Inflation or Deflation?

http://financialsense.com/fsu/editorials/bloom/2009/0622.html

The only question now is how the pain (transfer of wealth) is spread around.

The Chinese economy is not developed enough to sustain a consumer debt bubble that could drag the rest of the world up with it. There are only 300 million newly middle class, with 700+ million peasants that still need to be dragged up by that middle class. If you suddenly give peasants unlimited credit, you will have massive misallocation of capital and quick implosion to follow. Debt bubbles can't be created until the fruit tree is mature.

The lowest valued sections of the developing world economies can continue to grow, but these do not have enough value to offset the debt implosion of the high valued dollar economy:

http://news.yahoo.com/s/afp/20090621/bs_afp/financeeconomychinacommodities_20090621034309

I wrote about this 3 years ago:

http://www.coolpage.com/commentary/economic/shelby/Inflating%20Deflation.html

Shelby wrote:...First world economies face an unavoidable dilemma, regardless whether globalization is switched on or off, either sacrifice now with decades of retirement demographic deflation (globalization off), or sacrifice later by inflating the deflation of globalization for temporary illusionary "wealth", which will end in a hyper-catastrophic global collapse Greater depression...

What is really happening now, is the controllers of debt and fiat, are using volatility between waves of reflation against the inevitable debt deflation, to consolidate (transfer) wealth to them. Inflation or deflation is not the correct question, as we will have both fighting each other.

Nature doesn't know where the border is that deliniates "China".

Economics is governed by billions of actors.

Indeed the current global system is trying to become more socialist, where the failure of some is shared by all. However, wealthy individual actors will try to act in their best interest. China is not acting in the best interests of those wealthy independent actors. Those actors will move their capital away from failure oriented attempts to lift all boats (as China and all the nations are currently doing with it's stimulus programs).

There is will be a huge collapse when all this misallocated capital results in even more overcapacity in the wrong production. China should have stopped with it's export bubble, and adopted gold, and let actors be free to drive future growth. Instead it is trying to force all boats up, making their overcapacity bubble worse.

Nature is a not universal consistency of results. Man will try in vain.


> I make the point that the accumulation
> of US treasuries and dollars represents information on relative wealth,
> and that that information is redundant provided parties hoarding US
> treasuries and dollars are properly diversified. Meaning suppose
> china holds 5% of all outstanding US treasuries on the planet. But at
> the same time suppose they hold 5% of the gold, 5% of the Euros, 5%
> of the Canadian dollars, 5% of the australian dollars, etc. Then if the
> dollars suddenly become worthless, they suffer no impact whatsoever.
> Because everyone else holding dollars ALSO loses the meaning of those
> dollars.

Shelby wrote:http://www.kitco.com/ind/katz/jun152009.html

I have emailed John Williams at ShadowStats.com, to get his opinion about this.

If this is true, and if John spreads the word, we could be in for a major shift in attitude about coming hyperinflation. This could in turn lead to rapid shift in attitudes about gold vs. Tbonds. But is any one listening? Will be interesting to see if anything develops from this.

silberruecken wrote:thanks for this link, shelby. Please let us know what John Williams answers. Thank you.

Thanks so much John for the clarification.

> Shelby,
>
> Thanks for the note.
>
> Sweeps were around long before the excess reserves problem. It was my
> understanding that they sweeps into overnight institutional money funds,
> which is a component of M3. Whether counted as time deposits or
> otherwise, they are included in M3, which, as the broadest measure also
> would be remains best leading indicator to inflation. The flow-through
> from the monetary base to the broad money supply still is in the works.
>
> Best regards,
>
> John

Shelby wrote:Nature doesn't know where the border is that deliniates "China".

Economics is governed by billions of actors.

Indeed the current global system is trying to become more socialist, where the failure of some is shared by all. However, wealthy individual actors will try to act in their best interest. China is not acting in the best interests of those wealthy independent actors. Those actors will move their capital away from failure oriented attempts to lift all boats (as China and all the nations are currently doing with it's stimulus programs).

There is will be a huge collapse when all this misallocated capital results in even more overcapacity in the wrong production. China should have stopped with it's export bubble, and adopted gold, and let actors be free to drive future growth. Instead it is trying to force all boats up, making their overcapacity bubble worse.

Nature is a not universal consistency of results. Man will try in vain...

Jason explains how men try in vain to prop up a world-wide paper bubble:

http://silverstockreport.com/2009/people.html

The Chinese middle class exists because of the western paper bubble and theft from their own peasants via the Yuan peg. Some people think the West was the only party complicit in the paper theft (misallocation) paradigm. It is much more interwinded than that-- that is why it is called "globalism". The whole point of TPTB's push to globalization, was to make sure the whole world will be involved in this massive paper bubble blowoff.

But silver becomes money when the world is an utter mess. I think money be the least of your worries in that case. As Jason admits, there may be no food to buy. The point is that just having silver, doesn't guarantee you can use it or keep it from getting stolen or confiscated at some checkpoint, or what ever...

Very terse answers. You can read these. You have China totally wrong.

> Shelby,
>
> I read a bit of your points, just a hint, mind you.
>
> First of all the mindset of the US and perhaps a lot of europe is,
> "Gimme gimme gimme!" what with a majority wanting free health
> care as a right, high minimum wages, tax the rich, populist mentality,
> government should do all for the people, etc.

Agreed.

>
> Meanwhile the developing world has a completely different mindset.
> They expect nothing from the government other than to be left alone.

They expect everything from the govt here in Philippines, both on a local level where people expect free place to live, free roads, free handouts at election time, etc. And all big business is done in cooperation with govt, e.g. someone bribes someone in govt to build a road before the new mall gets built.

Health care is not socialized yet. And there is some privatization of former nationalized sectors.

Taxes are not that low. Here in Philippines there is a 12% VAT, on top an income and SS tax on anyone who earns enough worthy to tax.

The poor pay both 12% tax and a huge inflation tax. You forget that China has been running about 10% just on the inflation tax, as they print Yuan to keep dollar strong to keep the exports going...and keep the peasants poor (keep them poor while taxing them with inflation).


> Taxes are small and people are on their own. No benefits to speak of.
> Do you honestly think Chinese citizens expect their government to take
> care of them? I don't.


Chinese do expect and are taken care of by the govt. The govt even tells them how many kids they can have, where they can live, what they can say in public, etc..


>
> Stimulus packages can work, provided the money is invested wisely.

The public sector is NEVER, NEVER as wise as the private sector.

NEVER!!!


> In the US the money is invested just precisely as badly as it can be.
> They are taxing successful companies to prop up failing, incompetent
> companies. Incompetence and corruption are being rewarded. They
> believe in Keynesian economics! They think spending is what leads to
> economic prosperity. So by hook or by crook, they're going to spend!
> Do you know they're increasing unemployment checks, and they're
> constantly extending benefits? That's to boost consumption. All those
> unemployed people collecting a paycheck, they've got to spend it somehow.
> But they produce nothing! Nothing whatsoever. Consumption is being
> subsidized, but no money is going into production or in creation of new
> wealth, as in funding innovative startups.


Agreed!


>
> Contrast that to China where they're investing in infrastructure. They're
> investing in long term projects to line up resource supplies from around
> the world.


Ah this is just as bad as what USA is doing. Do you not understand why?

I would to show you a bunch of nice new bridges in Philippines that they built with the stimulus here. The problem is that they are being used as rice dryers, because the private sector was not yet ready to utilize those expensive bridges for consumerately valued production.

China is building a infrastructure that fits the current debt based consumption world. Their infrastructure is also politically directed to some extent (to keep riots from getting worse).

They will end up with a lot of useless heaps of disentropy. Picture in your mind all those 100s of useless tankers parked in the water off major ports of Asia during 2008 downturn.



> They're using US treasuries as collateral to purchase
> resources.
> This tightens a noose around the neck of the US -- it's pure genius.


It is a fool's folly.


> If
> the
> US tries to play games and manipulate commodity/resource prices down,
> that would trigger margin calls on the US treasuries China has placed as
> collateral.


I told you, the only way this ends is war.


> So US cuts its own throat when those treasuries hit the
> market!
> China isn't actually selling the treasuries, they're getting loans to buy
> real
> stuff and using the treasuries as collateral. Genius!


War is genuis? China is in a big hole they dug, and they cant get out.

>
> Shelby you are crippled because you believe, on faith, in a global
> collapse
> of biblical proportions.


Crippled?

I already told you the Bible is not entering into my logic at all. I don't know why you continue to accuse me. Focus on the logic, nevermind the Bible.


> That taints all your thinking. You skew
> everything
> such that such an outcome will occur. It's ridiculous. The world will go
> on.
> Life will go on. There is no god. The bible is a work of fiction.
> Predictions
> of armegeddon are pure fantasy. There will be no global economic collapse.


There wasn't in 1930 - 1944 either? The USA was not as strong as China then?


> The US empire is just in the process of collapsing.

Just as the British empire did in 1900s.


> No big deal. Life will
> be
> different, but life will go on. I expect things to be a lot better.

Life does go on. "better" has to be defined. I think most of the change you will see, is to see all that you hate about USA spread to Asia. I see it changing here. I see the USA attitude is becoming more and more prevalent in Asia. Selfishness. Self-centered. Dependence. Etc. It is all growing here.

https://www.youtube.com/view_play_list?p=97D691C1469FE5EB

...worth watching all 3 parts.

