation.  All true, but state-driven financial inflation is a social addiction overwhelmingly larger than either force.  The populace, not just the elites, will demand the rules be loosened, at key times, since they too are used to the unearned wealth and comfort.  If, every time I touch alcohol, I eventually become fully-fledged alcoholic, I should probably stay away from any drop of it (and in fact I believe that is the foundation of Alcoholics Anonymous.)

What state-driven bubbles do is that they become so big that they 'must' be kept alive to avoid great pain.  And the only way to keep them alive?  A bigger bubble.

...

Everything changes over time.  History shows us that there have been Bad Times (of many kinds, including economic depressions and nasty totalitarian regimes) for millennia.

I'm not really sure how much The Banksters have contributed (again I don't know how much), but it does seem that corruption among banks has always been a big problem.  The old problem of Private Gains / Social Losses has always been with us, and the banks seem to almost always be the beneficiaries (or bank managers anyway).

*   *   *

Re "money", my favorite description splits money into three concepts, IMO this may be the best way to think of money (not as just "one" slippery thing):

1)  Unit of Account (eg, how much a cow is worth)
2)  Medium of Exchange (using money to actually buy that cow)
3)  Store of Value (your unit of money will be worth about the same next year as this one).

The problem with "money" is that there is no money that reliably fulfills all three!  Currency can easily be used for the first two roles, especially No. 2.

But, currency is NOT a good & reliable Store of Value.  Gold is however.  Gold is not as good for Unit of Account nor Medium of Exchange.

well it actuall did not and you are right, the banks created that, and it is the reason why i hate banks, bitcoin is way better to use

M-T "Everything falling into place?" OK maybe I need to work through this some more.

This isn't a great example, but it is recent.   

http://www.zerohedge.com/news/2016-09-07/gdp-less-meets-eye
"As one easily notices GDP on a per capita basis is more worrisome than when
viewed on a total basis as in the first two graphs. The economic growth rate
per person is currently below one half of one percent. More concerning,
it is below levels seen during the great financial crisis in 2008 and it is
still trending lower. This graph confirms our macroeconomic concerns and helps
explain, in part, why so many U.S. citizens feel like they are being left behind.
Factor in that many of the economic spoils are not evenly distributed, as
assumed in this analysis, but are largely accruing to the wealthy, and the problem
only worsens. As such, the growing social anxiety and trend towards populism,
be it conservative or liberal leaning, will not likely dissipate if the
aforementioned economic trends continue."

Begin by rethinking what the author says, and look at what happened post 2002
when Greenspan inflated the US housing bubble. Then note that graph of ten year
GDP growth rate per capita, and then note that today the figures are almost
certainly lower, and note that the graph is a crude approximation for productivity. 
Except that productivity needs to be measured as productivity per employee not
per capita. Thus as unemployment falls, employment numbers increase, and
productivity falls if GDP stays constant, so the graphed figures should be a
bit optimistic. 

As stated in my earlier post, as this trend continues, the US economy moves into
instability. There's a lot of noise in these figures, so deciding when things
like a phase change has happened can only be precisely defined in hindsight.
Maybe Armstrong's 2015.75 applies here, maybe not, the exact date is unimportant.
There are no precedents for this, and I sincerely hope that I have completely
misread the way things seem to be moving.

Japan and some parts of Europe are ahead of the USA. Emergent nations
with growing populations still have well-behaved economies. Think of all this as
an enormous hall with rows and rows of dominoes all falling into place. The
emergent nations' dominoes haven't started falling - yet.

So, when you read "It ain't working", or similar thoughts, know that it also
ain't fixable. But beware -  economists are like medieval doctors, if one bunch
of leeches hasn't worked, moar leeches will be applied.   

Is that any clearer? Maybe re-reading my last 3-4 posts will help?

And it also turns out that the general public do want to spend any currency that is not issued by the state. That's why crypto is not spreading super fast.

Before European states learned paper money, and after China got tired of paper money, most money was silver.  The Chinese didn't even let the state mint coins.  They used ingots of slightly irregular shapes and weighed their silver.  Monetary units were weight only.  There was a lot of cutting and weighing on the street.

This was after the previous system where the state eventually had to use the death penalty against anyone caught transacting with anything other than state-issued paper money.

Unfortunately, that is correct.  It's rare that the public rejects the national currency.  When it happens (Germany in 1923, Zimbabwe recently) it represents a catastrophic loss of power by the state and is usually a result of extremely poor policy making.

And why is this?  The state always has a last resort to protect its currency when things go badly against it -- devaluing the state currency against non-state money or hard currencies.  There always exists a level of devaluation, *after* which the state will have enough power to maintain stability.

Under basically competent policies, the dollar has been effectively devalued against gold from $35/oz to $1300/oz over the last 45 years.  Bitcoin may play a similar role to gold in the future, and that may be why the US authorities decided to legitimize it a few years ago.

True, all investments are uncertain, no matter what, but I think state control of money does add a big factor of instability on top of what is natural, over the long term.


The bankers are able to profit from what is, at heart, a state subsidy (heads they win, tails the public lose) because the state allows them to.  Bankers are not responsible for societal welfare -- they are in it only for their own benefit, with no apologies.

The real problem is that the public allows the state to engage in such an arrangement with the bankers.  The top politicians have good personal reasons for doing so -- without the financial innovation from the banks (at least while confidence lasts in the trick du jour,) confidence in public debt would collapse, and then the politicians would be in real trouble.  But voters need not endorse this arrangement.

As the saying goes, fool me once, shame on you; fool me for 500 years, shame on me!

'The rule is, jam to-morrow and jam yesterday - but never jam to-day.'
The Red Queen - Alice through the Looking Glass.

