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Who’s Going To Eat The Losses?

The only question that matters regarding today's markets
Friday, September 8, 2017, 11:25 PM

Unsustainable.

Many more people need to understand what that word really means, and how it applies to pretty much everything in the current human living arrangement. Especially the so-called 'developed' nations.

Here’s the dictionary definition:

Let's take these three definitions one at a time.

First: our entire economic model, which dependent on borrowing at a faster rate than income (GDP) grows, is something that simply cannot be maintained at its current rate or level. Check.

Second: depleting species, soils and aquifers are all wildly unsustainable practices that are accelerating. Check.

Last (and most glaring of all): the world’s leadership (and we use that term very loosely) continues to insist on adhering to the indefensible idea that infinite growth on a finite planet is possible  Checkmate.

Said another way, the daily comforting stories we are told about how all of this somehow makes sense are just a load of nonsense. Each is entirely unsupportable by the evidence, facts and data.

What happens when a culture’s dominant narratives are not just unsatisfactory, but entirely unworkable? 

Well, for one thing, the younger generations that are being asked (goaded?) to step into an increasingly flawed future begin to resist. Which is completely understandable. They have nothing to gain if the status quo continues.

At the same time, the older generations mostly just settle into a stubborn insistence that everything will be fine if everyone will just do more of precisely what got us into the mess in the first place. Younger people should step up to make sure Medicare/Social Security/pensions remain fully funded, and buy the financial assets and homes of downsizing seniors at top dollar. The boomers have everything to lose if the status quo changes.

Why do I bother to tell you all this?  Why have I spent the last ten years of my life trying to alert the public of risks they keep telling me make them uncomfortable?  Because I care. Because I hope to help a few people preserve their hard-earned wealth. Possibly even save a few lives with this information. And, ultimately, to help people lead lives filled with greater connection, aliveness and joy.

The key to all of these better outcomes is having a clear-eyed view of "what is", and then being able to predict "what’s next". Which means that understanding is the first step. Informed action follows from that.

Mind The Gap

In the US, through selfish over-consumption, the baby boomer generation has screwed the prospects for following generations. It's now doing everything to deny and defend its extraordinarily self-serving and short-sighted decisions, and delay the repercussions for as long as possible.

For the record, I seriously doubt the current younger generations would have behaved any differently were we to teleport them back in time  The boomers came of age when net energy from oil was still climbing and that ‘taught’ them about ‘how the world worked.’  When you have abundant resources, especially high net energy oil, you can pretty much do anything you want.

But today?

Not so much. A BIG fallacy of the past is that wars lead to rapid economic expansion afterwards. A more correct version of this is that the destruction of war leads to rapid recovery and rebuilding ONLY IF you also have access to abundant high net energy oil. If you don't, wars only lead to destroyed economies.

Think of it this way: an 18-year-old who injures his knee has the resources of youth to help them recover completely. But an 80-year-old? Not so much.

This fallacy of thinking that we can just have another nice major war (North Korea?), or a few major hurricanes (Harvey, Irma and counting...), and then not only recover, but return better than ever is a dangerous delusion to hold. It's no different than our 80-year-old thinking that taking up downhill skateboarding would be a safe and sensible thing to do. 

Self-deception is a process of denying or rationalizing away the relevance, significance, or importance of opposing evidence and logical argument. Self-deception involves convincing oneself of a truth (or lack of truth) so that one does not reveal any self-knowledge of the deception.

(Source)

The inter-generational resentment mentioned above is growing ever more extreme and it’s creating a significant social (and soon political) disturbance that will prove to be utterly disappointing for all. Already we see the signs in failing pensions having to cut benefits, young people opting out of such bulwarks of cultural stability as car ownership, marriage and having children.

If the DNC hadn’t straight up stolen the primary from Bernie Sanders, it’s quite possible that he’d have handily won the US presidential election and we’d already be feeling the effects of the political power of the next generation.

In this view, Trump is nothing more than the first (but not final) reflection of boomer denial backfiring badly. The sclerotic remnants of the past held fast and tried to jam Hillary down the throats of a very unenthusiastic electorate that long ago concluded that business-as-usual is literally a vision without a future. And so Hillary was rejected and Trump, the only alternative left standing, got the victory.

Who’s Going To Eat The Losses?

The US economic data to back up this decidedly dim view of things could not possibly be more robust and unassailable.

If we were allowed just one chart, just a single piece of data to back up this assertion, it would be this one:

The oft-cited and worried over ‘US federal debt’ of some $20 trillion is the lowest dark-blue shaded area on that chart .It’s not even 10% of the predicament the country faces

No country has ever dug out from under a debt + liability load anywhere close to that amount. It's just too big a hole to climb out of.

With GDP growth stubbornly anemic for going on 12 years now, and no fresh sources of high net energy to fund future GDP growth, we can say this very simply about the promises our politicians are soothingly singing to us:

Any thought that these promises will be kept is delusional.

They won’t be kept because they can’t be kept. It’s really no more complicated than that.

Only one question matters when presented with a chart like this: Who’s going to eat the losses?

The keepers of the status quo, such as Hillary and Trump and their cozy relationships with Goldman-Sachs, et al., want the answer to be ‘the taxpayers’ (and not ‘the banks’). But they'd never publicly admit to that. So they pretend that losses will never matter, and instead promise perpetual prosperity for all.

So people, companies, communities and the entire nation of the United States makes plans and investments as if the above chart didn't even exist.

This is no different than our 80-year-old refusing to draft a will because he simply can't face the reality that one day he'll need one. Such denial and self-delusion make a terrible strategy to live by.

The fact that you live in a world where the leaders of most countries are engaging in willful denial does not mean you have to be a victim to the consequences of their irrational delusion.

This is why having a clear-eyed view of the data, knowing your history, and forecasting the most likely outcomes are critical for positioning yourself for safety.

Those who do this empirically realize that the global economy is far more likely to contract, possibly viciously, before it expands. Given this, today's global equity prices and non-investment grade bonds are absolutely mis-priced for such an outcome -- instead they're practically priced for perfection, and thus due for a major correction.

Last week we issued a report warning of the multiplying number of important indicators signaling a coming market correction and economic recession.

Building on that data is next week's webinar featuring Grant Williams and Lance Roberts who will be presenting their latest indicators, analysis and forecasts at the Dangerous Markets webinar on September 13th -- where they will take ample questions live from the audience. For more information on the webinar, click here.

Stormy Outlook

In Part 2: How To Deal With Our Dangerous Markets And Failing Future, we explain why the fall from today's market highs will be so painful, and where today's concerned investor can look when seeking safe haven for their capital.

We have the world's central banking cartel for our situation, who have -- for the third time in less than 20 years -- blown a gigantic bubble.  Or rather, have blown a nested set of bubbles (stocks, bonds, housing), each of which will help accelerate the popping the others when the time comes.

As with a developing hurricane, the time to prepare yourself for these eventualities is well before they actual manifest.  Once they’ve arrived, your ability to respond and react will be hampered by the fact that your efforts will be accompanied by those of thousand and millions of other people. Don't be one of the panicked herd. Take prudent action today.

Click here to read the report (free executive summary, enrollment required for full access)

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44 Comments

pokjbv's picture
pokjbv
Status: Member (Offline)
Joined: Sep 9 2017
Posts: 1
Sustainability

"In the US, through selfish over-consumption, the baby boomer generation has screwed the prospects for following generations."

 

Yeah Martenson, that's the ticket.  It is all the baby boomer's fault.  We intentionally got born post WWII as the pig in the snake generation just to inconvenience future generations.  

Never mind that when we got to school in the late 50's and early sixties they were filled to standing room only.  

Never mind that when we got to college those also were filled beyond capacity, and never mind that when we graduated there were NO freaking jobs.

And as usual your rant about the baby boom generation is long on criticism for things we could not help and very short on solutions that can actually have positive change.  In fact no solutions, one gathers you expect us all to feel so sorry for the people younger than us that we should just collectively decide to commit mass suicide.