Several months ago, when I saw the massive surge in road building due to govt stimulus, I got fooled into thinking Asia was decoupling. Now after watching them rip up good roads, only to make them perfectly new cemented (something I never seen done in Philippines before, they always patch them up instead), I realized there was mis-allocation of capital. Now some hard data:

http://opinion.inquirer.net/inquireropinion/columns/view/20090629-212899/China-no-longer-learning-East-Asian-lessons

...Most Western commentators focus on the spectacular success of China’s export sector and the emergence of China as the world’s factory. But the greater contributor to Chinese growth is actually domestically funded fixed-investment, which constituted over 50 percent of gross domestic product (GDP) and over 40 percent of growth in 2008. China is way off the charts in this regard. Taiwan, for example, which had an unparalleled growth rate of 8 percent each year over 50 years, never had capital investment spending of more than 30 percent of GDP.

But it is not just the high reliance on fixed-investment that is striking. It is where the capital goes that is all important. China is unusual in that bank loans—drawn from the deposits of its citizens funneled into state-controlled banks—constitute around 80 percent of all investment activity in the country. Even though state-controlled enterprises produce between one quarter and one-third of all output in the country, they receive over 75 percent of the country’s capital, and the figure is rising. The Chinese state sector owns almost two-thirds of all fixed assets in the country. This is the reverse of what occurred in South Korea (as well as in Japan and Taiwan) where the private sector received over three quarters of all capital during the 1960s and 1970s.

Another case in point: a close examination of the shares on the Shanghai Stock Exchange shows that only around 50 of the approximately 1,300 companies are genuinely private. Between 1990 and 2003, less than 7 percent of the initial public offerings on the Shanghai and Shenzhen stock exchanges were from private-sector companies. The Chinese state owns about 50 percent of all the shares of listed companies. When state-controlled entities are included in the calculation, it is likely to be around 70-80 percent of all listed shares.

The massive bias toward the state sector would be acceptable if the 120,000 state-controlled enterprises could learn to innovate and adapt. Unfortunately, except for a handful of centrally managed state-controlled enterprises, this is not the case.

To put the situation in perspective, China’s overall use of capital is twice as inefficient as India’s. World Bank findings indicated that about one-third of recent investments made by the state-controlled sector generated zero or negative returns...

...Despite China’s impressive GDP growth, about 400 million of its people have seen their net incomes stagnate or decline over the past decade. The income of the poorest 10 percent has been declining by 2.4 percent each year since the beginning of this century. Since 2000, absolute poverty has actually increased as has illiteracy.

Not surprisingly then that China’s Gini coefficient, a measurement of income inequality, rose from around 0.25 in the 1980s to around 0.38 in the 1990s. It is now around 0.5, the highest in Asia. In contrast, the Gini coefficients of South Korea and Taiwan from the 1960s to the 1990s hovered around 0.34 and 0.29 even as the economies of these countries were growing rapidly...

http://business.inquirer.net/money/topstories/view/20090628-212855/Exports-to-Japan-down-36

...Philippine exports to Japan, its second biggest market, ... falling by 36.4 percent...

http://opinion.inquirer.net/inquireropinion/letterstotheeditor/view/20090629-212901/Whos-to-blame-for-weak-economy

...manufacturing and trade, which contracted by 6.6 percent and 7.3 percent respectively. Exports sank 18.2 percent, while imports declined 19.2 percent in the first quarter of the year. Agriculture also slid to just 2.1 percent and the services sector showed no growth...

I read else where that FDI (foreign direct investment) is down 83% in Philippines, even remittances from overseas workers shrank from double to single digit % growth. And the following confirms what I have noticed which is an increase in number of people doing maid and street vendor (almost begging) work:

http://business.inquirer.net/money/columns/view/20090628-212866/Needless-debate-on-recession

...The aggregate numbers may look good, but a closer look at the jobs data reveals that the news isn’t all that positive. Of the total new jobs as of the first quarter, the largest groups were in agriculture (408,000 new jobs), wholesale and retail trade (346,000 jobs) and private household employment (139,000 jobs). By worker category, self-employed workers accounted for 609,000 of the new jobs, while unpaid family labor increased by close to 400,000. One can surmise from these data that the new “trade” jobs were probably mostly in the informal sector (i.e., self-employed vendors), while the new agriculture jobs are mainly unpaid family labor...

http://business.inquirer.net/money/topstories/view/20090628-212857/Govt-weighs-options-to-cover-big-deficit

...But officials were forced to increase the deficit ceiling to P250 billion after estimates showed that tax collections could fall short of target. This was the fourth revision from the original budget deficit target of P40 billion...

In the U.S., if the economy suffers a massive further contraction and, we end up with an hyperinflationary monetary event, what happens to housing prices???

Jack, I believe the answer you are seeking is in the value of the dollar and weather it will have the same purchasing power in the "Future".
Housing value, not prices, will decline and as the dollar falls of a cliff so will the power of the dollar to purchase. The price will increasing move higher as the dollar loses value but the value of the house will decrees because of supply and demand.
I see it this way, 2$ today = 1$ tomorrow (hyperinflation), a house worth 1$ today will be worth .50$ tomorrow (Contraction). Supply is getting higher and demand is slowing down.

If you wanted to buy a home today and make a quick turnover Go For It but do it quickly because tomorrow you're money will be worth less. To me this is playing with fire right now considering what is taking place in the US with California and now talk of NY defaulting and the Gov saying no to help them because the gov doesn't need to take over the government they want to take over the privet entities.

Think of what Alan Greenspan said, "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value."
So with hyperinflation knocking at the door, well... No home is a safe store of value.

jack wrote:In the U.S., if the economy suffers a massive further contraction and, we end up with an hyperinflationary monetary event, what happens to housing prices???

Answer! Lower in the city and higher in the country in the short term, 3 to 6 months. Long term the value of a home will be the last thing on your mind.

"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." Lord John Maynard Keynes (1883-1946), renowned British economist."

I would like to change the above to read "and does it in a manner which only one man in a million is able to diagnose." and these people are screeeming at the city gates that we are headed into hyper-drive and one of them is Shelby screeeming in this forum.

thank you Rob for your response.

I am trying to decide if i should sell my house and get rid of the mortgage to buy in at deppressed levels in a few years. Or, hold the mortgage and pay it with inflated currency later.

Hi Jack,
Are you really looking to sell you're home? I know I would hate to sell mine. But, I look to the Lord in everything and He has guided me in a direction that is ... Peaceful.
Look,I have a home that is 2/3 paid off I don't have a job and I owe back taxes. I have every reason in the book to sell my home but I won't. Why? Because He has a much better plan for me: )us). Homes in the area I live sell on the same day they go up for sale but that can change in a heartbeat. I know that. He has never guided me in the wrong direction. Never!

When I look at what you are saying: "I am trying to decide if i should sell my house and get rid of the mortgage to buy in at deppressed levels in a few years."
When I read this the only thing that comes to mind is Buy low, Sell high. If you sell you're house now you still need to pay for lodging right? And for how many years? This money can be put on the mortgage instead of giving it to the landlord. Are you selling the house "High" or is the market depressed to near bottom were you are? If the market is a buyers market in your neighborhood then you know it's not time to sell.


Next; "Or, hold the mortgage and pay it with inflated currency later."
I truly believe that you should "hold" and pay off you're mortgage with the silver investments later. You will have a much better outcome. This is what the Lord has shown me, take what savings I have and invest into silver mine in Canada. And this is what I have done. When inflation goes up, my dollars will be worth less but because silver is going to increase in value so will the number of dollars invested. I would never be able to pay off my mortgage with just having money in the bank or in savings. We need to be invested in hard assets like gold or silver. This will off set inflation in the short to mid term. After that God has guided me in a completely different area.

hey Jack... Did you read JH's email on "Housing's Still Overvalued & Silver's Still Cheap"?

J.H. "If we are fortunate, housing prices will drop 50-75% in 4-8 years, and it will be over quickly. That is unlikely, and would require the election of somebody like Ron Paul as President."

I think Jason failed to mention his home is not for sale because he has no mortgage. If you have a mortgage and you foresee the value of your house heading below what you owe on your mortgage, then you should want to sell especially if what Jason is saying about housing dropping 50% to 70% in 4-8 years. But and I say BUT, if you look at what is going in the world today and you have done your homework you will see that silver (and gold) is nearing its end of being suppressed. The TPTB will not have enough money to continue holding down the the markets much longer. The time is at hand! Be prepared! Because YOU are the head of the household and it is your job to steer you're family in the right direction. Make wise your dissensions and keep focus on your goal.

It depends on your situation and plans.

You have to work out the numbers in your case. I don't think TPTB will allow you to win in hyperinflation. If you can get out of house in the black, and if you alternative living place (e.g. Philippines) will cost less than your mortgage, then I would sell. I would have sold in 2006, which is what I was screaming at everyone to do.

Otherwise, if you can take out a larger loan on your equity and basically live in your house for free by planning to walk away from the mortgage at some point and let your credit go up in smoke, then use the capital to invest wisely, then I would consider that. But you really have to be a wise investor and you need to be willing to walk away from USA and credit in future.