Have you notice a dearth of year-on-year figures of late? Where almost always
a month-on-month figure is multiplied by 12 in its place? That's because the
facade is proving difficult to keep in place. So, when the US Census Bureau
announced a 5.2% increase in real (inflation-adjusted) median household income,
over the 2015 year, the absence of jam today got noticed.

It may be, by a couple of lucky concidences, that what the Census Bureau said
is actually true, but that's not the real story. Have a look at the graph here:
http://politicalcalculations.blogspot.co.uk/2016/07/household-median-income-growth-stalling.html#.V9qh-SgrLAR
https://1.bp.blogspot.com/-DNWQIkH-h34/V5UANuO1WbI/AAAAAAAANyo/2AEDsV7_veM8tnAuSBr4Sme9pLltYR3WQCLcB/s1600/monthly-median-household-income-2000-01-thru-2016-06.png
Nominal Median Household Income (Current US$) rose from $54,000 in mid 2014 to $57,000
in 2016, or about 5.5% over two years before allowing for inflation.

Also here :
http://www.declineoftheempire.com/2016/09/deconstructing-median-income-bullshit.html

There are many things that could be said about this and other attempts at perception
management. Put simply, it's beginning to fail. If you gleefully thought that
US inflation was going to take off next year amid rate rises by the FED, well,
you just got punk'd by the US Census Bureau. I'll still hold to my forecast of
five percent inflation at some time in 2017, though, just later in the 2017 year.

All of which neatly ties up a loose end from a few weeks ago.

Some other stuff that caught my eye this last week.

"Chinese growth 'all but disappeared' amid economic restructuring, heavy
flooding, factory closures ahead of G20 
Complete absence¡ of y/y oil demand growth in 3Q16 China"

And this:
http://econimica.blogspot.co.uk/2016/06/global-peak-oil-demand-dead-ahead-but.html
"To begin, I'll focus on the present consumers of 70% of the worlds crude,
the OECD+China+Russia+Brazil. And if we check the annual change to their
combined 0-64yr/old population (blue line in the chart below),
0-64yr/old population growth has decelerated 90% since the '88 peak
and cumulatively turns to outright annual declines by 2019.
The annual declines accelerate indefinitely from there.
I also show total 0-64yr/old annual global growth (black columns)
and 0-64 growth among the RoW or Rest of the World (red line)."

I keep hoping I'm wrong, but the news just keeps coming.

"I will do such things, What they are, yet I know not; but they shall be
The terrors of the Earth." - King Lear,  Scene IV

That's how the old regimes see the approach of the new ....

As we approach the abyss, their loss of control appears in many guises, from
the European Union's desire to punish the UK for Brexit, to the USA's
machinations in the Middle East. This week, a US General, a character straight
out of Dr Strangelove, pointed out that declaring war on Syria, and Russia,
was above his pay grade. That approximates where we are now,
and it doesn't get much more terrifying than that.

In other news, from elsewhere on the Titanic, soap and towels are being
stolen from the washrooms ....
https://www.thetruthseeker.co.uk/?p=139989
"Top Bank Fraud Expert: ALL of the Big Banks' Profits Come from FRAUD"
https://www.youtube.com/watch?v=Y_E35bbFP1E

Physician, heal thyself ....
https://www.intellihub.com/bis-warns-china-is-imploding/
"A key gauge of credit vulnerability is now three times over the danger threshold
and has continued to deteriorate, despite pledges by Chinese premier Li Keqiang to
wean the economy off debt-driven growth before it is too late."
"While the BIS is making noise about China's GDP, government bonds and debt, it is
failing to look at the U.S. and European Union, both of which are in far worse
condition than China."

For something really scary, look at Ireland's national debt, and then Ireland's GDP.
No problem? Now look at Ireland's N Debt/GNP .... hmmmmm

It's going to be a while before "The Terrors of the Earth" are revealed, and I doubt
I can add much more to this thread until they appear, maybe not even then.
So, time to start a new thread? ;-)

PS: The latest news out of China is on the use of entangled photons for radar.
That may have some implications for quantum computing, and for bitcoin.

An Economist tells a joke:
Two economists are walking down a street. They walk past a pile of horse shit.
The first economist says "I'll give you $1,000,000 to put a horse ball between
two bits of orange peel and eat it." The second economist accepts and gets
a cheque for $1,000,000. They walk on and see some dog poo. The second economist
says "I'll give you $1,000,000 to put some dog poo between two bits of orange peel
and eat it." The first economist accepts and gets a cheque for $1,000,000.
The two economists laugh when they realize that their street cleaning has
increased GDP by $2,000,000.

Hillarious. But there's a deeper point here. What has value?

Does prostitution really raise GDP? Drug-dealing? Are these different in the
economy to other activities - hairdressing, for example? or pedicures?
And if these are legitimate in the economic arena, what does that say about
other forms of crime? for example, financial fraud?
Where does the economy draw the line between the IMF's GDP forecasts?
http://www.zerohedge.com/news/2015-06-21/greek-gdp-shocking-reality-vs-imf-forecasts-and-who-blame-greek-implosion
or earnings forecasts?
http://www.zerohedge.com/news/2016-10-26/earnings-magic-exposed
and a ponzi bubble in swamp land prices in Florida?
http://www.nytimes.com/1986/12/07/business/archives-of-business-a-rogues-gallery-charles-ponzi-a-pyramid-of-postage.html

Is value nothing more than the net present value of some future event?

Money, "It's all about the Benjamins", was at one time convertible into gold,
(https://www.youtube.com/watch?v=mnvrKdx5Mrs&feature=youtu.be - from corbett report episode292)
though there were more claims to gold than gold in the bank vault. Earlier
still, there was a 1:1 ratio at some time. And the origin of all this?
in ancient Mesopotamia, when barley was money, silver was the unit of account.
One shekel of silver was a claim on one gur of barley or a related measure.
http://www.ishtartv.com/en/viewarticle,35322.html
It was coded into the law. Serious economics in those days.