I was born in 1958, I have an IQ over 140, a college education worth about 7 years of semester hours, a bachelor degree in finance, I am a decent person with a great sense of humor, I have never earned more than $43,000 in any year, and the planet was pretty damned screwed up by the time I arrived.  

Never mind that I have never been able to afford to buy a house, we were the first generation to experience downward mobility, never mind that most of my life has been spent in terror of homelessness and poverty.  

Never mind that in spite of our best efforts the generations that came after us were cynical, sloppy, lazy, illiterate, and have really heinous taste in both clothing and grooming habits.  

Here is a FACT for you, if man keeps overpopulating the globe it WILL die, and yet every generation (not just your favorite whipping boy) insists upon making more and more people.  The wealth gap, now at the worst in human history just keeps galloping to the absurd conclusion where 10 or 12 people own everything and all the rest of us are their slaves who have nothing.  

Guess what CM, the baby boomer generation did not INVENT these problems (most of which you exaggerate anyway) and I for one will NOT go along with accusations that it is my fault or my responsibility to fix it.  I am OLD!  I deserve a rest before death.  The people you need to be convincing of your theories are the ones busily humping their way into yet another pig in the snake generation.  

 

pgp's picture
pgp
Status: Silver Member (Offline)
Joined: Mar 2 2014
Posts: 195
POKJBV has a point

POKJBV has a point. Ultimately unsustainability is simply a feature of population exceeding resources. More should be said about it but then 90% of the PP reader base are parents who understandably refuse to believe having children is at the root of most of the world's resource, environment and economic problems for which no pleasant solution exists past an us-or-them survival strategy.

The way forward therefore requires a profound shift in culture. Something a bit more pragmatic than transgender freedoms or whether we should rip down the statues that remind us of our history, good and bad, because they are no longer politically correct to a few short sighted ignoramuses.

kaimu's picture
kaimu
Status: Silver Member (Offline)
Joined: Sep 20 2013
Posts: 143
DEMOCRATIC SOCIALISM

Aloha! Government has grown thanks to government debt. Without the ability to print debt the US government and its elected political components could not possibly have made so many cradle-to-grave promises. The government in America started after the Revolutionary War was a Republic whereby only land-owners could vote because those were the only ones creating capital and whose assets had a stake in the economy. We all know the rest of US history where the slaves were freed and women and now we are at the point where even non-citizens can vote and even some news stories were extolling the idea of lowering the voting age to 16 based on the past election. This will end badly not because of babyboomers but because we have the best Kakocracy promises can buy! Nobody has ever voted for the best people in government because the best people are not narcissist psychopathic enough to want to run for office. Voters throughout my lifetime have always voted for the "lesser evil"! BEST does not major in political science! BEST does not do community organizing! We've got a Congress stacked with lawyers who live in their own bubble world whereby they get paid to fail, so moving that mentality to government will always produce failed policies. Then Congress backs their "lawyer bubble" with the CBO which is backed by another socialist bubble entity the Ivy League academic economists who have never seen a hypothesis they cannot manipulate into more money and more debt to fund more promises. The entire US higher education system lives in a permanent Stockholm Syndrome where up is down and down is up! The size of their halo is only exceeded by the size of their collective hypocrisy. You won't find middle class poverty in the tenured faculty offices of UC Berkeley or Harvard!

We caught a glimpse of the "Silent Majority" on the last Presidential election, but more are waking up. The working class is too busy working to be able to don pink hats or black ninja garb to protest our plight. I guess our plight is we are "law abiding"! But I think that will change as the Kakocracy turns towards more socialism not less.

In 2005 when I was 52, I published a letter on another financial blog that I sent to George Bush(#43). The theme was Social Security and I offered myself as the first babyboomer guinea pig. In the letter I said I would forfeit all future social security benefits if he would refund me my contributions to date. Based on the first person in America to receive a social security benefit check I thought that might resolve the Social Security crisis. It was my part to reduce the tax burden on the younger generations.

Ida Mae Fuller(not a babyboomer) should have been the warning shot across the bow of the US Congress, but when you're main goal is to be in power and control then logic and reality go out the window! Today's crisis is based on yesterday's follies!

Who's going to eat the losses? The same people who have eaten the losses since the Roman Empire! Every Empire dies off because human nature is like that. The psychopaths always rise to the top. In this case and all others those who are the Kakaocracy now and in the past are their own worst enemy and ours too! If they were not such narcissists they would see our society today as it really is.

In reality there is no 1% and 99% there is only the 100%.

To change this dynamic we have to abandon almost everything we were taught and suspend our human nature long enough to first admit our addiction to debt. Nobody who is an alcoholic can ever become sober unless they first admit they are an alcoholic, admit they have a problem. For the current Kakocracy to do that they would have to volunteer to give up their power. Human nature dictates that has never happened in recorded human history. Empire never survives. If it did then we'd all be speaking Latin now!

It boils down to this ... DEBT KILLS!

sand_puppy's picture
sand_puppy
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 1587
Misquotation

Correcting a serious misquotation:

In the US, through selfish over-consumption, the baby boomer generation has screwed the prospects for following generations. It's now doing everything to deny and defend its extraordinarily self-serving and short-sighted decisions, and delay the repercussions for as long as possible.

For the record, I seriously doubt the current younger generations would have behaved any differently were we to teleport them back in time  The boomers came of age when net energy from oil was still climbing and that ‘taught’ them about ‘how the world worked.’  When you have abundant resources, especially high net energy oil, you can pretty much do anything you want.

It is very clear that the intent of Chris is not to vilify or blame a particular generation of people.  He points out that this is how people behave when supplied with near limitless net energy reserves, an event that peaked during a specific time in history.

-------------

Population overshoot is a long time issue on PP.  See the interview with Paul Ehrlich.  (And to get a glimpse into the difficulty in discussing this issue, see the discussion thread that followed it.) 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4631
life back then

Boy, I dunno.  I was born a bit after the boomer group, but life didn't seem all that hard to me.  Back when I went to university, I could actually work my way through school.  And so I did.  I ended up with very little debt.  That's because wages were a lot higher back then relative to education costs.

The poor kids now have no chance of doing that.  3 quarters at a UC school when I went was $2000.  Now its $13,600.  And that's for a CA resident.  CA non-resident?  Add $26,682.  Per year.  And that's just tuition.

At minimum wage when I went, tuition was 600 hours/year.  Most on-campus jobs were better than minimum wage. Today, even at $15/hr minimum wage, tuition is 906 hours/year.  And that's for a CA resident.

In 2016, I got the sense that HRC was "the boomer candidate" - who for me represented a whole group of people who were uninterested in looking real hard at the status quo.  Lots of my friends fall right into this category.  Both Bernie & Trump wanted to shake things up, but for HRC, things just needed some minor tweaking here and there.  "All is well.  We got ours.  Change nothing."  I think that's what Chris is reacting to.

herewego's picture
herewego
Status: Silver Member (Offline)
Joined: Aug 11 2010
Posts: 139
Chris I thought "He's nailing

Chris I thought "He's nailing it again."  Making almost unthinkable elements of reality clear is a gift and I appreciate that you have it!  Mostly we seem live in a fog of expecting more of what we already know, without examining how it got that way or what a continuation of the familiar would require.  I think it's sooooo hard to apply our brain power to the situation partly because we mostly don't have any other way to survive and that's too hard to face emotionally.  That said, a lot more people speak of the various predicaments our civilization faces now than 10 years ago, when I took the red pill.  I give you credit, and Adam, and a few other clear-speakers out there.

I'm a tail-end boomer.  I'm not planning on having a pension, though I may "get some".  My youth was hugely easier than what I see my niece and nephew experiencing.  I was poor, uneducated, hard-working, thrifty and worked at minimum wage.  On that, I was able to save for and execute 18 months cycling Europe, backpacking every summer weekend, and several years later, landing a better job with no training.  Now that same job requires a multi-thousand dollar certificate, and there's no way one could travel for a year and a half on savings from it, because there are no savings left after rent and bills.  Eventually, I bought a tiny dump of a condo in Vancouver and that, plus 5 years of elbow grease making improvements, allowed me to become a rural land owner (of a tiny dump-becoming-homestead) 10 years later. 