But for many people, they have no better option than to go down with the Titanic. They can't extract themselves and their family.

Note I didn't describe all the possible scenarios (i.e. those with no mortgage, etc). As I say, it depends on your situation and plans.

I agree with most of this:

http://silverstockreport.com/2009/housing.html

Thanks for sharing your logic. I will reply interleaved to give my reaction to your logic in parts...

> Shelby,
>
> I was thinking of this back and forth exchange with you this morning. I want
> to try a
> different tactic.
>
> I believe I take it on faith that the US empire's days are numbered.


Agreed, but remember didn't Rome hold on for 100s of years beyond it's peak?

When would you say England's empire peaked? We could say it finally collapsed in early 1900s?

Then again, the USA fiat/derivatives bubble is probably
orders-of-magnitude more extreme and faster, due to the innovations of IT.


> Collapse within
> 1 year would be ideal.


This would be the scenario where the world runs to gold as money (billion of independent, untraceble actors in the economy), trade is fairly revalued (which would wreck havok on China's internal order and power structure), which is what everyone is avoiding.


> Within 5 years would be pretty bad.


This seems more likely, with chaos asserting itself forcefully to break up the existing order, due to the resistance of China and all the power players to allow entropy (freedom of billions of independent actors) to proceed.


> Within 30 years
> would
> be intolerable.


If the power players can hold the current order to that extreme, the blowback is going to be almost unimagineably violent (discontinuous reversion function).



> I mean, so bad that I don't know if I could go on living.
> I
> don't
> believe there is any place better on earth to run to, as the original americans did to
> escape europe. Earth is all used up.


I agree in terms of a new nation-state (a new socialistic attempt at better order), but the individual still has many places to run to. Actually Jesus mentions this in Matthew, he says the true believers will not have run through every city before he returns.

The Bible teaches the true believers to come out of the Great Harlot system.

I think where we end up is precisely as predicted in Revelations, where the only salvation is an individual one with God. In Matthew 6:5, Jesus explains we should not pray in church like "babbling pagans", but rather secretly in our room. You can ignore my references to Bible, as I am only noting how it coincides with our logic. I am not letting it lead my logic.


> I see the US empire as a giant gun,
> and
> at
> least inside the US the gun is pointed away. The US quality of life is sustained on
> the backs of the rest of the world. Do I want to raise a family in the "rest
> of the world"
> where people are held down by corrupt governments bought off by the US?


I do not believe that if you take away that imbalanced paradigm, that you will suddenly have a new more just(ice) order. The only way you get individual freedom, is to avoid the concentrations of power that come from socialistic order (government). The Bible also speaks about this where it is said that we should not seek to have a man-made government (earthly King), but if we want one he will take everything from us and enslave us.

You see the current gun is advantageous to the people at the top in both USA and in "rest of world". You take away that order, those people will scramble to find a new order that maintains their power. The reason they got that power in the first place, will still exist, which is human nature to use debt (an individual enslavement action, with collective enslavement results), and to take from the group and redistribute it (government, or group enslavement action).





>
> I believe people turn to religion as a defense mechanism to get through a miserable
> life.


Is life that miserable? The Great Harlot has very little effect on my daily life, when I choose to go outside of it's tentacles.

I think most people turn to the easiest things to numb their mind (like TV, overeating, etc), but there are still places to go to at one with nature and outside the monotony of Great Harlot system.


> I don't have that option. I can't believe in god or an afterlife. So I
> have to find
> some other belief to sustain me.


How about what I wrote above? Could the diversity of nature (non-monotony of Great Harlot, i.e. man-made, system) be an inspiration? It is for me. For example, I most often feel at ease and interested in places where people are not all programmed by TV.


> I think the knowledge that the corruption
> will end
> shortly allows me to go on day to day.


I would prefer to suggest or offer the you not rely on a man-made
socialistic result to save you (give you inspiration), and rather on your own individual (maybe include your family and close friends) relationship with the diversity of nature. I think that is what Jesus is referring to (nature is God), but if you prefer different semantics to coincide more with a purely "scientific view" (non-cartoon characters, as you view "God", "Jesus", "John the Babtist", etc), perhaps it is just a different road to a similar paradigm of coming out of the man-made system?

>
> When you say it won't end for another 30 years, I have to reject that immediately.


Well I am sure the man-made results won't end for another 30 years. Can the nation-state system achieve an order that makes you feel justice has been served? It is interesting to me that TPTB seem to be aware of the need to present an image in the media of injustice and how their global order will return justice to mankind by eliminating the corrupt
nation-state paradigm (the imbalanced one with the big gun you describe). But this apparent (media illusion) new justice will be the lie of the anti-christ. This will be the one that will have zombies walking to take the glorious 666 enslavement. People will not even realize.

But you know from science that increasing concentration of power and order can never be justice or freedom. So I do hope you find a semantics that allows you to avoid the media programming and come out of the Great Harlot.

I say that with love of you and men.


> Because I see that as business as usual for the rest of my life, no end in sight.


You are yearning for the great release of energy from the chaos of diversity of nature. You see how much progress is being impeded by the current man-made paradigm of governance (resource allocation and
programming of minds via media, i.e. the Great Harlot system in my semantics).

You are yearning for the return of Jesus after the masses have destroyed themselves, but you have a different semantics.

But I think we can go directly to that place now. We are given the means.
We can work towards coming out that system. Is that totally impractical? Well it seems a lot depends on how much baggage we require to hang on to
no? I am living example of trying to figure out if I can come out of it. It is a constant struggle for me to figure out if I can release all this baggage that I have accumulated since birth.

Remember when Jesus's mother and brother came to visit him, he said "all you masses are my brother and mother". The model of Jesus (whether he was real or not in your view), is one of no earthly baggage.


>
> I don't know what the future holds. I can't! How can anyone? I at least have
> some
> insight as to what biases I have.
>
> Can you share what biases you have? I keep asserting that you want the outcome
> to be "total worldwide collapse in 30 years". Is this accurate?


No. Great psychological profile question (direct to key point).

My bias is I want to be free and fulfilled. I have stated this before as wanting to know "the truth", or wanting to understand my role in this universe.

My bias in terms of outcomes is I do not want to see the progress of the "new world order" to outpace my learning rate. Right now I still need resources (baggage), because I am still learning how and whether I can come out of this Great Harlot (new world order) that is developing.

My bias is I do not expect the new world order to be justice (although it may appear to be, maybe as compared to coming after some tumultuous period), but rather I think it will be the zombie system of the USA catching up with where I am, removing my current safe haven. I will have had to move on before then. So 1 year would be way too fast. I would not be able to learn and adjust that fast. I have still too much baggage to sort out.

So is my bias fear or is it a desire to be free of a system?


>
> In the midst of all this, nagging in the back of my mind is machine intelligence.
> Or any one of several other big technological advances which would be game changing. But humanity isn't pursuing the right ones with the right intensity. Moreover
> the patent and civil court systems are used to suppress new technologies.


Rather than debate the specifics (technology), I see now more broadly that you want the same explosion of freedom that I want.

TPTB are managing humanity's innate desire for freedom, by offering media illusions (mind programming), addictions, etc..

How do we battle their system? I think the only way is an individual release from it. A socialistic battle serves their end (always has in numerous prior examples).


>
> I think the concept of demanding justice is a big problem as regards the retiring baby-boomers. They have expectations of being on the receiving end of a deal. They paid into social security and invested in 401K's and the stock market, bonds, etc. Specifically for their comfortable retirement.
> They are a powerful voting block. Now from their perspective anything that threatens their planned retirement is evil and unfair.


Agree very strongly for probably at least 50% of the population of the boomers. I don't have a firm grasp on the exact demographics. Seems that those who read someone like Jason Hommel are in the very small minority.


> I don't
> believe
> the
> world is wealthy enough to allow for all the baby boomers, who didn't have enough children, to go gently into that good night.


Agreed. The world could be wealthy enough in some sense, if gold were allowed to be money and the system would be allowed to anneal (billions of individual winners and losers), that there could be winners and prosperity for many people (not the spoiled ones as you allude to).

Instead the world is trying to force everyone to share the load of carrying the boomers, which has the potential of dragging everyone down, which is why I say it can only end in war.

It depends on how long the current power players in the system can hold gold (& silver) down, and keep the chaos from feeding into the money that people use every day or stores of value. So far, they are amazingly successful, considering how little investment it would take to throw the silver market into chaos. It is amazing how little people in the world know or care to try to stop this problem before it gets intolerable and headed for war. This gives the Bible more credibility for me. It explains how that the people will be fooled.


> In order to
> finance
> their retirement wealth from the world must continue to be sucked away. The baby boomers demand justice -- for them. But it is injustice for the rest of the world.


Agreed.


>
> I compare this to eskimo culture. When the old people become useless and would be a burden on the young ones, they say goodbye and go walk out on the ice and freeze to death. The modern philosophy of not wanting old people to die, wanting to equalize society to handicapped and crippled people, so that the benefits of natural health and
> intelligence
> and youth are erased -- is this justice? Burdening the strong for the sole purpose of keeping the weak around -- is this justice? Yet this is what soceity is teaching everyone. I don't think long term this is sustainable, at least if human labor is the source of the labor.