Here, today, there may be an equivalence between Value and
Schrodinger's Cat. It's that moment when Investor->Bagholder,
the moment when value may cease to exist. Until that moment
Investor and Bagholder can coexist in someone's consciousness.

But suppose "we" include financial fraud into our calculation of GDP.
And, I'd argue that the banker's promotion of the idea that they
are essential for our survival is the biggest fraud ever
perpetrated on the public, hence there is huge potential there.
What happens when that "value" drops out of existence? That moment
when fraud gets "found out"? Hold off on that thought for a moment.

More fraud Sir? What's not to like? It's GDP growth, that goal
of formation kowtowing. And just the sort of thing that seems sensible
when stock markets rise on bad news. It's the ultimate something
for nothing, it's something for less than nothing. Still ......

"Too much of a good thing can be wonderful." - Mae West

[The above is opinion, not advice, and the underlying mathematics
lacks rigour, but probably good enough for economics work]

The Banking scandal rises again in Ireland, and in the EU Parliament.
For some, it's the gift that keeps on giving.

Banking whistleblowers get to tell their story:
http://www.golemxiv.co.uk/2016/11/whistleblowers-testify-eu-parliament/

And questions are asked :
"In 2007 you were governor of Banca d'Italia~Unicredti the biggest bank on your watch: Can you please confirm whether you were informed by the Central Bank of Ireland of the multi-billion Euro breaches at UniCredit Dublin?  If so, can you explain why the bank has never been sanctioned for those breaches of 2007."

reported here:
http://www.golemxiv.co.uk/2016/11/first-small-piece-shit-finally-sticks/

Mr Sugarman's book provides plenty of supporting detail on the trail
of destruction left by largely German but also Italian and Irish banking:
https://www.smashwords.com/books/view/685170

Some additional background can be gained by reading earlier posts in this
thread. You might also want to google "noonan+bomb+dublin" to expand on the
finer points of financial terrorism. Or a gentler form promoted by
Mr Geithner in his intervention regarding bailouts.

https://namawinelake.wordpress.com/2011/06/13/there%e2%80%99s-no-mystery-to-us-treasury-secretary-timothy-geithner%e2%80%99s-intervention-in-the-irish-bailout-wikileaks-has-already-revealed-the-reason/

You might conclude that if entities outside Ireland have the ability to
direct the policy of the Irish government by threats, they will have the
ability to decide everything else the country does.

Given current Irish reaction to Brexit, one could be forgiven for thinking
that the average Irish EU citizen has a shorter attention span than the
average goldfish. The usual response to such thoughts is that it's a free
country, but that seems to be no longer the case.

2007. The thought crossed my mind, IANAL, that a load of the criminality such
as that involved in banking, has a ten-year sell-by date. So maybe next
year Mr Sugarman is free and clear to tell more and be more specific about
the things that got him fired, without it coming back to bite him.

Similar dates for Lehman Brothers and for WAMU, AIG, et al, cannot be too far
off in the future, so maybe a quick tour to refresh the old grey cells might
be timely. It's big, so, I'll condense it around Lehman Brothers.

Lehman priced real estate bets on the assumption of a five percent rise each and
every year. Not a problem if everyone else does the same, and nobody figures
out that the risks are way above what they should be. Similarly, the law is
written to ensure that when bankruptcy happens, creditors are made good and
equity at worst, gets wiped out. But when you have $600Bn+ of debt and $40Bn+ of
equity, margins of error are kinda slim, and repoin' ridiculous amounts (~$50Bn)
doesn't help, resulting in a leverage of just under 30. They might have got
away with it in different circumstances, but that's not the way things fell.

When bankruptcy happens, the governments gets first bite followed by the senior
debt holders. Stuff get sold off, usually at the worst possible time, and
in Lehman's case, some went for as little as eight cents on the dollar vs book.
When billions are involved, that's a huge haircut. The buyers, including
RBS and JP Morgan, didn't immediately show a huge profit, so there's another
story there. When the smoke and mirrors were cleared away, there were a
pile of claims totalling $300+Bn, and much less than $100Bn on paper to make
the creditors and equity good. [1]
 
Around that time questions were asked.
About where the ~$250Bn went? ... Noooo.
"Where did it all go wrong" and some time and more money later "Don't Know" in
about 900 pages. America has  a strange financial system. According to
Mr Corzine money gets "vaporized". Shades of Mr Krugman's Aliens. Maybe he
hopes "Mars Attacks" .... ZAP .... VaporiZed!!! happens all the time to debt
in the USA, it's only we aliens (foreigners) take any notice of such mundane matters. 
This is, of course sarcasm, as evidenced by what happens when "their"
money might be at risk.[2] [3]

Ten years on, is it "fixed"? - no.
Is it better or worse? - it is worse, the debt and the US banks are bigger.

That's enough for now.

[1] By way of example, see Deutsche Bank AG's claim 27141 against Lehman Brothers
for $2,494,729,944.42, one of several claims by Deutsche Bank. Almost all of these
outstanding monies in unsecured loans were owed to financial entities. The latest
payout on unsecured claims brings their total to something like one quarter of
face value. Exogenous money has a quaint habit of returning whence it came.
[2] WAMU Opinion 7 January 2011 p57 "The Plan Supporters argue that even
collection against JPMC [JPMorganChase] for claims the debtors have against
it is not assured." The Judge agreed "... bank deposits (especially in the
amount of $4 billion) may not be easily collectible without resulting in another
bank collapse."
[3] Leniency seems to be a one-way street.
https://thinkprogress.org/steve-mnuchin-onewest-e5fc28e0f285
"By 2015, OneWest had foreclosed on 36,000 homes, according to a nonprofit
called the California Reinvestment Coalition (CRC), which tracked the bank's
activities."

