Archive for the ‘IMF’ Category
Bill Still is a guest on the Day Trade Show. Some very wise words of caution regarding a gold standard. The large banking institutions are starting to push a ‘gold-backed currency.’ Everyone from the IMF to the BIS to the World Bank is starting to suggest that this is what will be implemented when fiat money printing no longer kicks the can. One has to ask the obvious question: Why would the same banking institutions who have successfully monopolized fiat currency want this if it would, as purported, put the money power back in the hands of the people or in any way prevent them from a total monopoly yet again.
The short answer is: it won’t. The banks control the gold as much, if not more so, than they do fiat currency. The whole point is to try to push you, JoeCitizen into ‘trusting’ that this is a much more fair method. Do not be fooled. It’s time that we learnt our lessons from history. Remember, we went off the gold standard not because it was too restrictive for the bankers, we went off the gold standard because people were losing faith in it. The bankers had manipulated it so much, that no one believed it was real anymore. And it wasn’t. It is time to STOP trusting what these money changers suggest!
A look at the International Banking Cartel led by the Bank for International Settlement (in Basel, Switzerland) known as the bank of central banks (58 central banks) and The US Federal reserve System. Also a look at banking tycoons: from the Rothschild family in Europe to JP Morgan and others in the US. How banks not only control governments but also appoint politicians through huge campaign donations. Governments at the service of the major banks, the best example: the Obama administration and the history’s biggest bail out of the same institutions that caused the Great Recession.
There was a time about a year ago, before the second Greek bailout was formalized and the haircut on its domestic-law private sector bonds (first 50%, ultimately 80%, soon to be 100%) was yet to be documented, when it was in Greece’s interest to misrepresent its economy as being worse than it was in reality. Things got so bad that the former head of the Greek Statistics Bureau Elstat, also a former IMF employee, faced life in prison if convicted of doing precisely this.
A year later, the tables have turned, now that Germany is virtually convinced that Europe can pull a Lehman and let Greece leave the Eurozone, and is merely looking for a pretext to sever all ties with the country, whose only benefit for Europe is to be a seller of islands at Blue Aegean water Special prices to assorted Goldman bankers (at least until it renationalizes them back in a few short years). So a year later we are back to a more normal data fudging dynamic, one in which Greece, whose July unemployment soared by one whole percentage point, will do everything in its power to underrepresent its soaring budget deficit.
Case in point, on Friday the Finance Ministry proudly announced its budget deficit for the first eight months was “just” €12.5 billion, versus a target of €15.2 billion, leading some to wonder how it was possible that a country that has suffered terminal economic collapse, and in which the tax collectors have now joined everyone in striking and thus not collecting any tax revenue, could have a better than expected budget deficit. Turns out the answer was quite simple. According to Spiegel, Greece was lying about everything all along, and instead of a €12.5 billion deficit, the real revenue shortfall is nearly double this, or €20 billion, a number which will hardly incentivize anyone in Germany to give Greece the benefit of another delay, let along a third bailout as is now speculated.
To quote Greg House: “Everybody lies”
The gap in the Greek national budget is greater than previously expected. According to a preliminary Der Spiegel finding, the troika of European Commission, European Central Bank and International Monetary Fund reported that the government of Prime Minister Antonis Samaras is missing currently around 20 billion euros - nearly twice as much as last admitted. Only if the funding gap is closed, the next EU tranche will be transferred to Athens.
What is well-known is that for all intents and purposes Greece has already stopped trying:
That Greece can bridge the financing gap on its own seems unlikely. The already adopted austerity program has encountered great opposition in the population. In one published study in Athens on Saturday 90 percent of survey respondents declared that the new reform package go almost exclusively to the detriment of the poorer sections of the population. Only 33 percent also believe that the new cuts in the social network can not solve the country’s problems would be. Nevertheless, 67 percent of respondents argued that Greece remains in the euro zone.
But at what cost? Already 8000 people in Athens alone have to resort to soup kitchens to find some food in a country in which there are virtually no opportunities left to make a living.
Sure enough, in a world in which no politician has any credibility left, it took Greece a few short hours to issue its canned response to the allegation that it has been making up numbers all along… as usual. Per Dow Jones:
Greece’s finance ministry late Sunday refuted a report in a German magazine claiming that Athens must cover a 20 billion euros ($26 billion) budget shortfall–twice previous estimates–in order to satisfy international conditions for emergency aid.