Well I think there is no problem with letting some people do that, as long as the monetary system does not allow them to charge the cost to others. Let each family decide their priorities and then (billions of independent actors) nature will anneal the balance. There will be a diversity, not absolute one way (eskimo) or other (european socialized health care).




>
> I want anarchy. I want freedom from any group, freedom from the majority.


Strongly ditto for me. But also pure anarchy would cause me some severe problems also. I am not ready for 100% anarchy, just some increasing diversity at a pace I can tolerate.


> It used to be that the 50 states were different.


Yes! I remember that. I was from New Orleans. I remember when Mardi Gras was not a tourist event, but a real cultural expression. Now it is just "show me your tits" monotony with no spontaneous dance/jazz
expression.


> Now with an oppressive
> and all encompassing federal government, choosing among the states is essentially irrelevant. The War On Drugs is everywhere. Perhaps if you're lucky you get to smoke marijuana without too much fear of getting harassed.


I have been told that the bankers are behind the drug production and trafficing, and then they use the War on Drugs to create premium prices for their products, and to maintain their monopoly on the drug trade (they can intercept the others who want to compete).


>
> Moreover the US government has now become world wide. As such most countries are a lot like the US in terms of personal freedom -- or lack thereof.


Philippines was recently named by the G20, as one of 3 countries in world not cooperating on bank non-secrecy. So there are still a few places that are not all the way there, but agreed the bankers (and their counter party caucasian socialist machine and zombie population) are gaining more and more control. It is called "globalization".


> If the federal government collapses in hyperinflation, you get 50 states each
> an independent microcosm. One of those 50 will be attractive to live in, in
> terms of low taxes and high personal freedom.


I think we will get some of this anarchy (chaos), but I think the 50+% of the masses will win and get a socialistic order and a dead nation, like Europe. They will win, because the billions of the world will continue to support them. This will be because the billions will not spontaneously start using silver as money. Jason explains how the bottom will not come until the govt/FED sells real estate:

http://silverstockreport.com/2009/housing.html

It may take a war and we may get a period of extreme chaos and
disintegration. It is going to be very interesting to watch how the TPTB plan to manage this transistion to new world order-- one that they still control.

> In the midst of all this, nagging in the back of my mind is machine intelligence.
> Or any one of several other big technological advances which would be game changing. But humanity isn't pursuing the right ones with the right intensity. Moreover
> the patent and civil court systems are used to suppress new technologies.
...
> If the federal government collapses in hyperinflation, you get 50 states each
> an independent microcosm. One of those 50 will be attractive to live in, in
> terms of low taxes and high personal freedom.

Dash?

Reminds me of some of the great discussions from when the JH forum was more active.

I'm not sure what it is, but there is something keeping people from comparing their role in nature with the way other forms and levels of life interact with nature. We think we're different or special. This blinds us from reality. No one can (for long) escape the influence of the world any more than a cell can escape the influence of the body. (Hermits, and cells in petri dishes, excepted.)

... Financial Sense Online just published my article on money stability:

http://www.financialsense.com/fsu/editorials/zweig/2009/0709.html

I began that article here, and Shelby's comments helped motivate me to complete the article.

What I finally figured out is that a net worth tax is the only type of tax that does not cause a redistribution of wealth. After paying the tax, each taxpayer's buying power remains the same relative to each other taxpayer's buying power. That is because the buying power of each taxpayer gets clipped by the same percentage.

It is government spending (as well as taxes other than those based on net worth) that cause redistribution of wealth. And, as we know, the government can find a way to spend money even if it doesn't collect taxes.

I agree with Shelby that we may not be able to trust any government, even one that has adopted a stable system, and should not have to declare our assets. I'm just trying to put some ideas out there that at least are preferable to the unworkable system we have now.

Great job on getting published.

There is nothing we can do now on a group basis, as Total US debt now 500% of national income:

http://mwhodges.home.att.net/nat-debt/debt-nat.htm

Must read:

http://www.gold-eagle.com/editorials_08/saville072109.html

Interestingly I had posted else where (with link for proof) that in China 70% of the private savings ends up in Communist Party public companies, which are 1/3 as efficient in creating new production per capital, than the public sector. I had also noted how Philippines was doing massive govt stimulus, ripping out functional roads to replace them unnecessary brand new concrete and bridges to no where, etc.. Obviously Obama is doing the same thing, on a huge scale with new socialized programs.

So it seems possible that we are headed for a Great Depression worldwide, not an inflationary one. We will get bouts of deflation and inflation, with the constant result of a redistribution of wealth from production to waste. This will drive most private wealth bankrupt and into the hands of the elite.

This does not seem to bode well for a sustained increase in price of silver nor gold, because this will drive the public towards the safety net of the govt and their fiat wealth redistribution machine. The public then never wakes in droves and jumps to gold and silver in masse, thus the precious metals remain marginalized in utility for use as money.

The wildcard is that some millions of people in USA are not totally asleep and will fight back. This is evident by massive increase in gun ownership. This chaos can drive unknown monetary effects down the line. The Japanese man was highly compliant, just keep him drunk with women after work and send his paycheck to the wife at home.

Also the Chinese seem much less compliant than the Japanese. Someone who teaches over there, told me there are 60,000 riots per year. The Communist Party was forced to open the economy some. And I think they will be forced to allow the Yuan to strengthen and give their people more access to imported goods and international travel. This major monetary shift could have unknown implications for dollar and precious metals.


======
ADD: however if we assume that M0 (monetary base) will actually all be liquidified eventually (Saville's TMS would go ballastic), then as in the past this would signal a $15,000 gold price:

http://arabianmoney.net/2009/07/12/gold-should-reach-15000-an-ounce-says-rich-dad/
http://www.marketskeptics.com/2009/03/fed-is-planning-15-fold-increase-in-us.html
http://www.conspiracyoftherich.com

This would mean the people woke and decided to not be debt slaves, and thus hyperinflation event:

https://goldwetrust.forumotion.com/economics-f4/peak-oil-nonsense-t102.htm#1651

For as long as people do not move to gold & silver in droves, then we will have the Japanese experience of oscillating inflation and deflation, with monetary base being sucked into debt repayment and increased savings, while the govt borrows and spends production into waste. This will last until the people run to gold & silver, then we get hyperinflation. The USA won't confiscate gold & silver until "they" (or world) are ready to kill the dollar (when the people of world move too much to gold & silver). See the video linked above for why.

SRSrocco wrote:...Let me QUALIFY what I said. I agree with what JIM WILLIE and TY ANDROS said on their latest interview:

DEFLATION will hit those things you OWN

INFLATION will hit those things you USE.

JIM WILLIE and TY ANDROS interview at the link below. When you go to the link go down the page to the line that says PRETEND and EXTEND TACTICS and click on that interview.

http://www.contraryinvestorscafe.com....php?pid=62242 ...

Agreed. Kudos, very succinct.

Look at another way: Deflation of value of liability "assets" (but mortgage debt is not extinguished), with Inflation of Expenses

SRSrocco wrote:...REAL ESTATE, CARS, COMMERCIAL REAL ESTATE, PAPER ASSETS, CD's 401K's, PENSION PLANS, BOATS, ETC and ETC...are the things we OWN will DEFLATE. FOOD, ENERGY, FUEL, METALS, COMMODITIES, WATER and ETC are things that we USE....they will INFLATE.

Of course, we use a HOME, but that is not what is being said. You don't own a GALLON of GAS, you use it. Now if a person wanted to be a BONEHEAD and say that they keep FUEL around for an EMERGENCY, this is still not OWNING IT....it's holding onto it to USE at a future date...

...GOLD and SILVER are the only means to EXTINGUISH DEBT. You can't use another CURRENCY, or MORE DERIVATIVES. This only increases DEBT...

Agreed. This is why Robert Kiyosaki (Rich Dad, Poor Dad) says we should obtain cash flowing assets, not capital gains investments (which are actually liabilities!):

http://www.conspiracyoftherich.com

Eventually gold & silver must be used to extinquish the debt, which will lead to general hyperinflation. This can only occur when the masses run from debt money to gold & silver. Until then, the central banks & corrupt govts can keep us in cycles of oscillating/conflicting deflation and inflation. See my prior post and links in that prior post for more on that.

Perhaps one good metric on evaluating cash flow investments, is they should cash flow at higher than the average annual appreciation of gold and silver over the past 8 years. So thus I would be looking for the cash flow investments that return at least 20% of capital per year. Otherwise keep excess capital in precious metals, while searching for outstanding cash flow investments. And always keep 10 - 20% in precious metals, to prepare for that eventual hyperinflation event. The best way to invest in commodities is to own them in a cash flowing business, such as an apartment complex in a low-cost country where the materials are the major portion of the capital asset (e.g. Philippines).

The other point Kiyosaki makes, is that taxes will be going up due to all the govt stimulus (waste), and capital gains taxes will be going up very much, whereas cash flow (passive income) can often be earned with 0% tax, if one is wise. For example, some cash flow businesses are done in cash (not reported). Others are structured with tax incentives, etc..