Albert Einstein - 'We can not solve our problems with the same level of thinking that created them'

You are reading this because, at some time in the recent past, you saw
that Bitcoin might offer a different form of money. Since then, very little thought
seems to have been given to raising the level of thinking about money in general
and Bitcoin in particular. One topic should have seen serious scrutiny is Usury.
More precisely, the examination of consequences flowing from a legal ban on the
charging of interest on debt.

Think about GDP. Perhaps half of GDP is ethereal. Leave aside Arts and Entertainment
and over 40 percent of GDP is provided by the FIRE and related services sector in
the USA. This is the business of moving money from one pocket to another and
skimming a percentage. Bitcoin has already begun to shrink that world. If in
addition Usury was banned, I'll suggest that the FIRE sector would shrink to
one fifth of its present size. This end of Welfare for the already Wealthy would
deliver a serious hit to GDP.

What are the other consequences of banning Usury? Well, for one thing, the banks
would lose the power to create money. That bears some further explanation. Banks
would no longer be able to avoid the consequences of their actions. Creating
money creates inflation, and inflation dilutes the mistakes of the past while
making debt taxable. Without inflation and without the ability to lend money at
interest, banks are no longer banks in the sense that we know them. They can still
charge fees, but the balance of power has moved in favour of the common man,
of decentralisation, of smaller banks.

Without the ability to charge interest, it would be impossible to impose a
digital currency on a Nation such as that proposed for India. The hidden tax
imposed by interest would not be available to pay for increased cost of the
Infrastructure and Complexity needed to support the change. Which is why if
Usury ever becomes a mainstream issue you should expect a storm of protest from
the politicians in concert with the banks.

But aren't interest rates useful? Yes they are, as the expressed time preference
for money, interest rates direct investment from those best able to pay to the
investments offering the greatest reward, without much intervention. However,
if nothing else, 2008 highlighted the ability of the present system to get
things wrong. That system will not be fixed by repeating the same mistakes
on a larger scale.

There is another related issue, something more in common with Bitcoin than
the vagaries of a system with inflation. Suppose the money supply is fixed,
as it was for ancient economies based on precious metals. Suppose productivity
doubles, and the quantity of goods produced and consumed mimics that increase.
All else being equal, the price of goods should fall, but there would be no
change to GDP, despite everyone being relatively wealthier. The effect on
unemployment is indeterminate because the effects of international trade
are not predictable. Wages are "sticky", hence the benefits of improved
productivity will accrue to waged employees, instead of to the capitalist.

But I'm getting off topic, I'll post more on a new thread.

BTW, with November's US figures showing a slowing in US weekly earnings
growth YoY from 2.5% (October) to 2.2% (November), it looks like my
targets for 2017 US wage growth and US inflation are too high. But these
are preliminary figures, so I'll wait for December's figures in
mid-January before deciding that a trend has reversed.

I personally don't believe Usury is the problem.  Usury is just the price of credit -- everything having a proper price is OK as long as the market is not manipulated by state power.

The problem is the state power that artificially cheapens credit over the long term, to benefit the elites who issue debt.  When too much debt is issued, whose value is then supported by all kinds of manipulative and deceptive actions like inflating other bubbles and starting military adventures, we have problems.

In a constant-money-supply world, prices would just go down as real wealth accumulates.  Economic growth would be fueled by credit, on which there would be no limit.  (The key here, again, is that credit be totally market driven -- any state intervention would create distortion and bubbles.)

The Great Fear of deflation that has been pounded into the minds of modern economists only applies to this world of centrally planned money.  Since too much money and credit have been created (from artificial, state-driven demand,) the economy has been distorted.  People have honed their skills and made investments based on the financially (artificially) inflated world that demands a lot of luxury for the rich, etc.  Once the bubbles are so big that market forces wake up and wipe out asset values, this demand disappears immediately and people lose jobs and savings.

Since the constant-money-supply world doesn't have the major man-made distortions to start with, asset value corrections would be minor in their impact and actually healthy for the economy.

thats y bitcoin has come to our rescue.when bitcoins will totally be used in the cryptocurency world in a full fledge there is a high possibility that the price of bitcoins will go high and there will be no banks at all.

@BobK - My comment regarding Usury is on the Usury thread. Summary: I have a
problem with the moral implications of Usury.

As for hopes of high prices for bitcoin .....
There are reasons to suppose that bitcoin (and precious metals) cannot
increase much more in price. Higher prices imply excessive amounts of
energy consumption. In a way, it makes sense to lever precious metals, and
things like bitcoin via Fractional Reserve Banking into larger quantities
of circulating currencies. Fractional Reserve Banking limited itself to
a leverage of 10:1 or thereabouts, after suffering bouts of bankruptcies
over the centuries. The present Fiat Money system seems somewhat less inhibited.

The present monetary system makes fractional reserve banking inconsequential. As long as a bank doesn't get involved with subprime loans which could potentially make it insolvent, there is no need for reserves since the bank could always get liquidity from other banks on the interbank currency market or from a central bank directly if the banking system gets affected at large and things get serious up to a point where it gets massively imbalanced...

The fiat system is inherently stable, so it basically doesn't need FRB

There is no way to tell if a loan will become good or bad, so insolvency is always possible.  From a systemic policy point of view, the key is to avoid 'moral hazard,' where it benefits bank execs to destabilize the bank.  When a bank becomes insolvent, it doesn't matter what you do, the public always suffer (ultimately, to benefit the bankers.)

But 'moral hazard' is baked into the cake of the present fiat monetary system, if you look at the incentives faced by central bankers, bankers and politicians.  (Where 'moral hazard' also means the incentives for a politician to destabilize public debt, or for a central banker to destabilize the monetary system.)

When the elites have the power to create money, they will always use it to benefit themselves at the expense of everyone else.

I will read your thread.

But I'm not sure what you mean by 'higher prices imply excessive amounts of energy consumption.'  Can you elaborate?