Now we just need two more denials to have no doubt that every number out of that particular economic basked case is a lie. Which we don’t now. Don’t forget: this is what the Greek Finance Ministry looks like:
And the kicker of course is that as reported on Friday, Europe is now desperate to not rock the boat ahead of the Obama reelection, because as Reuters reported all of Europe wants to give Obama a second term. Which makes sense: in a world of wealth redistribution, it will be only fair that America, which has taken the place of China as the world’s growth dynamo, and where fund flows out of Europe have pushed the S&P to a few percentage point shy of all time highs, will repay its reelection debt to Europe for avoiding reality as long as possible, by “sharing” US taxpayer funding, from those who for one reason or another still pay taxes, with its European proletariat cousins and bailout all of Europe’s insolvent countries on Uncle Sam’s tab yet again, starting just after November 6, 2012.
Because it’s only “fair.”
A couple of weeks ago, we showed the IMF’s recent White Paper, which admitted to the literal criminality of our monetary system. Well, we now have confirmation #2 of the monetary system’s structure in fact being a Ponzi scheme….from the Federal Reserve itself. The bankers themselves, are slowly telling the truth; the world would do well to pay attention.
Apparently The Dallas Fed, which has been a strong opponent of “QE” in all forms, has come out with a working paper, the soon-to-be-infamous “#126″.
The paper, entitled “Ultra Easy Monetary Policy and The Law Of Unintended Consequences“, is a must-read. It is an excoriation of the “QE more, faster, and evermore” game that has been played up until now as a means of “addressing” problems with our economy.
Among the points made are that:
One reason for believing this is that monetary stimulus, operating through traditional (“flow”) channels, might now be less effective in stimulating aggregate demand than previously. Further, cumulative (“stock”) effects provide negative feedback mechanisms that over time also weaken both supply and demand. It is also the case that ultra easy monetary policies can eventually threaten the health of financial institutions and the functioning of financial markets, threaten the “independence” of central banks, and can encourage imprudent behavior on the part of governments. None of these unintended consequences is desirable. Since monetary policy is not “a free lunch”, governments must therefore use much more vigorously the policy levers they still control to support strong, sustainable and balanced growth at the global level.
I have often written on some of the cumulative (“stock”) effects of QE, with one of them being the devastation that is laid upon capital formation. Capital formation is inherently always tied back to savings, which is discouraged to the point of extinction under “ultra easy” policy; when negative real rates are the outcome for any “safe” savings of funds there is an effective hard bar placed that blocks capital formation from occurring.
The over-reliance on credit thus drives greater and greater levels of speculation “somewhere” in a puerile attempt to maintain the ability to obtain some sort of positive return. But speculation is a zero-sum game at best, and due to slippage and costs is a negative-sum game on balance. That is, for everyone who speculates and wins someone almost invariably speculates and loses more than was won. While the winners become wealthier, everyone else becomes poorer and in aggregate the result is a net loss.
One of the key points made in the paper, and which I have often expounded on myself, is this:
There is, however, an alternative perspective that focuses on how such policies can also lead to unintended consequences over longer time periods. This strand of thought also goes back to the pre War period, when many business cycle theorists focused on the cumulative effects of bank]created]credit on the supply side of the economy. In particular, the Austrian school of thought, spearheaded by von Mises and Hayek, warned that credit driven expansions would eventually lead to a costly misallocation of real resources (“malinvestments”) that would end in crisis. Based on his experience during the Japanese crisis of the 1990’s, Koo (2003) pointed out that an overhang of corporate investment and corporate debt could also lead to the same result (a “balance sheet recession”).
Researchers at the Bank for International Settlements have suggested that a much broader spectrum of credit driven “imbalances”, financial as well as real, could potentially lead to boom]bust processes that might threaten both price stability and financial stability. This BIS way of thinking about economic and financial crises, treating them as systemic breakdowns that could be triggered anywhere in an overstretched system, also has much in common with insights provided by interdisciplinary work on complex adaptive systems. This work indicates that such systems, built up as a result of cumulative processes, can have highly unpredictable dynamics and can demonstrate significant non linearities. The insights of George Soros, reflecting decades of active market participation, are of a similar nature.
This is well-worth the time to read. Being 45 pages it is happily free of ipso-facto mathematical expressions that aver to describe an economic theory (but are sadly lacking proof of predicates claimed, which invariably devolve upon any sort of critical examination to the economic equivalent of attempting to divide by zero.)
One of the most-startling assertions raised is one that I have often raised in The Market Ticker (and been attacked for asserting), which is that:
In Section C, it is further contended that cumulative (“stock”) effects provide negative feedback mechanisms that also weaken growth over time. Assets purchased with created credit, both real and financial assets, eventually yield returns that are inadequate to service the debts associated with their purchase. In the face of such “stock” effects, stimulative policies that have worked in the past eventually lose their effectiveness.
In other words “created credit”, that is unbacked credit, is a Ponzi scheme as it relies on ever-increasing exponential amounts of credit creation. This must eventually fail to produce sufficient return to service the debt so-created and when it does the consequence is mass-bankruptcy.