What I'm saying is that hard work in a rising economy got me there, but it will not get them there.  They can't do anything but a brief road trip on their savings.  They will NEVER own anything in Vancouver, and probably not anywhere.  They work as hard as I did (do), but something has changed, and what worked for me leaves them unable to amass any stored financial wealth.  We older ones help, of course, but that's not the point.

A question: how useful is placing blame in facing predicaments?  It's good to have a clue about what forces, human or planetary, are creating the predicaments so that we can draft intelligent strategies.  But for choosing responses, it doesn't matter a fig if Boomers were selfish, bad, blameworthy, or innocent, just like the youngsters, minus the devices.  We still have to deal with the situation as it is now.  It's also good to remember that while many Boomers became wealthy beyond the hope of kings of past centuries, not all are. 

My 2 cents.

Susan

Mark_BC's picture
Mark_BC
Status: Gold Member (Offline)
Joined: Apr 30 2010
Posts: 398
kaimu wrote: To change this
kaimu wrote:

To change this dynamic we have to abandon almost everything we were taught and suspend our human nature long enough to first admit our addiction to debt. Nobody who is an alcoholic can ever become sober unless they first admit they are an alcoholic, admit they have a problem. For the current Kakocracy to do that they would have to volunteer to give up their power. Human nature dictates that has never happened in recorded human history. Empire never survives. If it did then we'd all be speaking Latin now!

It boils down to this ... DEBT KILLS!

Our addiction to debt is no mistake. It is the way our (soon-to-be-ex) elite masters have stripped us of our wealth and enslave us. The elites now own pretty much everything. Some average people are lucky enough to own their home and a few other things outright but it doesn't amount to much. The only way the average pleb can get title to a house is to go into debt ... to the banking elites. In other words, the plebs are literally owned by the Rothschilds. Which is the what all sociopathic dictatorships have strived for through history -- complete ownership and power over everything else. The difference is that today we have complex debt instruments and manipulation which make it all seem less oppressive, and many people have been brainwashed into thinking debt is a good thing because they think it enables people to buy houses they otherwise couldn't afford, and it stimulates economic activity (or so they believe). But that's only because debt is currently the only way plebs have access to tasting wealth.

The real solution is to steal back all the wealth the Rothschilds have stolen, then divvy it back out to the 99%, and then people won't need to go into debt to buy a house because the middle class would once again own the wealth instead of being debt slaves to the bankers. The country could quite easily just extinguish all mortgage debt which would then transfer a huge amount of wealth back to the middle class. Of course the implications of this for the dollar wouldn't be good but the dollar is currently a fantasy anyways. I say it would be "easy" to do this, well the hard part would be relinquishing the Rothschilds of control. It's always hard to oust oligarchs.

I disagree that government is too large. The problem is that government has been captured, corrupted and merged with the private sector. It doesn't have to be this way. Without government I don't know what half the population would do to support itself. As Chris rightly points out, GDP growth can't be sustained and it will go down. What implications does this have for profit (the driver of the private sector?). Growth is basically over except in oil-rich countries like Canada, robots have stolen half the historical jobs, so it is simply not possible to keep people employed in the private sector at full employment. Government assistance is needed. Or the work week must be reduced to better spread out the remaining jobs. One of those two options are required. No one seems to be talking about this because reducing the workweek would then reduce the incomes of those people who currently have jobs, which isn't politically acceptable. The solution to this is to augment those jobs with government handouts.

Where should the funding come from for this required government support of the 99%? Why, from the Rothschilds and their banker servants on Wall Street, of course. They are worth trillions. And don't forget, if everyone could be given a home so that they don't have a mortgage payment, then the need to work full time would be reduced.

It's all about debt slavery. If we get rid of debt slavery and transfer ownership of the real wealth back into the hands of the 99%, then many of the problems which currently seem intractable will just disappear. The complication with the USA which other countries don't have is that it has a 40 year trade deficit history which has seriously screwed up the economy so making such a transition in the USA would create much more upheaval than in pretty much any other country.

Pipyman's picture
Pipyman
Status: Bronze Member (Offline)
Joined: Apr 24 2011
Posts: 31
Yeah, thanks for saying the

Yeah, thanks for saying the necessary SP. WE human beings are very prone to emotional outbursts aren't we? Ego defence mechanisms are definitely the enemies of knowledge, especially when they are arbitrarily adopted belief systems. And for detractors, please note the use of WE.....

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 738
The Blame Game Is Worthless

The first time I dropped my motorcycle at speed onto the blacktop I got about a square foot of road rash on my left side. (I also ruined a good pair of jeans and a tee shirt.) When I looked back at the accident and try to identify what to blame for my painful experience, it wasn't the asphalt (bad pun intended.) We can cast blame for the current state of affairs in this country, but it won't do a lick of good. We still need to deal with the results when they arrive. 

Boomers reacted to the environment they grew up in. Lots of dice were already cast by the time Boomers could do anything about it. Social Security was instituted before any Boomers were born. Medicare was passed before the earliest Boomer could vote. It's hard to realistically blame Boomers for those Ponzi schemes. Of course, that doesn't mean that Boomers are blameless. We over consumed and voted for politicians who used creative financing to push the costs into the future wherever possible. Now, the Boomers are on retirement's doorstep and expect the social promises that were made (and individually paid into the system for decades) to be fulfilled.

With declining per capita energy available, increasing usage of software and hardware robots, unprecedented levels of debt throughout society, and aging demographics, it is essentially a mathematical certainty that we won't make it through this bubble unscathed. Here are 2 graphs that complement Chris' graph in the article to illustrate the situation.

https://www.smarteranalyst.com/2015/03/31/us-become-nursing-home-economy/

If you want to see where you fit into the picture, add 65 to your birth year. Baby Boomers were born from 1946 to 1964. These folks turn 65 starting in 2011 until 2029. Because there was such a boom of babies, the graph shows a considerable vertical spike. The curve flattens out in the mid 2030s but it never drops to lower levels. We're currently at about 15% of the total population retired. As the percentage increases, fewer workers will be supporting more retirees. At least, that's what I get from the actuarial fantasy shown in this graph.

https://commons.wikimedia.org/wiki/File:Medicare_%26_Social_Security_Deficits_Chart.png

File:Medicare & Social Security Deficits Chart.pngThis graph shows another projection along with a current reality. By the mid 2020s, Social Security and Medicare will eat up the entire Federal tax receipts. We won't be able to fund any of the other "necessities" without taking on more debt, cutting costs, or increasing taxes. Taking on more debt just saddles the future generations with more taxes. Cutting costs (reducing payments to recipients) won't get a politician reelected. At some point, increasing taxes is counterproductive. Why work when there aren't any fruits from your labor to enjoy?

Another point about the above graph to notice is that Medicare is already in a cash deficit since 2007. Social Security changes from a cash cow to a cash hog sometime this year. Because LBJ set up the Unified Budget when he was President, surplusses from these "Trust" funds were used as slush funds for politicians who wanted to buy more reelection votes. Instead of having a "lock box" that has funds, we have irredeemable IOUs instead.

We can try to place blame ... or we can deal with the upcoming reality. Saxplayer has been posting links to the Daily Digest for years that show the shambles of finances for cities, counties, States, and sovereign governments around the globe. The houses of cards eventually will tumble.

What will the world look like the day after? Actually, it is better to focus on your own world. What systems are currently functioning that require a safe, stable environment to continue operating? Will that safe, stable environment exist when government entities fold in bankruptcy? Will you be able to provide for yourself and loved ones? How will you get those items if the trucks stop bringing them?

Once the trucks stop rolling, cities will turn into self cleaning ovens. A community is too big when the immediately surrounding area cannot produce enough food, water, shelter, and clothing for the populace. If the local resources are sufficient, there's a chance for cooperation. Where necessary resources are limited, competition will result until the local population declines to sustainable levels.