"...it makes sense to lever precious metals, and things like bitcoin via Fractional Reserve Banking" -- I think the key is, what 'makes sense' or not should be for the markets to decide.  Markets would probably leverage up when left alone.  After all, what can possibly drive growth if everyone holds gold bars only under the mattress?  But all prices of risk should be based on supply and demand.  As long as there is no state power to distort the markets directly or indirectly, there should be no problem (or at least not nearly as much problem as we have today.)

Still no updated figures from US .gov to allow an update to my projected
2017 economy. They are still changing their figures back to 2013, so final
figures for 2017 may not appear until after 2020. If your income depends on
updates to US CPI for increments, suck it up, buttercup.

The reason for this update is a couple of news items on productivity:

"Yellen blamed the recession and lack of productivity for poor earnings growth. Greenspan blamed the aging of baby boomers. Given real earnings have been nearly flat since 1979 while real output is up 94.9%, those theories are obviously faulty. Doesn't the Fed bother to test their theories against actual data? You have the answer."
"Output per hour has been growing at approximately 1/2% annually in the US and other developed countries over the past five years, compared with an earlier growth rate closer to 2%. That is a huge difference, which is reflected proportionately in the gross domestic product and in people's standard of living."
http://www.zerohedge.com/news/2017-04-05/productivity-myths-shattered-productivity-rising-or-falling-why

You might not immediately see the connection to this item:
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/03/27/These_2_Charts_Show_Just_How_Close_We_Are_to_Healthcare_Collapse1.png
"The United States is in the upper right, which shows that our per-person healthcare spending is significantly higher than that of the other OECD countries. Switzerland is a distant second place. Our extra spending doesn't help us live longer. We actually die a little earlier than our peers in Japan and most of Europe. You can quibble over details in this data, but the broad facts are inescapable. We spend too much on healthcare relative to the health it buys us. As long as that is the case, no reform plan will work."

Fix healthacre, and pensions will implode .... oh wait ...

Add to that the US "Education" System, and if you are an American, you're screwed.
But you knew that already. Maybe lying down in a darkened room will help you
feel better. It's much cheaper than Valium.

Meditate on the productivity graph. Note that each data point is an average of
the past five years. Note also that the last year plotted is 2015.

And another thing, when you are invited to "share" your anonymity with a bitcoin exchange KYC ....
http://www.counterpunch.org/2017/04/04/the-bankers-free-lunch-continues/
"The overwhelming evidence provided by the above-mentioned (and other) economists is that once a particular speculative round runs its course, this ´investment¡ is converted into 'gains' directed, almost entirely, at already existing assets (primarily real estate), and so does little or nothing for the productive economy."
"A couple of weeks ago, for instance, the Guardian published a long investigative piece, titled the 'Global Laundromat', detailing how 17 UK banks laundered £20/$25bn, mainly for Russian oligarchs with criminal links. The same Guardian article estimates that around £100/$125bn a year is laundered by UK banks for shadow and criminal entities."
"This though is the tip of the proverbial iceberg."
"According to the right-wing tabloid, the Daily Mail (always slavishly beholden to the Conservatives), Javid was a senior executive at DB in 2004 when it funnelled bonuses through the Cayman Islands to enrich 300 senior staff in London."

Precisely Bitcoin had brought about this financial freedom that the banks restricted by globalizing transactions from the comfort of your computer or phone. Bitcoins prices are for sure bent on consistent ascendency and I know that's what might lead to the obsolescence of banks.

minor-transgression: I look forward to seeing more of your posts.

Yes more and more $ into "healthcare" and "education" when the results are obviously subpar in both systems (sometimes, results are countradictory to the spend). Things never go worse when you spend $ getting healthcare at a hospital, right? Wrong. Miseducation is another subject.

There are no checks and balances in fiat credit destruction or creation when the financial system has been controlled by a consortium of monopolistic central banks around the world. This is not a free market. This is much worse than a regime run by a hitler-like tyrant. Various precious metals eons ago used to be a check & balance on this, but have had cracks in its function, some blame manipulation.   

Bitcoin, however has emerged and is still in early stages of emerging as the true mirror to this controlled financial system and out of control liquidity from the global central banks. The mirror currently indicates the extent of credit/fiat creation indicative of bitcoin's continual explosion in price. It has outpaced stocks, gold, real estate, bonds. This is why Bitcoin has become king of all asset classes for store of value.

I go into this on post titled : "Hacks & puppets & forks - how to destroy bitcoin" https://bitcointalk.org/index.php?topic=1834310.0 (https://bitcointalk.org/index.php?topic=1834310.0)
 

I've been waiting for the US statisticians to post some figures. Maybe they've finally
figured out there might be a problem, hence the delay. I'll post an update later,
but since the SRSroccoReport got at least halfway there months ago, I'll explain
at least some of the issues.

https://srsroccoreport.com/warning-the-coming-collapse-of-u-s-net-worth-will-wipe-out-millions-of-americans/
"The rapidly falling EROI - Energy Returned On Invested is gutting the entire U.S. oil industry and economy.  Instead of the United States enjoying real fundamental growth based on increased energy consumption, we have turned to inflating electronic digits as an indication of our wealth.
As I explained in the beginning of the article, U.S. energy consumption has been flat for the past six years, while U.S. GDP has increased nearly 25%, as our supposed net worth has jumped 54%.  Again, this goes against any sound fundamental economic theory.  We have totally removed ourselves from reality."

US energy consumption, as in most places, is tightly correlated with GDP. While there are
reasons to be suspicious about GDP figures and about the correlation, it's good enough
to show divergence when a problem appears. That divergence began in 2010. That much is
fact, and as stated by the SRSroccoReport.

Add electricity use, and add vehicle miles driven to the data contradicting the US Government.