Kiyosaki makes the obvious point that to target cash flow where people are moving to, not move away from. So for example in Philippines, the population is moving from mountains to the city, but the foreigners are moving from the city to the mountains (for the climate advantages).

http://finance.yahoo.com/tech-ticker/article/291000/China%27s-New-%27Great-Wall%27-Built-on-Easy-Money-Speculation-and-Toxic-Debt;_ylt=AmVeG6XhFC2x19fY9DyDYme7YWsA?tickers=FXI,FXP,RTP,PGJ,XPP,TAO,EEM&sec=topStories&pos=9&asset=&ccode=

China's New 'Great Wall' Built on Easy Money, Speculation and Toxic Debt...

http://www.shadowstats.com/article/flash-20090728

...Despite all the hoopla of the monthly home sales growth being the strongest in nearly nine years, the Census Bureau’s release noted that the "90% confidence interval includes zero. The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero."...

In video, he says NPLs (non performing loans) in Russia recently revealed by IMF to be 30%:

http://finance.yahoo.com/tech-ticker/article/290233/Is-the-Emerging-Market-Bubble-About-to-Burst;_ylt=Aucx3216ZzTT8ZiU2PLaGJBl7ot4?tickers=eem,fxi,ewz,rsx,^dji,^GSPC

See below the reason that pumping money into China is not able to stimulate new domestic consumption and production (the reason is the Gini coef is out-of-whack at 0.50 due to the Communist Party monopoly corruption thus the money ends up in speculation instead).

A quick way to make $100,000, is present proof that Obama is a natural born citizen:

http://silverstockreport.com/2009/obama-reward.html

Should be easy enough since apparently all Presidents before Obama provided such proof. But apparently Obama has only provide a Certification of Live Birth (instead of the long form), and apparently the law in Hawaii in 1963, is that the Certification can be given to people who were not proven to have been born in Hawaii. This is because there was so much migrant labor in Hawaii at that time (many filipinos immigrated that way).

Here is a more blatant Fed lie.

Bernanke says explicitly at the very end of recent testimony at Congress, that M1 and M2 are not growing quickly:

https://www.youtube.com/watch?v=XKSKWSnhCwI&feature=related

but in fact they are:

http://www.shadowstats.com/ (see chart on upper, right)

Note that chart (for M1 & M2) is produced directly from Fed data which you can verify for yourself:

http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt

Thought more last night about that link in prior post about China's growing condo bubble:

http://finance.yahoo.com/tech-ticker/article/291000/China%27s-New-%27Great-Wall%27-Built-on-Easy-Money-Speculation-and-Toxic-Debt;_ylt=AmVeG6XhFC2x19fY9DyDYme7YWsA?tickers=FXI,FXP,RTP,PGJ,XPP,TAO,EEM&sec=topStories&pos=9&asset=&ccode=

with 1000s of new towers unoccupied, but yet the upper middle class continues to buy these at $40,000+ which well out-of-reach of the factory work at the state-run steel mill that makes $1 per day. This is similar to Philippines where the western debt bubble has flowed through to real estate making it overpriced for local bulk of the population and thus uneconomic for producing rice or any other business that targets anything but a "greater fool" who borrows a great amount to buy.

Folks the world is in a giant ponzi scheme every where. Madoff's bust will be but a grain of sand compared to the bust that must come eventually to the world. The only question is how much worse can it get before it is allowed to bust. How many more stimulus programs, reductions of liberties, etc..

For example, Obama's new 1000 page health care plan:

http://docs.house.gov/edlabor/AAHCA-BillText-071409.pdf

========================================================
********************************************************
========================================================
PG 22 MANDATES the Government will audit books of ALL EMPLOYERS that self insure!!
PG 24 Line 116 Government effectively sets prices for ALL private health plans.
PG 30 Line 123 THERE WILL BE A Government COMMITTEE that decides what treatments/benefits you get.
PG 37 Line 132 The Government will be reviewing grievances about themselves and will decide on appeals for rejected claims.
PG 29 Line 4-16 YOUR HEALTHCARE IS RATIONED!!! Additionally you can reference PG 15 Line 19-25.
PG 42 The Health Choices Commissioner will choose your HealthCare Benefits for you. You have no choice!
PG 50 Line 152 HealthCare will be provided to ALL non US citizens, illegal or otherwise.
PG 58 Government will have real-time access to individuals’ finances & a National ID HealthCare Card will be
issued!
PG 59 Line 21-24 Government will have direct access to your banks accounts for electronic funds transfer!
PG 62 Protection of Data, Government shows they will have database of your personal & financial info.
PG 72 Line 8-14 Government is creating an HealthCare Exchange to bring private HealthCare plans under Government
control.
PG 84 Line 203 Government mandates ALL benefit packages for private. HealthCare plans in the Exchange.
PG 85 Line 7 Specs for of Benefit Levels for Plans = The Government will ration your HealthCare! #AARP members –
your Health care Will be rationed.
PG 98 Line 8 Americans - You will be paying for others HealthCare while paying for your own.
PG 109 Line 207 Health Trust Fund. The Government will raise taxes on EVERYONE to fund HealthCare as they see fit.
PG 110 Line 7-12 Employment taxes on ALL employers NOT offering Government HealthCare. No choice.
PG 110 Line 13-18 An excise tax on ALL goods from companies not offering Government HealthCare. ALL Americans pay.
PG 110 Line 19-24 the Treasury can take $$ from Soc Line to pay HealthCare.
PG 111 Line 208 The Federal Government will usurp all State powers in State Based HealthCare Exchange. Violation of 10th
Amendment.
PG 124 Line 24-25 No company can sue Government on price fixing. No “judicial review” against Government Monopoly.
PG 126 Line 10-15 The Government can make up prices for anything at anytime for any reason.
PG 126 Line 22-25 Employers MUST pay for HealthCare for part time employees AND their families.
PG 145 Line 15-17 An Employer MUST auto enroll employees into public option plan. NO CHOICE.
PG 149 Line 16-24 ANY Employer with payroll 400k & above who does not provide public option pays 8% tax on all payroll.
PG 150 Line 9-13 Biz with payroll btw 251k & 400k who doesn’t provide public option pays 2-6% tax on all payroll.
PG 167 Line 18-23 ANY individual who doesn’t have acceptable HealthCare according to Government will be taxed 2.5% of inc.
PG 170 Line 1-3 Any NONRESIDENT Alien is exempt from individual taxes. (Americans will pay)
PG 195 officers & employees of HealthCare Administration (Government) will have access to ALL Americans
financial/personal records.
PG 199 Line 1-4 Surtax rates on raised AGAIN on Americans in 2012.
PG 201 Line 12-19 Government will ignore whatever costs they see fit to show savings. (Cooking the books)
PG 202-215 is a Government rewrite of the tax code ensuring more taxes for EVERYONE, Everywhere.
PG 241 Line 6-8 Doctors, doesn’t matter what specialty you have, you’ll all be paid the same.
PG 238-249 Line 1121 Doctors-Government mandates your growth, costs, value, services, & income. Welcome to rationing
PG 304 Line 17-19 Government does NOT have to protect your private information, share with anyone, & is not resp
PG 404 Lines 12-16 Government exempts itself again from - Chap 35 of title 44, USC including privacy of Americans.
PG425 L22-25, 426 L1-3 Government provides approved list of end of life resources, guiding you in death.
PG 427 Lines 15-24 Government mandates program for orders for end of life. The Government has a say in how your life ends.
PG 455 Lines 3-4 Government exempts itself from Chapter 35, Title 44 Paperwork Reduction & Citizens Privacy Protection Act
PG 660-671 Doctors in Residency - Government will tell you where your residency will be, thus where you’ll live.
Pg 765 Section 1711 Government will require Preventative Services including vaccines. (Choice?)
Pg 769 3-5 Nurse Home Visit Services - “increasing birth intervals between pregnancies.” Government Abortions anyone?
Pg 789-797 Government will set & mandate drug prices, controlling which drugs will brought to market. Bye innovation
Page 820-824 Sec 1801 Government will identify individuals ineligible for subsidies. Will access all personal finances.
Pg 865 The Government will MANDATE the establishment of a National Health Service Corps.
PG 865 to 876 The NHS Corps is a program where Drs. perform mandatory HealthCare for 2 years for part loan repayment.
PG 901 The Public Health Workforce Corps WILL include commissioned Regular & Reserve Officers. HealthCare Draft?
PG 913-914 Government starts a HealthCare affirmative action program thru guise of diversity scholarships.
PG 993 Government will establish school based health clinics. Your kids wont have a chance.
PG 994 School Based Health Clinic will be integrated into the school environment. Say Government Brainwash!
PG 1001 The Government will establish a National Medical Device Registry. Will you be tracked?
PG 1003 9-11 National Medical Dev Reg ‘‘(iii) other postmarket device surveillance activities” you WILL be tracked.
============================================================
************************************************************
============================================================

Peter Schiff is wrong, Bernanke has an enslavement plan:

http://financialsense.com/fsu/editorials/schiff/2009/0724.html

What Bernanke said was that he could offer higher interest rates to the banks on reserves held at Fed, so they keep those up to $12 trillion in TARP theft (so far) with the Fed, rather than withdraw it:

http://financialsense.com/fsu/editorials/2009/0729a.html

The debt load of the population means that any liquidity that is actually released into the broad population is used to pay down debt and there is always a giant sucking sound ready to retire any publicly released liquidity quickly. The only place this liquidity is likely to end up raising prices significantly and on a sustained basis, is precious metals, as the people need not only to save, but to avoid an increasingly fascist govt.