The heartwarming stories coming out of hurricane ravaged locations lead people to think that crises brings out the best in people. I agree with that as long as folks perceive the crisis to be temporary. Once it is evident that it isn't temporary, folks will stop offering a helping hand to strangers.

As they say in real estate, the only 3 things that matter are "location, location, and location." Put yourself in a situation that allows you to enjoy the fruits of modern life while it exists and allows you to thrive in a post-modern world and you've got the best situation. Think about it before it happens.

Grover

ecb's picture
ecb
Status: Member (Offline)
Joined: Apr 7 2012
Posts: 17
another POV

I agree with SP about Chris. In the years I've been reading PP the only group he's attacked is the Fed and then with good reason. As a  leading edge Boomer, I have long felt some guilt that our "Me" generation was at fault for the unbridled excess of debt that we now collectively own. However, I've come to see that all of us have been manipulated (though most willingly) into excessive consumption by the easy credit extended by TPTB.  Our  general ignorance of financial matters is due largely to an ineffective and controlled educational system but is also owing to a purposeful shrouding of how the system really works. From Jekyll Island on to present day, the financial system is a secret society that lives and conducts it's business in the shadows. They know that they cannot stand the light of day.

But this serves to underline the value of PP which brings us truth and information on the subject in a way that is genuinely empowering, if you take it to heart. I understand and share the bitterness expressed by POKJBV but hasten to point out that his anger is misdirected. It should be reserved for those who are manipulating us and the system for their own gain. Their game is outrageous personal enrichment at the expense of society and power (control of the masses). .

AKGrannyWGrit's picture
AKGrannyWGrit
Status: Gold Member (Offline)
Joined: Feb 6 2011
Posts: 369
The Narrative

In the US, through selfish over-consumption, the baby boomer generation has screwed the prospects for following generations.

This statement is a "generalization and an oversimplication" of the predicaments we face.  It places blame and as we can see from pokjbv's comnents can offend the cohorts of that group.  I don't know anyone in the baby boomer generation that have selfishly over-consumed as we have been told, and are STILL being told that we live in a time of energy abundance.  Targeting a specific group to blame will not get us nearer to solutions.  Instead let's talk about the narrative surrounding energy and the messages people are being told and believe. Why should people change, no one is shouting from the roof tops that "a crisis is coming"!!!!!  Except Chris, but he is doing it politely and civilly, through discussions.  

Unless and until someone adopts the motto "a crisis is coming" people won't listen. But then he'd probably drown in his hot tub.  (Matt Simmons)

AKGrannyWGrit

Nate's picture
Nate
Status: Platinum Member (Offline)
Joined: May 6 2009
Posts: 556
primary wealth
Mark_BC wrote:

The real solution is to steal back all the wealth the Rothschilds have stolen, then divvy it back out to the 99%, and then people won't need to go into debt to buy a house because the middle class would once again own the wealth instead of being debt slaves to the bankers. The country could quite easily just extinguish all mortgage debt which would then transfer a huge amount of wealth back to the middle class.

Something that has long warmed my heart is that the majority of tertiary wealth is held by the elites.  If we fast forward, they will take the biggest hit.  Locally, the primary wealth (farmland) is family owned.  Secondary wealth holders are represented by nut hullers, shellers, milk processors, and wineries.  The majority of these are also family owned. 

I see no need the redistribute tertiary wealth.  Move your own assets into primary wealth.

thc0655's picture
thc0655
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1418
But investor optimism is at a 17 year high!

http://www.gallup.com/poll/218024/investor-optimism-rises-again-hits-year-high.aspx

A new surge of optimism among U.S. investors has pushed the Wells Fargo/Gallup Investor and Retirement Optimism Index to its highest level since September 2000. The index, after rising in every quarter since the start of 2016, leveled off in the second quarter at +124 before rising to its current +138 in the third quarter.

See?  Here's the optimistic investors out enjoying a round of golf in the Western US:

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Tim Ladson
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Insurance Derivatives

Anyone - 

What are the implications of catastrophic insurance losses for derivatives ?

Thanks,

Tim. 

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Nate wrote:Mark_BC
Nate wrote:
Mark_BC wrote:

The real solution is to steal back all the wealth the Rothschilds have stolen, then divvy it back out to the 99%, and then people won't need to go into debt to buy a house because the middle class would once again own the wealth instead of being debt slaves to the bankers. The country could quite easily just extinguish all mortgage debt which would then transfer a huge amount of wealth back to the middle class.

Something that has long warmed my heart is that the majority of tertiary wealth is held by the elites.  If we fast forward, they will take the biggest hit.  Locally, the primary wealth (farmland) is family owned.  Secondary wealth holders are represented by nut hullers, shellers, milk processors, and wineries.  The majority of these are also family owned. 

I see no need the redistribute tertiary wealth.  Move your own assets into primary wealth.

you honestly believe the elites don't know what's coming and are not positioning themselves to make even more profits from it? Why has Jp Morgan amassed the greatest silver horde in history? Is Jp Morgan just going to turn around and vanish from North America on their own accord once the dollar dies? Of course not. They are currently plotting out a new system behind the scenes which will again make them masters of the new tertiary wealth system that is put in place. I'd love to get my hands on some primary wealth before the transition. Unfortunately I can't afford any despite my 6 figure income, unless I want to go even further in debt to the Rothschilds.

Edit: cancelling mortgage debt is definitely not simply reshuffling tertiary wealth because houses are real primary things. Shifting ownership of those from the Rothschilds to the 99% would be one of the greatest ways to recharge the middle class with real wealth, not tertiary wealth.

Of course I fully expect that after the dollar dies, existing mortgages will be repriced by mr. Rothschild in the new system so that the slavery can continue.

 

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location, location, location


Mark_BC wrote:

Edit: cancelling mortgage debt is definitely not simply reshuffling tertiary wealth because houses are real primary things. Shifting ownership of those from the Rothschilds to the 99% would be one of the greatest ways to recharge the middle class with real wealth, not tertiary wealth. Of course I fully expect that after the dollar dies, existing mortgages will be repriced by mr. Rothschild in the new system so that the slavery can continue.

Let's turn our attention to another of the 3 E's.  Energy.  Even if mortgages were canceled and houses were debt free, only homes with access to long-term energy (heating and electric) and food will survive.  Grover does a nice job of covering this in post #9.


Grover wrote:

What will the world look like the day after? Actually, it is better to focus on your own world. What systems are currently functioning that require a safe, stable environment to continue operating? Will that safe, stable environment exist when government entities fold in bankruptcy? Will you be able to provide for yourself and loved ones? How will you get those items if the trucks stop bringing them?

Once the trucks stop rolling, cities will turn into self cleaning ovens. A community is too big when the immediately surrounding area cannot produce enough food, water, shelter, and clothing for the populace. If the local resources are sufficient, there's a chance for cooperation. Where necessary resources are limited, competition will result until the local population declines to sustainable levels.

 

 

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Primary and tertiary wealth

Private funds are busy purchasing farming land here in Quebec. Farmers who owned primary wealth are paid with tertiary wealth while these funds replaces their thin-air-based tertiary wealth with hard-and-tangible assets.

This is an example on how the wealth transfer is occurring now, in front of our eyes.

The future market tumbling down will represent the collapse of a facade with nothing behind. All value will be transferred long ago.

 

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Grover
Grover wrote:

https://www.smarteranalyst.com/2015/03/31/us-become-nursing-home-economy/

If you want to see where you fit into the picture, add 65 to your birth year. Baby Boomers were born from 1946 to 1964. These folks turn 65 starting in 2011 until 2029. Because there was such a boom of babies, the graph shows a considerable vertical spike. The curve flattens out in the mid 2030s but it never drops to lower levels. We're currently at about 15% of the total population retired. As the percentage increases, fewer workers will be supporting more retirees. At least, that's what I get from the actuarial fantasy shown in this graph.