Here's where the statisticians have a problem. Let's call Price Inflation in the US Economy PI.
CPI is a subset of PI, ie it's not the big picture. CPI consistently understates PI by ~1.5%pa,
and ~12% since 2010. The difference cannot be ignored for much longer. I doubt things can
be fixed outside a complete revision of data since 2010. By these measures Real US GDP
hasn't grown much since 2005. Yes, 2005, depending on how you measure it. 

And then they have to find someone to blame.
There's more, much more, but it's still a work-in-progress.

I'm still waiting for the US statisticians to produce the 2016 figures ... Ho Hum ....

http://www.zerohedge.com/news/2017-05-27/albert-edwards-what-earth-going-us-wages
"As headline CPI inflation surged this past six months, rapid real wage growth turned into real wage stagnation (see chart above). I believed that a tight labour market would prompt an aggressive reaction from "the workers" to maintain the previous 1½-2% rate of real wage inflation they had enjoyed and got used to through 2015 and 1H 2016. Hence I expected nominal wage inflation would roar upwards in 1Q this year. How wrong I was!"
"And before readers respond with "there is always more QE", the problem is that for both the ECB and BOJ, the answer is increasingly, "there isn't" as both central banks are just months away from running out of eligible bonds to buy, beyond which point the entire bond market may simply lock up, or the central banks will have to even more actively start buying equities, with both outcomes effectively a nationalization of capital markets. And the last time we checked with the USSR, that strategy did not work out too well..."

The concern here is that Albert Edwards may be right, and that the US data is a mirage.

It wasn't that long ago that "eyeballs" and "clicks" were valuable. Today, what price
are "likes" and for how long can a unicorn lose money?  Will Uber make a profit before
the Central Bankers have bought everything?
 

Rather than "unrestricted banking" or "problem banking".

"Centralized banking" could be the key term we're looking for.

Centralized power structures/centralized banking can be indiscernible from "monopolies".

In that "free market banking" or "decentralized banking" could be goals worthy of aspiration.

Central Bankers and their fellow travellers like to talk about economic stability.
By this they actually mean exponential growth in the money supply at a rate
well in excess of the growth in wealth or GDP. That's why I use
Unrestricted Banking to describe the present financial system. There are some
complicated consequences that follow from this, but if we can't agree that
"Unrestricted Banking" actually describes the present system, we won't agree
on much else.

If we can't agree on what the figures ought to mean, how can we decide whether
they might be wrong? 

I should mention that the modern system *must* have this money growth in excess of GDP/wealth growth to survive.

That is because savers *must* be artificially biased towards taking risks with their money, or the whole economy and system will implode by deflation (under the current conditions at any given time during the modern era.)  They must be 'persuaded' to do so by losing automatically to inflation, if they choose to stay safe.

From this angle, the coercive, deceptive, and indeed criminal nature of the system becomes pretty easy to see.

I saw this described (or something similar in Griffin's book, The Creature from Jekyll Island -- highly recommended).  Griffin says that the debt (government debt) must increase or there will be a crash.

Of course there will be a BIGGER crash the more debt they make.

"GOTS" (Get Out of The System).  Gold and Bitcoin look pretty good to me.  Careful with paper assets, and be even more careful with any debt that you would owe, "they" will index that debt so that hyperinflation does not work for the debtor, "they" learn from history too...

I've explained this math up-thread. Government deficit spending translates 1::1
into private sector profits, though it might be better put as: deficits let you
spend tomorrow's profits today. As usual, it's never that simple, so I'm going
to screw with this absurdity, just for the fun of it.   

Suppose I own, oh, say, $1Bn perpetual AAA debt that pays 10% pa.
The market value of the debt, theoretically is the inverse of the market interest rate.
So as the market interest rate -> 0 my $1Bn 10% perpetuals -> infinity, and at that 
point I buy the planet.

It's never that simple, but the year 2007 provides a close approximation.
Ten years earlier the US government screwed up. That meant that $Tn's of mortgage
debt was overpriced, (not -> infinity but overpriced). So a hedge fund guy
approaches a bank and does a deal. He will sell the overpriced debt, rated AAA etc
in neat packages and the bank will sell him selected debt tranches. The result
is something you already know.

And, very broadly speaking, that is how this financial system works. by. design.
Large government deficits at near 0.0% interest rates mean that your future wealth
is being transferred elsewhere, today. I hope that all makes sense.

My last post omitted the thought that when the financial sector sees sheep in dire
need of shearing, so to speak, they need a vehicle to extract and carry off their
profits. Most of the easy plays are illegal, but variations on Ponzi schemes are
still in play. I'd recommend the short video by Bird and Fortune from 2007.
Humor aside, these schemes are all just bespoke tailoring to transfer wealth.

The latest rumbling from the US statisticians are that inflation is predicted
to remain low. And, I'd guess, right now is the time to buy that bridge you've
always wanted for your collection. Seriously though, time is running out for this
charade, as this link to a longish explanation shows :
https://www.peakprosperity.com/video/85854/playlist/92161/crash-course-chapter-18-fuzzy-numbers
 
Things to take away from this: inflation 2003-2013 "CPI has recorded a full 21%
less inflation between 2003 and 2013". I'd put the figure somewhat lower, but
you get the picture. More importantly, that is _potentially_ a reduction of
21% in US productivity. And that is something that will take years to reverse,
even if the political will is there.

One of the things you can't do in a submarine is dive with the hatch open. But if
the wiring to the alarms, interlocks and indicators has been disconnected, and all
looks safe, it might take a while to figure out where all the water is coming from.
Right now, Bitcoin looks like a good life-jacket. Stay Safe.

Thanks, I've heard of the book but haven't read it.

Great point about being careful with incurring debt.  Too-big-to-fail and government bailouts only apply to those at the top of the food chain.  The powers that be determine who to rescue and who to hang out to dry.  (Guess which side you and I belong.)  Whole institutions are devoted to protecting the system by making sure no appropriate people escape suffering -- one is called the IMF.

