Unrestricted Banking and Problem Banking

[OROBTC]

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.

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...

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[minor-transgression]

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.

[minor-transgression]

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.

[BobK71]

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...

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.

[minor-transgression]

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? 

[BobK71]

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.

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.

[minor-transgression]

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

[minor-transgression]

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.

[BobK71]

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

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.

[minor-transgression]

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 ...?

[ubitcoin]

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

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.

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.

[BobK71]

...
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 ...?

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.

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.

[minor-transgression]

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 ....

[BobK71]

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.

[minor-transgression]

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.  

[BobK71]

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.