In all the years of both mainstream and alternative financial analysts hysterically shrieking about the catastrophic consequences of an aging population, I’ve never believed it; not once. It stinks like fish to me, and I work with fish so I’m good at smelling a rotten one. This irrational fearmongering is just another ploy to divert attention away from the real structural problems; another way to prod the middle class into casting blame among itself. Remember, it always comes back to “Divide and Conquer” – the middle class.

  • OMG, these old people are going to need FOOD! Who’s going to provide that and where will it come from????? It’s not like the USA has much food!!! (oh wait, the USA is the largest breadbasket in the world and it hardly takes any labour to produce it anymore. Hmmm…) While it does require fossil fuels to produce food, I would guess that this applies to food being eaten by all age cohorts, not just old people…
  • But… but… they will need HOUSING; where is that going to come from????? Hmmm, there is currently the greatest glut of real estate in history as a result of 20 years of low interest rates. Furthermore, old people previously lived in houses when they were young, and as far as I understand, those houses haven’t gone anywhere. Old people typically need LESS housing when they retire. Hmmm… where is this housing shortage coming from again?
  • But they need MEDICATION, which costs an ARM and a LEG!!!! How is society ever going to be able to shoulder the burden of keeping old people alive?????? Riiiiiiight. Those EXACT same pills that are sold in India for 100x less than in USA…. by the same pharmaceutical giants who are part of the corporo-government-middle-class-rape-and-pillage scheme. Nope, that one’s a red herring too.
  • What about CARETAKERS!!! Who is going to take care of all these old people????!!!!!  Hmm, if you look at the real employment statistics which the alternative financial media is good at pointing out, it appears that the USA currently has one of the greatest unemployment rates ever. That seems like a great pool of labour to pull from!!! I’m sure they aren’t ALL deadbeats unwilling to work!!!
  • But who is going to PAY for all these caretakers???????? We’re broke!!!! Actually, no, we aren’t really broke, it just seems that way. The middle class is currently broke from 100 years of R&P’ing by the bankers. The funding to pay for caretakers could easily come from the productivity improvements made throughout the economy over the last 50 years by technology. You know, how technology is supposed to make our lives easier because it enables us to do more things per hour of labour and improves our “productivity” (a term which I don’t believe has ever been defined without using a circular reference to the word “produce”). Instead, we are being told that technological automation, along with all the old people, is going to destroy the economy because finding better, more efficient ways to get things done, which is what technological automation generally does, somehow hurts the economy. Umm… HUH??!?!?!
  • But old people will need to go see the doctor more than healthy young people do!!!! Who is going to pay for that?!?!?!?!?!? This is actually about the only argument supporting this anti-aging hysteria that has any merit behind it. Doctors are expensive. However, I have faith that SOMEHOW, SOME WAY, with all the genius of modern knowledge, a way could be found to provide for old people to go see the doctor without destroying the economy… Given that much of the cost of seeing the doctor doesn't even go to the doctor, instead getting funneled into the same “pharmaceutical giants who are part of the corporo-government-middle-class-rape-and-pillage scheme” as mentioned above, I think if that system was dismantled, seeing the doctor would actually become affordable again.

How absurd is it that we actually believe that caring for an additional 25% of old people is going to bring down the economy. Take a step back everyone and think about it from 10,000 feet up, look at the big picture. Don’t get hung up on $$$ charts because as we all know, $$$’s will soon go bye-bye and even today they have no relation to anything real.

The bottom line is this: if technological automation and people getting old are enough to destroy the economy, then the problem lies elsewhere, structurally, with the wealth “distribution” system.

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That settles it!

We're selling the place, taking the capital gains exemption and moving in with the kids

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Small mostly self-sufficient

Small mostly self-sufficient family-owned farms provided labour for developing and upcoming industry. Small farmers and family were drawn to industrial centres (push away from poor difficult life working the land to more convenient and financially interesting way of living). Fossil fuels, artificial fertilisers, chemicals and monoculture approaches made it possible for limited workforce to work large swaths of land and produce large amounts of outputs. Farms became larger and larger. I assume that land, machines and renewables were mostly bought with credit. A mechanism that seems to have had a very destructive impact on so many fronts (social, cultural, environmental, resilience, ...), and when the system falls the banks will own the land.

Am I seeing things too simple? Honest question...

It seems that what looked like a swell idea may in the end not be that fantastic after all.

Inertia and lock-in is a real pain...

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Pull no punches.

By the end of this century the World will have burnt all its fossil fuel reserves.  A baby born today will potentially see that happen in their lifetime; the bottleneck generation.   Hence, if it is not already too late, don't have children.

ps. Bottleneck was coined by Catton in his book by the same name.  A period in human history where rising population size collides with a falling carrying capacity.  A greater volume trying to fit through a smaller aperture - a bottleneck.

pps.  The antidote to debt is inflation.  Inflation will evaporate debt away but make our current industrial civilization unaffordable.  Our energy descent will make inflation a certainty.  Prepare for it.

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A lot has changed

Am I seeing things too simple? Honest question...

I don't think so. Your statements are accurate. You focused on farms. The workforce that left the land is now working in factories, or in offices, or on the roads, etc... We can make similar statements for other segments of the society. Subtleties and difficulties comes when we try to explain the workings of the whole system.

A lot has changed since the old time. Before, the land was kept within the family, usually given to the older son who was responsible to take care of the elder. Parents ended their lives in the farm. This is not true anymore. When parents wants to retire, they sell the farm to the child/children who cannot afford to buy it. A basic farm in Quebec is worth 2-3M$ on the market. And adding the more stringent regulations we have today, fewer people wants to take a farm.

One more vicious fact: it is difficult to divide farmable land. So, it is difficult to create smaller farms. The whole system looks like it has been patiently tuned to advantage the agro-industrial behemoths or the ones with deep pockets.

The same is happening with many fresh water sources. CocaCola, PepsiCo, Nestlé, el Al. are buying them. People are agitating the red flag, asking our government to declare fresh water as a strategic asset for the country. Nope! Free trade rules have precedence over national interest and no politician have the guts to rise against these anomalies.

As many said, brace for yourself and your loved ones, help some if you can, and try to lose the minimum of feathers across the coming storm. Good luck to us.

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Debt Conversations

My soon-to-be brother-in-law has recently been reading The New Confessions of an Economic Hitman by John Perkins. It appears several chapters have been added to the original book. In any case, it allowed us to have a conversation about debt and, in particular, how it is often used as a tool of enslavement. The more I think about it the more coming off of the gold standard has penalised citizens and rewarded governments (and all those who feast upon). One of the 'hazards' of debt is the breakdown of social cohesion which is what we're witnessing now (America has the alt right vs social marxism paradigm, Britain has its pro EU vs anti EU split and Europe itself has the 'Greek problem'). From what I've read about the subject, debt makes a few people rich and the rest become poor. It's such a pervasive instrument and so naturally we cannot have public conversations about it.

I suppose the greatest example of positive reform following debt enslavement was Solon's Athenian Democracy. What we get this time is anyone's guess. I get the feeling that the following statement applies;

"If you are reading this then you are the resistance."

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Mark_BC
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Grover
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Mark_BC
Mark_BC wrote:

How absurd is it that we actually believe that caring for an additional 25% of old people is going to bring down the economy. Take a step back everyone and think about it from 10,000 feet up, look at the big picture. Don’t get hung up on $$$ charts because as we all know, $$$’s will soon go bye-bye and even today they have no relation to anything real.

The bottom line is this: if technological automation and people getting old are enough to destroy the economy, then the problem lies elsewhere, structurally, with the wealth “distribution” system.

We see things quite differently. I'm not sure how the world functions in your view. To me, people do things for selfish reasons. (Even when I donate blood, it makes me feel good.) I work either because I just love it so much ... or the money I get from my work allows me to purchase items that I want/need. Just because I love my work soooo much, doesn't mean that I can do it for free without dire financial consequences. Would you continue to work if you weren't getting paid? Likely not! How would you afford to live? So, money does have some realistic basis in modern life.