I am not saying we won't get bouts of commodity inflation, as stimulus (especially in developing world) is released and bad loans are radically increased (as in China in past year). But as these debts come crashing back, with the long waves of bad debts in the pipeline to fail in West, then we get bouts of deflation as well.

See what I think Peter Schiff is missing overall, is that the plan is to have a controlled deflation, with forced rationing and reduction of standard of living (see Obama's Health Care plan in prior post), where the inflation is given to the banks but is kept in holding, until the time that they are ready to flip a switch and turn all that bank cash into liquid IMF SDRs or what ever.

You see it is a grand theft mechanism, and it is just a means of bleeding the masses of any real assets. There need not be hyperinflation at the end, because the people will entirely enslaved in a new legal system. Those who revolt, will be fighting against the masses who just want to hang on to a thread of existence within the govt enslavement system.

The reason that people think the PTB must fail and disintegrate, is they assume that people will not allow themselves to be enslaved. But this does not seem to be the case. It seems there is a significant portion of the population that is willing to capitulate into slavery. The boomers are tired. Many would rather hope than prepare, as evident by watching the Obama victory tears. Even in China right now there are more than 1,000 riots (of 10,000 or more people) per day, so the developing world people have been fighting for decades. They continue to fight, but they don't have the means to move into private gold and silver in a big way among a large segment of the population. This won't hold silver and gold down at the end, because it will only take a small % of people to send PMs to moon, but the salient point being that the masses have no realistic way to fight back. Even if they have savings, any broad move of that into silver and gold would be fought by the govt, or the govt (e.g. Communist Party in China) could do a confiscation as FDR did in 1933. The confiscation won't happen in USA again that way because PMs are so sparcely owned (and dollars held 70% outside USA, so would cause an international run on gold & silver), rather they can be drained via indirect methods (e.g. border controls, new taxes, break down of law & order, etc).

The only reason we are getting inflation now is due to liquidity actually released into public in China (thus driving commodities up) as mentioned in prior post is creating a speculative, unoccupied condo Tower's bubble, and Western govt's choosing to ration (cut services) rather than allow prices of things to fall. For example, many houses sit on the TARP asset at Fed, rather than get unloaded into the market at low enough prices to drive rents down. This is an example of why the 1919 depression (where the President refused to do any stimulus) lasted only 2 years, but 1930s one lasted 2 decades.

We do see the less broad measures of money supply rising now (M0, M1, TMS), so some liquidity has been mobilized, and I think is probably due to the current stock market dead cat bounce, where money that was sitting in money markets has come back into equities trading and sometimes sits in cash in between trades. But when this money reaches a person who needs to pay down debt, then it disappears. The money supply is disappearing into 2 black holes:

a) people who need to pay down debt (i.e. or building a small savings level)
b) the rich who are getting richer (lenders, depression proof cash flow business like rentals, the price fixers of commodity markets, etc)

Caught in between that are those with net worth who are trying to invest their way through this mess. They are mostly losing net worth to the above squeeze. Only those who have a cash flow greater than their expenses (not investment capital gains, but cash flow) and who have the rest in precious metals in their possession and prepared to wait out the long haul, are able to defend themselves in this squeeze.

This is why you see many people buying guns. They sense that they have no way to avoid the above trap. They can't maintain a cash flow higher than expenses and debt servicing load, and they know they can't hold out long enough to stay vested in precious metals.

On top of this, holding precious metals does not guarantee you will be able to redeem them for anything or hang on to them. The rabid govts will have the poor masses behind them as they come after those who any remaining net worth. And they will come after cash flow businesses also with new taxes and regulations.

So what is the positive message? Come out of the Harlot system. The less you need, the more you can stay indefinitely in precious metals. Try to find cash flow businesses that can escape this govt/fascism onslaught. One idea in that direction, is think small, value, and think outside of problemmatic venues. In other words, try to parasite on the govt's plan to keep people a more socialistic level of existence. For example, invest in low cost retirement havens for those who will be on reduced pensions.

===========
ADD: Chris Laird says similarly on the same day I did:

http://www.gold-eagle.com/editorials_08/laird072909.html

He and I have often been in mental sync. He emailed me to say he liked the logic of my post above.


Dr. Fekete agrees and argues 0% (declining) interest rates force liquidations:

http://en.wikipedia.org/wiki/Antal_E._Fekete#Hexagonal_Model_of_Capital_Formation_and_Interest

http://www.professorfekete.com/articles%5CAEFRemobilizeGoldToSaveTheWorldEconomy.pdf

http://www.professorfekete.com/articles%5CAEFFederalReserveAsAnEngineOfDeflation.pdf

Fekete wrote:...Herein we have a classic example of central bank action being counterproductive.
The central bank wants to snatch the economy from the jaws of
deflation by increasing the money supply. Its preferred method is the open
market purchases of short-term government securities. But through the
transmission of risk-free bond speculation interest rates keep falling for all
maturities. Capital invested in production is eroding faster as a result. The
burden of debt is increasing. Producers are squeezed. They try to get out of debt
by selling more of their product. In desperation they cut prices, but to no avail.
The vicious circle is complete...

Let me explain what Fekete means. He means that if you borrow at 5% to build your business, then your competitor borrows at 3%, then your competitor will undercut your pricing, because he has a lower debt payments on the same level of borrowed capital investment. So this means to remain competitive in this death of fiat system, you need to choose a cash flow business, where your competitors won't have access to borrow money at low interest rates. This jives with the point I made about land being too expensive to make business that produces for the mainstream poor in Asia, as the values have been driven skyhigh by debt speculation, which is why any stimulus in Asia will not lead to business capital investment (no business can thrive, so people just speculate instead), e.g. China's $1.8 Trillion ending up in unoccupied $40,000 condo Towers, which $1 per day masses can not rent nor buy. Ditto rice land in Philippines so expensive that it can not ROI in any reasonable time frame, except by forced govt subsidy.

Any extra liquidity is absorbed by the increasing liquidation value of the debt (people paying down debt).

Stated another way:

http://www.professorfekete.com/articles%5CAEFIsAggregateDebtExcessive.pdf

The marginal productivity of additional debt (GDP increase per new $ of debt) probably went negative in 2007. Meaning that each new $ of debt (money supply increase), actually decreases the GDP. There can be no sustained inflation no matter how much the money supply is increased (rather volatile bouts of speculative inflation that revert to the deflation trend). Higher money supply growth, means faster deflation! Non-intuitive, but true!



Also China is purportedly increasing it's gold consumption:

http://www.gold-eagle.com/editorials_08/nielson072909.html

But I don't know if I trust that or it refutes my point that most of the masses can not move significantly enough to gold to force a hyperinflationary result for the fiat system.

---------------------------- Original Message ----------------------------
Subject: Shorting bonds will destroy CaseyResearch.com
From: "Shelby Moore"
Date: Wed, July 29, 2009 8:54 pm
To: info@caseyresearch.com
Cc: "Antal Fekete"
--------------------------------------------------------------------------


Doug Casey,

Excuse me for this rude interruption, but have you looked at the math of Dr. Antal Fekete, which proves that increasing the money supply now insures deflation??

Thus your often stated #1 preferred speculation bet on rising Tbond rates has a high probability of ruining your reputation at a critical time. Let me explain succinctly the math.

The succinct reason is that the marginal productivity of debt probably went negative in 2007, meaning that each $ added to the money supply (debt) is decreasing the GDP. And note the Fed mathematically forces the long-end of the interest rate curve by monetizing Treasuries at the short end:

http://www.professorfekete.com/articles%5CAEFIsAggregateDebtExcessive.pdf

It is counter-intuitive, but once the marginal productivity of debt has gone negative, then the faster the money supply rises, the faster the GDP shrinks.

The marginal productivity of debt goes negative, because a falling interest rate structure causes faster business capital destruction as rates near 0:

http://www.professorfekete.com/articles%5CAEFFederalReserveAsAnEngineOfDeflation.pdf

Fekete means that if you borrow at 5% to build your business, then your competitor borrows at 3%, then your competitor will undercut your pricing, because competitor has a lower debt payments on the same level of borrowed capital investment. So perpetually declining interest rates creates a snowball of failing businesses, and thus further declining interest rates. As interest rates near 0, then each decline in the interest rate is proportionally much larger. For example, if the interest falls from 0.25% to 0.125%, this is equivalent to a fall from 2% to 1%, and doubles the liquidation value of the PRE-existing debt.

Thus to short Tbonds now is suicide, because the recent expansion of the money supply will lead to another bout of contracting GDP and the additional money that was speculating on commodities, equities, and condos in China, will come rushing back into safety of Tbonds again soon.

From Fekete's math, I was able to deduce a very important rule for investing during this crisis for cash flow. To remain competitive in this death of fiat system, you need to choose a cash flow business, where your competitors won't have access to borrow money at low interest rates. The alternatives are to be connected to govt contracts (Goldman Sachs) or to be able to continually refinance at lower rates (Buffet buying into banking).