Note the applicability of this to virtually everything government and the private credit-creating cartel does. It also applies directly against the current political class and candidates, in that even the so-called Libertarian Gary Johnson refuses to come out for a “One Dollar of Capital” standard, cutting off such nonsense at the root. Indeed, when I raised such a question at the Orlando Libertarian Convention in his suite he brushed aside the suggestion with a comment that it would inhibit economic growth.
Well, Gary, here’s a nice scholarly paper to back up my assertion (which is quite-easily proved if you take the time to think it through and use your $5 calculator from WalMart) that ever-increasing amounts of credit creation are required to keep the system from collapsing once this path is embarked upon, and permanent exponential growth is by definition mathematically impossible.
Spend the time on this one folks — it’s worth it.
You know, if you’ve been following my writing for any length of time, that I’ve been advocating a “One Dollar of Capital” standard for banking.
I have also asserted that unbacked credit emission is, economically and mathematically, identical to counterfeiting of the currency.
That’s a strong allegation, and one that goes against what you’ve been told throughout your life — that banks take in deposits (your earned money) and then they loan that out. That this powers economic growth. And that we need the banks’ involvement in this process in order to have economic prosperity.
But these assertions that you have had your head filled with are identical to those that a drug pusher who tells you that he can make you feel good – just take one toke right here sir!
What he neglected to tell you was that the drug you are about to ingest is highly addictive, expensive, and will rot the teeth right out of your head while turning you into a mental zombie!
So imagine my surprise when the banksters to top all banksters, the IMF itself, issued a research paper that took a look at an old plan floated during The Depression that came to be known as “The Chicago Plan.” It was touted at the time as ending the risk of bank runs, dramatically reducing public debt (a huge problem now), dramatically reducing private debt (also a huge problem), curtailing the boom-and-bust cycle and allowing steady-state inflation to be zero without impairing monetary policy.
That, my friends, is One Dollar of Capital plus a few more features. And academically, they validated its assertions.
But that’s not the bombshell. That is found here:
In a financial system with little or no reserve backing for deposits, and with government-issued cash having a very small role relative to bank deposits, the creation of a nation’s broad monetary aggregates depends almost entirely on banks’ willingness to supply deposits. Because additional bank deposits can only be created through additional bank loans, sudden changes in the willingness of banks to extend credit must therefore not only lead to credit booms or busts, but also to an instant excess or shortage of money, and therefore of nominal aggregate demand. By contrast, under the Chicago Plan the quantity of money and the quantity of credit would become completely independent of each other. This would enable policy to control these two aggregates independently and therefore more effectively. Money growth could be controlled directly via a money growth rule. The control of credit growth would become much more straightforward because banks would no longer be able, as they are today, to generate their own funding, deposits, in the act of lending, an extraordinary privilege that is not enjoyed by any other type of business. Rather, banks would become what many erroneously believe them to be today, pure intermediaries that depend on obtaining outside funding before being able to lend. Having to obtain outside funding rather than being able to create it themselves would much reduce the ability of banks to cause business cycles due to potentially capricious changes in their attitude towards credit risk.
Read that however many times you need to until it sinks in folks, because this is what I and a few others have been saying now for a long time — and our ideas are not only not really new, they’re also factually correct.
The “extraordinarily privilege” referenced above, were you or I to engage in it, would be called what it is – counterfeiting. “Generating their own funding, deposits”, is exactly that — creating money out of “thin air” though the unbacked emissions of credit. It is exactly identical in form and effect to you running off $100 bills on your office copier. And for every other entity other than a bank, it is a felony.
But it is Congress that has this power according to our Constitution. A commercial institution that operates for profit should never have the right to literally steal from you at its whim, but that is exactly what unbacked credit creation empowers a bank with — the ability to take everything you have by debasing your purchasing power to the point that you are forced to hock, or even sell and abandon, any asset you possess.
This is what has happened to your standard of living. It is the strangulation of our economy, on purpose and for profit, that these institutions have imposed on us. Our political class has been bought by these jackals and turned into their minions, instead of the other way around where we empower politicians and they derive their power from the freely-given consent of the governed.
It is time to change this ladies and gentlemen.
You may have doubted that my analysis was correct when it comes to how the monetary and banking system works today, and whether One Dollar of Capital was workable and would address these issues along with being beneficial to the economy as a whole.
The paper cited here is 71 pages and will take you a bit of time to read and noodle over. But if you do, if you become awake and aware of exactly what has been taken from you, by whom, and why, perhaps you will rise and demand that it stop, backing that demand with your political power, your vote, your protest and your actions in the economy.
We do not have to put up with this outrageous activity by private firms; we have the right, and the power, to put a stop to it under the United States Constitution, and stop it we must if our economy is to clear and improve.