Frankly, the profit motive is what powers the economy. Profit is what is left over when all expenses of producing something have been deducted from the price received. Taxes are an expense that reduces the leftover profit. It isn't just income taxes to consider. There are all manners of taxes - property, vehicle, sales, etc. There is also the cost of complying with government regulations that reduces profit. With enough taxes, there isn't any profit remaining to power the business. As taxes go up, the odds increase that profit will decline.

When people retire, they mostly switch hats from being on the production end (producing a saleable product) to just being on the consumption end. Other than high net worth individuals, most retirees pay less in taxes once retired. But, government has obligations that need to be funded. Someone(s) have to make up the shortfall in taxes due to folks retiring.

Since you're Canadian, you may not know how the US Social Security and Medicare system works. People and their employers each contribute a percentage of wages up to a limiting value to the Trust Funds. The Trust Funds then pay out benefits to current recipients from the specific Trust Fund and theoretically manages the balance. In essence, it is a Ponzi scheme.

Many folks have built their retirement plans around the Social Security promise. Since these folks (and their employers) were taxed throughout their working life, folks feel entitled to receive benefits as promised. Unfortunately, President LBJohnson introduced a new budgeting gimmick called the Unified Budget in the 1960s. By doing so, all the various Trust Funds were in effect commingled with all the other funds in the federal budget. It didn't take long for congress to figure out that these funds were oceans of slush funds for their special projects.

Who could have guessed that congress would abuse this? Well, they abused it. Here is the most recent US government debt to the penny. The Intragovernmental Holdings is a sum of all Trust Funds. Bet you can't guess how much of that $5.4+ trillion hasn't been spent (here's a hint, the end of day balance is $0.00) That's right. Every day, all of the excess from these funds get transferred out of the funds. As my second chart in post #9 shows, the excess in the 2 major accounts have come to an end.

Current Debt Held by the Public Intragovernmental Holdings Total Public Debt Outstanding
09/07/2017 14,410,076,163,680.58 5,434,510,797,926.54 19,844,586,961,607.12

Social Security is affectionately known as the third rail of US politics - touch it and you're dead. As the chart shows, expenses are set to accelerate henceforth. As a result, each year, politicians will have to hunt for additional taxes, cut benefits, borrow money (raise future taxes surreptitiously,) or do something creative to get out of this quagmire. They'll try nibbling on the edges - slight increases in future payroll deduction tax percentages, limiting social security payments to the 1%, changing it to a "needs" based system (welfare,) etc. It might work for a while, but there's no way for it work long term. Believe it or not, it is just simple mathematics.

You have much more faith in government than I do. Just like profit motive drives the economy, money/power drives politics. Politics is expensive. It costs $millions to run for congress. Congress critters are always raising funds for their next campaign. Fortunately (for them,) high value individuals are exceedingly generous, fund candidates who can win, and then expect some sort of payout - loophole, reduced regulation, tax cut, etc. from the politician being funded. Ever wonder why pharmaceuticals are so expensive in the US? It is this unholy alliance that drives costs. Is there any high profile industry that doesn't have cozy relationships. I can come up with hundreds of examples of these "screw the plebs" legislation.

So, the bottom line for me is that US government financial failure is baked in the cake. (Some other event may take us out first.) Knowing the exact timing of the event is hard to determine at this point. By the mid 2020s, all taxes received will be earmarked for these transfer programs. There won't be any money left for defense, climate change, transportation, or any of the other Departments we might consider important. Congress can't raise taxes considerably enough, and they can't cut benefits enough. Will they be able to borrow enough? At what point does the debt level cause confidence to fail in the system?

Where would you want to be when the entire system grinds to a halt? Do you want to be in a location where resources are exceedingly limited and due to diminish rapidly from competition with your neighbors (who you hardly know) ... or do you want to be in a location where there are enough sustainable resources for the local community - a place where cooperation has a chance? That was really the gist of my last post.

Grover

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Shanejmd
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Complacent Cowards

Everyone seems interested in defending their generation. Who cares what direct or indirect excuse you have for your generation? No one cares about excuses. History should be the teacher, and here we are again.

All I know is I'm not paying for another generation that stood down and became the generation they supposedly stood against when they were younger just to become the same people they protested. 

Knowing what this inept government and banking system will do to keep the Titanic band playing I was sure to get my family out of the system and the country. Any other person wanting to survive the onslaught should get out too. Choose to not participate. Be smart. Be brave. Become self sufficient. Be flexible. Resist.

Depend on that retirement tied to the stock market, pension, S.S., medicaid, welfare. Your lost, but the best of luck to you. 

 

 

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Money and debt are one and

Money and debt are one and the same thing.  Money is created as debt.  However once created, money gravitates to the top and hence debts become un-repayable at the bottom.  Inequality increases until the system gets a forced reset and the cycle can begin again.  .The financial system can prolong this reset by controlled inflation and perpetually growing the debt base.  Unfortunately we live on a finite World.

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Luke Moffat
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More Debt Chat

I'd open with this, which one is it?

climber99 wrote:

However once created, money gravitates to the top and hence debts become un-repayable at the bottom.  Inequality increases until the system gets a forced reset and the cycle can begin again.

or

climber99 wrote:

The financial system can prolong this reset by controlled inflation and perpetually growing the debt base.  Unfortunately we live on a finite World.

Are we in a linear progression of debt until finite limits become apparent or do we experience cyclical resets?

I'd argue the latter given how debt bubbles have popped in the past, even before the oil age began... Mississippi Bubble, anyone?

Is money always debt? Or does it become debt after the elites decide the economy isn't expanding quick enough? Or do the potential benefits of products yet to make it to market (e.g. medicines) necessitate debt?

It might be worth giving debt the same treatment as a prescription drug, i.e. a list of both what it aims to cure plus it's side effects. 

Pros:

- Everyone gets paid

- Consumer can access products earlier

- Governments can provide additional services

- People feel prosperous (for a time)

Side Effects:

- Inequality increases

- Servitude increases

- Marriage breakdown increases

- Suicide increases

- Social cohesion fragments

- The youth become impoverished

- Political instability rises

- Responsible behaviour is punished

- Scapegoats are presented

- Conflict begins

And on that cheery note, I bid you goodnight!

Cheers,

Luke

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davefairtex
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debt & money

Money is grouped into a number of (increasing) categories.

  • Cash [FRED: CURRCIR] - actual FRNs, in circulation or in the vaults of banks 1.57T
  • Cash + Bank Deposits @ Fed: [FRED: BASE] 3.9T
  • Total Reserve Bank Credit [FRED: WRESCRT] 4.4T
  • Total Bank Credit [FRED: TOTBKCR] 12.2T

So when a bank makes a loan, and creates money, it appears in TOTBKCR.  When the Fed prints money and buys a Treasury bond, it appears in WRESCRT (and also BASE).  When someone converts bank credit into cash, the Fed prints an FRN and swaps out a Bank Deposit @ Fed [CURRCIR increases].

Most money is bank credit [TOTBKCR].  Some money is cash.   [CURRCIR]

Roughly speaking, money only has value if it is scarce.  If the rules say that banks can create money, but it must have an interest rate attached, then people only "create money" (by borrowing it) if they are willing to pay interest on it.  This system assures - theoretically - that money is only created when it is really needed.

Once that money is no longer needed, the loan is repaid, and the money vanishes.  The attached interest rate makes sure of this.  Everyone is incentivized to reduce their outstanding debt money by virtue of the attached interest payment.

If we imagine a system where money is no longer created through borrowing, then we have one big problem to solve: how much money must there be in circulation?  What's the "right" amount?  And who decides?  And how do you destroy money that is no longer needed? (i.e. once inflation starts to become a problem).

I'll start out by proposing a "Public Money System" - only the government can create money (either bank credit, or cash).  It does this by spending money into the system.  Government also still imposes taxes, and this is how it can also remove money from the system.  Under this system, banks could no longer create bank credit.   The only entity able to create both "bank credit" AND cash would be the central government.  Banks could lend, but only from deposits on hand.  Deficits aren't borrowed, they're printed.  Surpluses result in money vanishing - its the only way to vanish money, in fact.  In a growing economy which needs more money to function, government will print to construct surplus money.