This implication of this rule is confirmed by what I see happening in China, and in Philippines where I currently live. In China, we see that $1.8 trillion of govt stimulus has ended up in speculation on unoccupied condo Towers priced orders-of-magnitude out of the budget of the masses (factory workers making few $ per day). This is because the negative marginal productivity of debt has China by the throat and their Gina coef is 0.5 (unlike other asian tigers which never went north of 0.25). There is no (or very few) capital intensive business that any one wants to invest in China, so it ends up mostly in speculation. Similarly in Philippines, although rural land is still cheap if converted to residencial use, it is now way overpriced to get suitable rate of return for rice farming. This is the effect of too low of interest rates and over speculation in the rural land sector with oversupply of debt.

Thus there is no way any country can willingly and successfully detach from the US dollar, unless they move to gold. Which of course will be massively disruptive (send fiat interest rates to infinity) and although theoretically propel them to the front economically, would certainly get them attacked by the USA military. As Chris Laird points out, we are instead moving to a one world currency after massive (probably decades long) death throes (war, riots, etc) of the current fiat system, and actually think Gold may be only black market currency for a while after chaos rules with rabid govts (supported by poor enslaved masses) resisting the gold antidote to bittermost end:

http://www.gold-eagle.com/editorials_08/laird072909.html

So I agree that we can get gyrations of speculative inflation (e.g. commodities run up by the China stimulus demand and the speculators in pricing markets overshooting that), we will be on a deflationary trend until the masses move to gold (& silver) to force a hyperinflationary death of fiat system entirely. So gold is rising in value as the deflation continues to unfold, thus gold is performing it's function of retiring the debt, even in spite of the gold price fixing markets.

Let me make it clear that only gold can retire the current negative marginal utility of debt, and thus deflation will rule (and rationing to support it) until the world makes a significant move to use gold (and/or silver) for business capital and trade (i.e. the paper silver and gold markets fail). The break to gold can cause hyperinflation in any fiats that resist, but realistically no one will break away from the dollar, so it will be an all or nothing proposition, which is why it will run so far to the deflation side before all hell break loose.

This is why you see many people buying guns. They sense that they have no way to avoid the above trap. They can't maintain a cash flow higher than expenses and debt servicing load, and they know they can't hold out long enough to stay vested in precious metals.

On top of this, holding precious metals does not guarantee you will be able to redeem them for anything or hang on to them. The rabid govts will have the poor masses behind them as they come after those who any remaining net worth. And they will come after cash flow businesses also with new taxes and regulations.

Some other relevant links:

http://opinion.inquirer.net/inquireropinion/columns/view/20090629-212899/China-no-longer-learning-East-Asian-lessons (70% of China savings to state run companies)

http://en.wikipedia.org/wiki/Antal_E._Fekete#Hexagonal_Model_of_Capital_Formation_and_Interest
http://www.professorfekete.com/articles%5CAEFRemobilizeGoldToSaveTheWorldEconomy.pdf

http://finance.yahoo.com/tech-ticker/article/291000/China%27s-New-%27Great-Wall%27-Built-on-Easy-Money-Speculation-and-Toxic-Debt
http://finance.yahoo.com/tech-ticker/article/290233/Is-the-Emerging-Market-Bubble-About-to-Burst (NPLs in Russia 30%)
http://business.inquirer.net/money/columns/view/20090628-212866/Needless-debate-on-recession (increase in part-time & "hooker" jobs in Philippines)


http://www.gold-eagle.com/editorials_08/saville072109.html

Interestingly I had posted else where (with link for proof) that in China 70% of the private savings ends up in Communist Party public companies, which are 1/3 as efficient in creating new production per capital, than the public sector. I had also noted how Philippines was doing massive govt stimulus, ripping out functional roads to replace them unnecessary brand new concrete and bridges to no where, etc.. Obviously Obama is doing the same thing, on a huge scale with new socialized programs.

So it seems possible that we are headed for a Great Depression worldwide, not an inflationary one. We will get bouts of deflation and inflation, with the constant result of a redistribution of wealth from production to waste. This will drive most private wealth bankrupt and into the hands of the elite.


Sincerely,
Shelby Moore III




P.S. You and David Galland may remember me as the controversial and spirited poster (and former subscriber) that apparently rocked the boat so much, you to shut down your discussion forum in 2006. I send this email with my sincerest concern for the well being of your company. I do not want to see you with a major blunder (a la Peter Schiff in emerging markets in 2007-2008), as I think your promotion of gold is correct. I do not want to see "the baby get thrown out with the bath water", as you apparently have a significant market (or at least marketing) presence. Also who knows I may bump into you one day.



======
ADD: explained this to someone in email in another way.

> bonds with higher yields. Fekete argues that this premium can grow without
> limit
> even as the yield is decreased on new bonds asymptotically to zero. This
> is
> ridiculous.

Not ridiculous. Mathematically correct. It is because you apparently do not understand the mechanism, whereby halving the interest rate (no matter how close to 0) makes my competitor undercut my price (by up to half if my cost of production is 100% capital investment). I have explained in layman's terms in an email I sent out to CaseyResearch.com yesterday, as follows. In fact, not understanding this, is why Peter Schiff is also wrong.


====================
ADD#2:

Subject: In deflation, future money is worth more than current money, thus bonds are worth more than their residual future income

cc: Fekete, maybe he can explain this better, or at least he should be aware of the interpretations of his theories.


> Shelby,
>
> There is an intrinsic value to any bond based on the face value and the
> yield it generates. No one would pay more than the entire amount of
> dollars involved in the remaining life in a bond to buy it. That sets an
> upper limit on the bond value. This is obvious, isn't it?


I also thought that. Perhaps Fekete could explain that better as follows.

Yes from the perspective of the lender, there is an upper bound on the residual income stream of a bond that has already been issued, but the potential lower bound on the residual income stream of a of the new bond is 0, if the lower interest rate is 0. Any number divided by 0 is infinity. Thus the relative liquidation value (opportunity cost) of the former bond increases as the interest rates falls with no limit.

But how does that relative opportunity cost translate into a buyer paying more for the bond than the future total of the residual income stream? The key is that in deflation, future money is worth more than current money, thus present (current) value will be higher than the future total.

Also from the perspective of the borrower, who is now paying a much higher relative rate of interest to his opporunity cost. In that respect, the potential relative cost (opportunity cost) is infinite. And in the example I provided, where competition can borrow capital at that lower interest rate, undercut pricing, and then put the higher interest borrower out-of-business. So the opportunity cost is real, not just theoretical.

When considering the rising income stream value value of the lender's loan as interest rates fall, I think Fekete considered a hypothetical infinite duration ("perpetual") loan period, meaning there is no potential upper bound on difference in dollars paid out to the lender in infinite time (in falling interest rate scenarios). The infinite time model is applicable to reality, because lenders are reloaning the debt payments (or otherwise finding a superior opportunity cost). So if the interest rate is halved, the perpetual bond can be sold for twice it's original face value, because at the lower rate it would take two bonds to generate the same income stream. Remember in deflation, the future money is worth more than current money, so the present value is a non-linear function of the interest rate (as shown by Fekete's derivation in link below). It is also non-intuitive for people to park money in Tbills paying negative interest rates, which happened in 2008. In deflation, future money is worth more than current money. So the bond is worth more in current time than it's remaining future (residual) income stream, because there is premium for income stream paid later not sooner. Bonds have sold for more than their residual income streem in reality. Fekete provided an example for British consols up to 1914 (when the Sterling pound reserve currency died).

Relevant links:

http://www.professorfekete.com/articles%5CAEFGrowthAndDebt.pdf
http://www.professorfekete.com/articles%5CAEFIronLawOfTheBurdenOfDebt.pdf

Note volatility of interest rates is also a wrecking ball on capital, not just falling interest rates:

http://www.professorfekete.com/articles%5CAEFCMRE.pdf



===============
ADD#3:

A more elegant proof of the ADD#2 email above, is note that given the total future income of $1,735 for a $1000 30 year loan yielding 4% at $57.83 annual payment, then borrowing $735 on 30 year loan yielding 4/1.735% (to buy that former loan) requires a $34.21 annual payment. The annual yield on 4/1.735% of $1000 is $23.06, which is roughly the difference between $57.83 - $34.21 (within rounding errors for the loan calculator I used). Thus Fekete's liquidation value is correctly balanced, because one can simply borrow at the lower interest rate to buy the former higher interest rate loan at the theoretical liquidation value and still receive the same income as if the bond at lower interest rate was purchased.

> Shelby,
>
> Whatever magical way Fekete and perhaps you have of looking at it,
> US Treasury bonds will not explode in value. If you believe they will,
> you might as well just burn all your wealth and be done with it. Because
> you're living in fantasy land.

While you were writing this diatribe, I wrote a undeniable mathematical proof. See the prior email (above) I just sent.

Now I do agree US Treasuries are very risky because we don't know when the rules will change overnight. And are Treasuries going to outperform Gold or enough to justify that risk.

The end is hyperinflation (gold future's market closes) or rationing. The deflation illusion via serial halving of interest rates can't continue forever without either outcome.



==========
ADD#4:

Hi David Galland @ caseyresearch.com,

Nice to speak to you on phone briefly.

The following is relevant to your #1 investment to short US Treasuries, which I think the following math will prove is against trend. The basic mal-assumption is that increasing money supply results in inflation.

The math of Dr. Antal Fekete proves that increasing money supply now results in increasing deflation, because the marginal utility of (growth of GDP from) debt has (probably) turned negative (in 2007). As you know, in a fiat system all new money is loaned into existance.