Previous posts here have moved from general concerns about inflation the the USA and
elsewhere on to the heart of the problem, productivity. There is other collateral damage.

I'm still waiting to see what numbers get published for 2016, but I'm expecting more of
the same numbers, and soon, but that just kicks the can down the road and the can
keeps getting bigger.
 
I'll use US Dollars to explain, because that's the easiest to work with. Here's the problem:
If you retired 10 years ago with a government pension of $1000 per year, and
inflation is underestimated by 1% per year, how much would you need to be fully
compensated for your loss? It depends a bit on real rates of inflation, but that's
going to be close to $500, plus your pension is going to have to rise to $1110
dollars per year, but fully corrected for inflation.  Lots of people will need lots of money,
because they have been shortchanged for quite a while.

So governments are between a rock and a hard place. They need to correct the data
to find out what's really going wrong in their economy, but if they do that the
pensioners and others are going to start screaming for their money. This is not
going to end well. Hey, isn't fiat money full of surprises? 

The financial scheme is only half the story.  The other half is imperial politics.  Both are required to keep the charade going.

For example, propping up Treasury bonds yielding below-inflation rates would normally only work so long, by itself.  Investors would eventually see through the US government's eventual inability to repay with anything close to the purchasing power of the money it borrowed, even if the Fed keeps buying Treasuries (and in fact especially so in the long run.)

But, if developing-country central banks and savers are buying Treasuries, things change.  We now have entities, who actually produce goods and services, who support these assets.  The support also happens to help keep down the dollar prices of the production.  Now the charade can last quite a bit longer.

Events like Syria and Afghanistan are on the extreme edge of imperial machinations to keep all regimes in line to support imperial assets.

@bobk71 - it looks like a race between increasing interest rates and
faster circulation of money in the world economies. Which will win?

Hermione Granger: "You're saying it wrong. It's Wing-gar-dium Levi-o-sa,
make the 'gar' nice and long."
"The Levitation Charm was invented in 1544 by warlock Jarleth Hobart who
mistakenly believed that he had at last succeeded in doing what wizardkind
had so far failed to do, and learnt to fly."

http://www.stopthecrime.net/docs/SILENT%20WEAPONS%20for%20QUIET%20WARS.pdf

The linked .pdf describes three systems: a model of the economy; methods of
determining the impulse response of economic sub-systems; and an outline of
methods for individual profiling and control. The manual was "discovered" in
1986, and was supposedly written in 1979. It is almost certainly a hoax, and
offers a means of micromanaging the American economy down to the level of
the individual.
That said, the economic model contains certain features that have only recently
appeared in economics papers, hence if it were implemented, it may be at least
as good as other models currently in play. The attraction of the document,
however, is that it offers the reader a measure of omnipotence, at least in
the short run, but unfortunately, where a mistaken belief in one's ability to
fly will result in a swift physical readjustment to the reality of the flyer,
economics offers the possibility of having others pay for one's mistakes. 
In that sense, it could be said that the system is likely to perform exactly
as designed.

Hard to tell, I guess.  You could say circulation will always win, by design of a basically inflationary system.

But we have to beware also of the imperative to maintain confidence of the elite-issued assets, in order to maintain their power.  Central banks are only human, and they might unintentionally cause an asset price and economic implosion by hiking interest rates too fast (e.g. 1927.)  If they don't, this time, they are increasing the scope for such an error next time.

This feature is built straight into the core of the system.

The reason is that, we have a fundamentally centrally planned economy in this world.  In such an economy, misallocation of capital is built-in.  And as the incentives drive more misallocation and complexity, there will be more scope for unpredictability and instability.

Joke: A man walks into a grocer's shop and tries to buy a kilo of tomatoes.
The Shopkeeper: "That will cost you $2.00" The man replies "That's a ripoff.
The shop across the road has a notice in the window - tomatoes @ $1.00 per
Kilo!" "Aha," says the shopkeeper, "But he has no tomatoes. If I had no tomatoes
I could sell them for $1.00 per kilo too"
cue laughter.

The point I make here is that the economics of monopoly pricing is often ignored.
It applies to the price of money just as much as tomatoes. The reason Central
Banks have their knickers in a twist over bitcoin is that they could potentially
lose monopoly pricing of fiat money.
What they can do to gold, they can also do to bitcoin. So, bitcoin is unlikely
to go much higher, and more probably will fall in price ... until Central Banks
have monopoly pricing power over bitcoin. 

Think it can't happen ...?

One of the best advantages of using the bitcoin or crypto-currency software is that it is de-centralized. It is a huge advantage to traders as transactions remain anonymous and secure and they are not easy to track. Bitcoin is one of the most used crypo-currency in the world. Bitcoin has authority to do everything in a market because it is totally decentralized and neither it’s controlling by people that’s why we are taking side of bitcoin.

That's good.  Comes a little slowly to me, but it's good.

WRT central bank suppression of non-state monies, I agree with your thinking over the short to medium term, but here is what I think (https://bitcointalk.org/index.php?topic=1858027.msg18480086#msg18480086).

In the long term, what they've 'done to gold' is that they lost control.  They smacked it down from $800 to $300 per ounce over 1980 to 2000, and from $1900 to $1200 over 2011 through 2017, yes, (probably for public relations,) but over the last century, gold has risen pretty much in sync with the inflation Western labor costs.  (A tailored suit in New York, or a night at the Waldorf, costs about the same in gold as a century ago.)

Indeed, over the previous few centuries, gold never went up against the current chief imperial currency, and it earned no interest.  Things are actually looking up in our time!

My theory in my link that the financial elite are justifiably afraid of a total collapse in confidence is based on that 99 of 100 state-issued monies of this world, fiat or otherwise, have failed, and the rest (being supported by imperial power in one way or another) have steadily lost purchasing power in a controlled manner.