Deficits or surpluses are set by an annual popular referendum.  "The people" get to decide how much money to create, or destroy.  Politicians then figure out which programs to fund once the overall budget parameters are voted on.

Would this be better, or worse, than private bank credit creation by commercial banks?  Its an interesting question.  Certainly I like the concept of an annual referendum (since I don't trust politicians - or banks), but I do think that things would go in cycles.  National character would make an appearance.  Frugal Germans would always vote to pull money out of circulation, while the more expansive US would probably always vote to increase it - at least until inflation got out of control.

Would the people end up doing the right thing?  I suspect they would, at least over time.  Over the course of a cycle or two, they'd have the opportunity to learn where inflation comes from.  And higher import prices - from a falling currency.  The state would have an incentive to teach them about it, certainly - as opposed to now, where its a big secret

I don't think there needs to be a gold standard; after all, the thing that backs the currency is enforced scarcity alongside what you can buy with it.  Currency is a commons, and it makes sense for "the people" to control the commons.  Even if they end up doing the wrong thing, they will have the ability to learn from their mistakes, and then fix it on their own.

In some sense, "the people" could hardly do worse than the private bankers have done.

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Could fiat money survive without a govt-enforced monopoly?

Interesting thoughts and great background Dave.  Here's where I zero in:

I don't think there needs to be a gold standard; after all, the thing that backs the currency is enforced scarcity alongside what you can buy with it.  Currency is a commons, and it makes sense for "the people" to control the commons.  Even if they end up doing the wrong thing, they will have the ability to learn from their mistakes, and then fix it on their own.

And: 

Deficits or surpluses are set by an annual popular referendum.  "The people" get to decide how much money to create, or destroy.  Politicians then figure out which programs to fund once the overall budget parameters are voted on.

That's a fascinating concept.  Let "we the people" decide annually how much money to create.  We'd have no one to blame but ourselves for income/wealth inequality.  Can you imagine the frantic campaigning and subtle brainwashing that would go on every year right before the vote, as various factions struggle for votes?  Then I try to imagine on whose side CNN, The NY Times, The Washington Post, ABC, CBS, FOX, etc. would be on?  I'd bet a vital body part they'd be on whichever side the Goldman Sachs and JP Morgan were on and I have trouble imagining they couldn't convince the majority of "we the people" to vote in the interests of the big banks (who would be in cahoots with the federal government to buy enough votes with handouts to prevail in the annual vote) even if that was ultimately NOT in their own best interests.

Whether we need a gold standard or not, let me ask you (and others) if you think a fiat money system could survive on its own merits if it wasn't enforced by the government at the barrel of a gun.  I don't think our current fiat money system would survive very long if the government didn't force it on us through legal tender laws and whatnot.  So, if a fiat, debt-based money system is so good for us, why can't it survive without the threat of prison and violence?

I say we knock out the legal monopoly of our debt-based money system and let it fend for itself in a free marketplace where various forms of money exist and compete with each other.  If there is anything inherently valuable in a debt-based money system, I guess ours would have to evolve to survive (if it could survive at all).  Who knows, maybe it would survive in some form.

I also don't think we need a gold standard in the sense I think you mean it (fiat currency being exchangable for gold/silver at a government-set rate).  I am VERY MUCH in favor of doing away with fiat's monopoly and allowing all debts and taxes to be payable in anything the people accept at whatever exchange rate the market decides.  (Of course, government just like any other economic actor, could demand that it be paid in any form it decides.  But in a wide open monetary system, I could easily meet the government's requirement by exchanging what I've accumulated for what the government wants to be paid in.)  That means FREEGOLD primarily, though silver and cryptocurrencies would also be in the mix.  I could pay my taxes and buy goods and services in fiat currency, or in gold, silver or cryptocurrency at whatever the free market set as the exchange rate on the day I paid them.  If excesses developed in any of the widely used forms of money, the people would adjust by moving in and out of the various forms, providing a natural set of checks and balances.  Print too much currency? Ok, I'll exchange mine for silver or gold.  I want to expand my business but I don't have enough gold or silver to finance it.  Ok, I'll go to my bank, provide some gold/silver as collateral and take out a loan in newly created currency units, paying it back later with the currency, gold, silver and cryptocurrencies my expanded business brings in.  

https://www.youtube.com/watch?time_continue=154&v=74ynFnitLeo

"Welcome to the Hunger Games. And may the odds be ever in your favor."

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people's money

Tom-

Of course the cartels are going to campaign hard to get what they want.  California has the referendum.  There is all kinds of crap that happens each election season.  And yet, if the people get a bee in their bonnet about something, a referendum gets passed regardless of what the cartel-controlled legislature wants.

You might consider where your argument leads.  "We shouldn't give people the vote, because they're gonna vote stupidly.  Instead, we'll have a select group of Really Smart People who will make the hard choices that The People just can't bring themselves to make..."

Here's the secret.  No matter what system we come up with, it can - and will be corrupted.  "The gold standard" was supposed to keep things on the straight and narrow.  But guess what?  The gold standard got dropped, and nobody complained.  "The People" were asleep at the switch.

We should start out by acknowledging that we cannot make things safe for all time.  No system is better than the people that use it.

We can remove the power of the banks to create money.  We can break them up, so they don't control government.  But we can't force people self-govern intelligently.  All we can really do is give people the lever to pull.  We can't force them to pull it, or even force them to keep it.  Realistically, we need to face the fact that while we can probably create a system that will make things safe for a generation or two, but that's about it.

I think its ok to have a national currency - a national unit of account.  We should allow other currencies if people want to play with them, certainly, but a national currency is a good thing too.  We have national parks, a national army, a national government - a national currency makes sense too.  Facilitates trade between the states, trade with other nations, brings sanity to accounting.  Can you imagine doing your taxes in some random local currency?  Reading earnings reports denominated in a random local currency?  Ugh.  No thanks.  National currency provides a great deal of efficiency that we'd regret losing.

I think what you're really asking is to have a tax-free exchange between your alternate currencies and the national.  You are really asking to buy and sell any currency you like and not have to pay taxes on it.  (Currency = gold, or bitcoin, Euros, etc).

I say this because you can certainly buy and sell other currencies right now without any restriction.  You can pay your taxes in gold if you like; sell your gold for USD, and pay pay pay to your hearts content.

climber99's picture
climber99
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Posts: 169
I'm going to suggest sometime

I'm going to suggest sometime very radical to stop money accumulating at the top while un-repayable debt gets accumulated at the bottom.  I warn you in advance, it ain't going to be popular.

 

Outlaw wealth from being inherited through the generations.

 

Everyone would be born with equal wealth.  Money is created through you own labor and spent by you alone.  You either spend your savings into circulation before you die or lose it.   The incentive to accumulate more than you can spend in your own lifetime would be removed.  Inequality would be limited to your own abilities relative to others, not inherited and then amplified. Also more equal societies are  happier and more sustainable, studies have found.  (source: The Spirit Level by Wilkinson and Pickett)

ps. It would still be a Capitalistic system. 

 

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
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Posts: 2737
Bold Suggestion
climber99 wrote:

Outlaw wealth from being inherited through the generations.

Climber -

I applaud your courage to raise this idea. I've learned that the estate tax is a high-emotion topic for many people (both for and against).

I've been chewing on a related idea for a long time now. Given your prod, perhaps I'll attempt to write a future article on it.

Let me clearly state that I'm not advocating for this. I'm just entertaining the idea in my mind -- poking & prodding its pros and cons.

Its gist is this:

Our current system allows for big winners to create multi-generational wealth (think Rockefeller/Morgan, or more recently, Gates/Buffet/Zuckerberg -- even Trump). On top of the immediate advantage gained, those winners and their progeny then use that wealth to influence the system to their continued advantage (for example, bankrolling candidates who will tweak legislation/regulation/tax codes in their favor). This understandably feels pretty unfair to the bottom 99%.