Fekete has explained the mechanism for capital destruction (misallocation) due liquidation value of the total PRE-existing debt. I think Fekete has been widely misunderstood and thus ignored. I will attempt to correct that here.

Fekete derived a mathematical proof that serial halving of the interest rate, results in serial doubling of the liquidation value (cost) of the total
PRE-existing debt:

http://www.professorfekete.com/articles%5CAEFGrowthAndDebt.pdf

However the typical reaction of readers was apparently that it was impossible for the value of a bond to rise higher than the total remaining income (payments) to the lender.

My contribution is a more undeniable proof by noting...

Especially read #3 below! I put it last because it is longer, but it is the most interesting.

Since the prior post rested on Fekete's math, I thought we should revisit the debate between Hommel and Fekete, wherein many of us originally perceived that Hommel had won the debate slamdunk. The wisdom accrued since then, reveals new insights.

1. http://silverstockreport.com/2008/shipping_costs.html
   
   

   Hommel wrote:...A few months ago, Antal E. Fekete stuck his foot in his mouth.
   http://www.safehaven.com/article-8493.htm
   
   He wrote: "The monetary metal with the higher specific value is more portable both in space and time. In more details, the cost of transporting the unit of value as represented by gold is lower. For example, if the bimetallic ratio is 15, then the cost of transporting the unit of value as represented by silver is about 15 times higher."
   
   He is wrong, probably because he has not actually shipped or purchased enough gold and silver to know the difference, and he is speaking "in theory."...

   
   Fekete was apparently correct as I can tell you that I quoted shipping silver from USA to free duty port in Subic Bay (near Manila) Philippines costs 10%, whereas about < 1% for gold. This is because the silver can not be shipped on a pallet or other economic means for it's weight class, unless you have an industrial license to ship silver internationally. This is not a Philippine regulation, but a regulation of the shipping companies and forwarders. You end up having to ship FedEx or UPS air. Ask all the silver importers in Europe (Risto and LibertySilver), and they will tell you the same story. Also transporting precious metals within Philippines must be done personally on an airplane. I simply can't carry 44 kilos of silver (only a fraction of silver I owned) on carry on luggage, so it would mean multiple trips to Manila at great expense (mostly time expense and risk of being noticed after doing same risky thing so many times). So who "stuck his foot in his mouth"?
   
   I have actually had to drastically reduce my planned silver holdings because of this shipping costs problem. I can only justify the expense for silver that I am sure I will hold for 10 years (as I think it may take that long for silver to pay in spades and overcome the initial huge expenses, also buy/sell spreads), due to overriding deflationary math until masses hit rock bottom (and billions of oz of scrap silver can come to market interim as result of that deflationary trend). Maybe it is fine to own only as much silver as we can reasonable carry or that we are sure we won't need to liquidate for 10 years, as if silver ratio to gold price goes to 10, 5, or 1, then we will be wealthy enough (assuming the balance is invested in gold). Silver's bulk-to-value may help regulate how much silver we should have.
   
   
   
2. http://silverstockreport.com/2008/free.html
   
   

   Hommel wrote:...Monetary advocates love to preach about how the U.S. mint ought to mint silver for free, but I don't see how they ever did.
   http://www.financialsense.com/editorials/fekete/2008/0205.html
   
   Mints earned quite a bit, which is called "seniorage"...

   
   Hommel was apparently correct as he discovered that when $1 was a silver dollar, the premiums charged by the US Mint on circulated silver dollars was up to 400%, so Hommel discovered that we don't need the US Mint to do anything, the free market is already doing it and reducing the premiums to as low as 5% recently:
   
   http://silverstockreport.com/2009/housing.html
   
   However, one flaw in Hommel's logic is the govt apparently has laws preventing the minting of durable coin (90% silver). So we do not have falling premiums of money that would be durable enough to circulate.
   
   Fekete apparently writes that the US Mint or govt is the barrier to a renewed gold (and/or silver) standard. Actually it is the desire of the people to use debt, which makes them vulnerable to bankers who manipulate interest rates. Fekete great contribution is how these interest rate manipulations misallocate/destroy private capital and thus increase the size of public capital (govt). It isn't surprising that if the people want debt, they enslave themselves collectively.
   
   *Note Fekete prefers "destroy" and I say "misallocate" because of the redundant capital expenditures created by serial falling interest rates, when new competitors use debt leverage to wipe out former capital business.
   
   
3. http://www.silverstockreport.com/2008/fekete2.html (MEAT OF DEBATE, also at top contains links to the other pages of prior debate)
   
   http://silverstockreport.com/2009/turn-around-time.html
   
   

   Hommel wrote:...Take your chances with delayed delivery? No thanks!
   
   By the way, philosophically speaking, this also explains why Fekete's "Real Bills Doctrine" is hogwash. There is no need for real bills to finance any business. Business can, and should, be financed by capitalists, not debtors, and certainly not the customers. Why? Because when debtors finance a business, especially a bullion business, that's how people end up getting defrauded.
   
   So remember, next time you hear it will be 30 days or more to get silver, turn around, and walk, or run, the other way...

   
   http://jasonhommelforum.com/forums/showthread.php?t=2855&page=2 (contains my prior commentary and discussion with Hommel on this debate)
   
   Related debate with a future's broker:
   
   http://www.silverstockreport.com/2008/trader.html
   
   http://jasonhommelforum.com/forums/showthread.php?p=36835#post36835 (contains my prior commentary and discussion with Hommel on this debate, plus follows from the future's trader that were not published else where)
   
   There were 3 areas of debate:
   
   
   1. HOMMEL WON: Paper silver (futures, LBMA, Comex, Perth Mint, etc) are naked short.
      
   2. HOMMEL WON: Mankind suffers from socialist enslavement effects of usury (lending/discounting at interest).
      
   3. FEKETE WON: Mankind benefits from impedance matching of usury (up to the point where socialist enslavement effects roost)
      
   
   
   Details on each area of debate:
   
   
   1. Hommel may have won this convincingly with some basic math. Fekete's distinction between "naked" and "possible deliberate intention to not deliver" (but having a hedge that is physically backed, even if through multiple derivatives) appears to be irrelevant, because in every way that matters they are same. Whether the Chinese (or other private parties) have huge secret stores of silver (which may be true: http://jasonhommelforum.com/forums/showpost.php?p=38517&postcount=24), that is backing the 8 major silver shorts (now down to 1 or 3 big banks) on the Comex (and maybe also LBMA and OTC paper silver markets), is irrelevant to current price suppression effects of the fraud, if they don't intend to deliver. Hommel's salient point is that (fraudulent promises via) debt/usury/futures send false signals to the free market, thus causing mis-allocation and pain. These false signals are multiplied a trillion-fold when the fraud is affecting the free market's value of money, as this cascades into every other aspect of pricing in the economy, which is future's markets for monetary metals is the sin beyond compare.
      
      
   2. Our current global crisis is evidence that mankind suffers from the fraud that develops due the social power that the banks aggregate over time. Hommel's crystal clear point is that once the "future promise" genie is unleashed, it has no limit (given sufficient time, e.g. 100s of years) to morph from any non-fractional backing (e.g. gold certificates, Real Bills) to free market of fractional backing (cheating on gold certificates, Real Bills) to a government market on fractional backing (central banks) justified by the defaults of the free market of fractional banking. Fekete's notion that such creep can be prevented with legal system, ignores history and the natural forces of human nature.
      
      
   3. Other than the fractional reserve/defaults fraud that eventually creeps in with debt (and the false signals this sends the free market), debt and lending at interest (opportunity cost) is often theoretically equivalent in terms of return to equity/rent when promises are kept:
      
      http://www.google.com/#hl=en&q=Irwin+Schiff+-+How+an+Economy+Grows+and+Why+It+Doesn't
      
      In short, debt and lending at interest (opportunity cost) is okay and equivalent to equity/rent when promises are kept. And debt has an informational advantage for society when it is used honestly. Fekete gives the example that trading the basis, instead of the price, is more informational and results in more efficient utilization of resources. This is conceptually similar to Hommel's point of trading value instead of price due to inflation. More generally, the economy-of-scale of small savers is an impedance mismatch to the large capital needs of many projects, thus these must be aggregated through usury to provide society with sufficient capital to grow. The stock market can theoretically aggregate via equity, but it is subject to similar fractional fraud creep (thus no long-term moral advantage over debt), and it is probably less efficient in mobilizing capital in the early stages of an economy's financial sophistication (e.g. China now). So the "foreigners" mentioned in the Bible verse about lending, are those who borrow from "no names" (no personal knowledge of) aggregated pool of savings-- we should not lend at interest (opportunity cost) to people we know. Physical trading to non-foreigners only (people we know in physical) without promises and opportunity cost will constrict a society to Dark Ages (in fact it did)-- the informational disadvantage is astronomical.
      
      So the bottom line is that neither the idealist (Hommel, no interest ever, no promises, only physical trading) nor the realist-idealist (Fekete, limited Real Bills fully backed by gold in a free market of banks) is 100% correct. And the Bible explains this. But Hommel is correct that to come out of the Harlot, you have to come out of any dishonest usury systems. And no usury system can remain honest and "foreign". But we still have to live in this world in meantime, so as Jesus said "Render to God what is his and Caesar what is his".