Imperial machinations are detailed first-hand by 'Confessions of An Economic Hit Man.'  The idea is to get unproductive countries to borrow money from the US (and productive countries to lend money to the US.)  Circulation supports demand for the dollar.  In the previous empire, Britain ended up with only 3% of the gold required to redeem its paper money, under an official gold standard, on the eve of World War I.  How?  It was remarkably successful at getting colonial governments to 'want to' hold paper sterling as reserves.

Once a poor country borrows dollars, it signs itself into slavery, no matter which way its body struggles on the meat hook after that.  (The loan amounts are always based on an inflated projection of your growth.  You can never repay.  If you default in dollars, your economy implodes from loss of foreign investment; if you beg the IMF or Fed to 'bail you out,' you must toe the imperial line.)

The book may be popular, but most people who read it can't really connect it with the monetary and financial systems.  Only the combination of the two sides provides a powerful tool for seeing the world as it is.

I have some thoughts about Bitcoin (how it may be an even better investment than gold,) that I hope to have time to go into.

Thanks BobK71, more on that below .....

It seems that my joke about the tomatoes was prescient

http://www.zerohedge.com/news/2017-07-22/pippa-malmgren-talks-bitcoin-refugee-crisis-and-plunge-protection-team
"The question is whose e-money. So everybody in government circles have been
watching the Indian experience because the prime minister stepped up to the
platform in early November and basically said we are going to move all of you,
a billion people, off paper money and onto electronic money, and we are going
to do it in three months. They did it, and they did it successfully."

Well, she would say that wouldn't she?

Failure is likely defined as "tanks in the streets" though that response is
so 1989 ....

Funny I read that probably within hours of your post.

'The question is whose e-money' betrays the ultimately political nature of money.

Forms of money matter, but by far the most important thing is 'are you with us or against us.'  Whether the dollar is fiat or pegged to a special blockchain, countries can choose to promote or demote the dollar (and that which 'backs' it.)  Being who she is, of course Malmgren would emphasize 'successes' in geopolitics.  And 'success' comes, naturally, from the future main partner of the global banking elite, India.

India's demonetization of high-value paper money (right at the time of Trump's election) is eerily analogous to how the US cut off its nose in 1873 to support the British-led international gold standard by abandoning silver (the "Theft of '73".)  The economic pain was long lasting enough to drive William Jennings Bryan's 1896 presidential campaign and his famous speech about 'crucifying mankind on a cross of gold.'  He lost.  I suspect something similar is happening in India.  The elites seek not just a big and productive country, but also a relatively docile population.

A special blockchain is possible, but I still think relatively unlikely.  If the global bankers need a last-ditch safe haven, they will want to make sure it's absolutely safe, and that will be the Libertarian, totally honest Bitcoin.  A special blockchain would only expose the chief weakness of crypto -- if you can create a blockchain any time, there's no guarantee today's blockchain won't be replaced by tomorrow's, when the elites owe too much debt in the old crypto.  (I hope this doesn't come from an optimistic bias.)

The mid- to late-19th century was a period of geopolitical success for the British-led imperial system.  It's possible the equivalent period of the American-led system has ended, with Russia and China having basically broken out of the alliance.

War! - The Mother of All Perverse Incentives

If you've read my previous posts, you'll already know what I mean. If not,
the short explanation is this: Government deficits go directly into the bottom
line of the Private sector, big deficits = big profits; and nothing compares
to War when it comes to creating Government Deficit Spending.

This last week saw a couple of articles prompted this line of thought:
http://www.zerohedge.com/news/2017-08-09/productivity-growth-rebounds-q2-thanks-slump-unit-labor-cost-growth
"Annual average productivity change for 2016 revised to 0.1 percent decline from 0.2 percent increase, marking first annual decrease since 1982; productivity gains revised upward for 2014 and 2015 to 1 percent and 1.3 percent, respectively."

Exploring Palantir : https://www.youtube.com/watch?v=l0RPn9Ikh0A
It's long, and I'll leave it to the reader to decide how much to view.
A few take-aways : How much of the future can be predicted five years hence?;
Why is the CIA interested in Winners Lists and in Losers Lists? ;
Those who use AI vs Those that don't use AI - who wins?
Who uses anonymous chat rooms to train bots?

What's bothersome about this discussion is not so much the improved
forecasting, but the implicit power to influence events. This is, above
all else, the reason for the existence of Intelligence Agencies.
This isn't about will bitcoin will rise or fall? (BTW the answer is Yes!)

There is a bigger picture here. The ability to maximise the profitability
of War. And this will not go away quietly into the night. What's surprising
is that the economists aren't all over this like a rash. Something about
difficulties in understanding something when your job depends on not
understanding it ....

Which brings me back to my previous posts .... you'll figure it all out
..... eventually.  

War as the ultimate perverse incentives -- quite apt.

The great advances in war technology (and thus great 'advances' in war costs) during the Spanish global hegemony was the major factor that killed the empire by debt.  Spain remains the only global empire suffering the dreaded hard landing, so far.  It's the soft version for the Dutch, the British, and I'm sure they're hoping, the Americans.

When there is better technology, each combatant must have it.  It's not an option.

That is why war is a last resort of the empire.  It prefers first to co-opt, and second to pressure, foreign elites to toe the line.  It moves on to removals of individuals and peaceful regime changes before contemplating war.

With military or intelligence/cyber war, what you have is wealth spent on things that don't materially benefit the society.  This is a fundamental problem for the elites, as they truly want real productivity to go up -- more cream for them to skim off the top, and more substance to support financial bubbles.

For war to benefit the global empire on more than short-term basis, it has to be well-justified on moral grounds for the average person, and big enough to blame all financial 'irregularities' on it, and big enough to be the impetus for evolving to the next higher stage of financial repression.  E.g. WW1 and WW2 fit this bill for the US, while Vietnam and Iraq didn't.