So the idea here is this. If you invent the next Google and make a gazillion dollars from it, good for you. Buy as much of the world and its pleasures as you can. You earned it.

But your heirs didn't. So, you'll be able to leave your immediate descendants enough to live comfortably, but not unfairly so (in the spirit of the Warren Buffet quote: Leave your kids enough that they can afford to do anything, but not so much so that they can afford to do nothing. ) How much is that? 5 million per heir? More? Less? I don't know. But let's assume society can agree on a number.

What happens to the rest of the gazillion? It goes POOF!

Just to be clear: that doesn't mean it goes to the State as a massive estate tax receipt, where corruptible bureaucrats determine how it will be allocated. I mean it gets destroyed; it goes to money heaven. As in, the money supply just shrunk by a gazillion dollars.

This has the combined effect of preventing unfair dynasties from being perpetuated AND marginally increasing the purchasing power for every dollar holder each time a mega estate is posthumously vaporized.

OK -- I know there's a lot to attack in this idea. Some will hate the anti-libertarian concept of not having the freedom to do with (all of) your money as you please after death. An industry of complicated strategies for passing your wealth secretly to your heirs will surely arise immediately. Logistically, how would you handle liquidating the vast estates of the multi-billionaires?

But the appeal of limiting dynasties while simultaneously re-investing in the purchasing power of our currency intrigues me.

I'm sure there are better ways to do both than this idea, so folks, take our your sticks and whack at this piñata with improvements/alternatives worth considering.

cheers,

A

PS -- yes, I realize that any marginal contribution to the purchasing power of our currency from this example would be very, very small compared to its continued loss of purchasing power due the accelerating debts/entitlement obligations backing the "full faith and credit" of the USD. To me, this is more about "fairness", as well as a "step in the right direction" monetarily.

Michael_Rudmin's picture
Michael_Rudmin
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But how do you make *GOOGLE* go kapoof?

Adam,

   You are making the mistake that many make, thinking money is wealth.  Well, really, it is.  But only so far and no farther.  Money is secondary, maybe tertiary wealth, is it not? 

    But the primary wealth is Google itself; and if it isn't left to the progeny, that doesn't mean that it doesn't get inherited.  It does, by those who think like the founder.  And their ability to create wealth far exceeds the wealth already created.

     So to carry out the idea, it isn't enough just to send the wealth to money heaven.  The Google company needs to be destroyed.  All those connections, which are so effective in creating wealth, will have to be destroyed. 

     Genghis Khan could do it.  He simply had all his family, and all his princes, come to his funeral.  Then on the way home, they got ambushed by a crack troop, and killed.  Then the crack troop was ambushed.

      But that sounds way too civilized for my taste.  I'm more of a country bumpkin, who might wish to leave my mobile home to my kids.

 

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
Joined: May 26 2009
Posts: 2737
I'm not sure it needs to
Michael_Rudmin wrote:

So to carry out the idea, it isn't enough just to send the wealth to money heaven.  The Google company needs to be destroyed.  

I'm not sure it does. Either the founder's shares get liquidated in a sale to the market upon his/her death (which likely depresses the stock price) or they get retired (which likely raises it).

But I'm certain there are all sorts of repercussions I haven't thought through yet to either of those options that parties would angrily object to.

I don't think I share your concern with "those who think like the founder" owning a stake in the Googles of the world (while alive, of course, in this example). As long as shares are fairly traded (which is a big assumption), every investor has the opportunity to own a stake if they so choose. I don't see a fundamental problem with that.

Like I said, the spirit behind this concept has some appeal to me. But its practical application is likely too snarled with landmines to ever be successfully implemented.

blackeagle's picture
blackeagle
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It goes POOF!

Adam wrote:

What happens to the rest of the gazillion? It goes POOF!

 

I like the idea... but, technically, how primary wealth go POOF? Easy for money, but not so for the 27 acres my wife and I own. Sold? To another rich? which will in turn perpetuate the system: not the same dynasty, but the same "thread". Much like a company getting a new bunch of CxO.

 

davefairtex's picture
davefairtex
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multi generational wealth avoidance

As a practical matter, I came up with some objections.

1) If Bill Gates dies, and the existing shares he owns go poof, that makes the remaining shareholders worth more - sometimes a LOT more.  That provides a fantastic incentive to whack the founder, for any large shareholder.  It might even become a "thing".  For partnerships, it makes the remaining partners into effective heirs.  Most likely, it would make people less interested in creating businesses.  Who wants to work 80 hours a week, only to become a target of an assassin.  If Chris "dies suddenly", Adam ends up owning Peak Prosperity.  Best of luck, Chris!

2) If Bill Gates dies, and then Microsoft goes poof, that provides a fantastic incentive to whack the founder - by any competitor he might have.  It also more or less eliminates the incentive to invest in IPOs, since if that founder dies, so does your investment.  That would end up killing the high tech goose-creating machine of Silicon Valley.

3) How would you deal with a during-the-lifetime-transfer of either shares or cash from parent to child?  Even if gifting remains a taxable event for the child, a determined parent can always gift property & cash over time.  It feels as though this would simply create a huge market in loophole creation.

Just off the top of my head, it feels as though it might just create more problems (via unintended consequences) than it would end up solving.  Or maybe it would be a wash.

Hotrod's picture
Hotrod
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Posts: 166
Gold Standard?

Am I missing something?  Weren't there all manner of panics and depressions when the US was on the gold standard? Not that a gold standard doesn't have some merit.  Thanks for any input.

climber99's picture
climber99
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Posts: 169
Google as primary wealth, not.

Sorry to inform you, Michael, but Google can in no way can be described as being primary wealth.  Land, water, energy and mineral resources are primary wealth. 

Money is not wealth at all but a claim on wealth which might or might not be exchanged for it in the future.

Money has also a limited lifetime because it is born out of debt with a finite repayment date.  The rich can only continue to hoard money and for debt holders lower down the pyramid to repay their debts because the debt base is constantly expanding.  The debt base can constantly expand because our extraction of primary wealth is also constantly expanding........until it can't!!   It is pyramid scheme, pure and simple, that requires GDP to grow or it implodes.   Well good luck with that, on a finite planet.

We had a blip in 2007/8 when the debt base contracted and our financial system almost collapsed.

Luke Moffat's picture
Luke Moffat
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Posts: 340
davefairtex wrote: I'll
davefairtex wrote:

I'll start out by proposing a "Public Money System" - only the government can create money (either bank credit, or cash).  It does this by spending money into the system.  Government also still imposes taxes, and this is how it can also remove money from the system.  Under this system, banks could no longer create bank credit.   The only entity able to create both "bank credit" AND cash would be the central government.  Banks could lend, but only from deposits on hand.  Deficits aren't borrowed, they're printed.  Surpluses result in money vanishing - its the only way to vanish money, in fact.  In a growing economy which needs more money to function, government will print to construct surplus money.

Deficits or surpluses are set by an annual popular referendum.  "The people" get to decide how much money to create, or destroy.  Politicians then figure out which programs to fund once the overall budget parameters are voted on.

Would this be better, or worse, than private bank credit creation by commercial banks?  Its an interesting question.  Certainly I like the concept of an annual referendum (since I don't trust politicians - or banks), but I do think that things would go in cycles.  National character would make an appearance.  Frugal Germans would always vote to pull money out of circulation, while the more expansive US would probably always vote to increase it - at least until inflation got out of control.

...

In some sense, "the people" could hardly do worse than the private bankers have done.

I don't think this is a bad idea as it goes, considering how our current system operates under the concept of "privatise the gains, socialise the losses" anyway. Tax payer / public still remain on the hook but the public money system puts them in control. It might also reduce the amount of money in politics as bankers can't use their ill gotten gains to sponsor their corrupt candidate of choice.

However, a potential fly in the ointment. What would happen in a stagnant / shrinking economy? Would the people vote to contract the money supply? In effect vote for their own austerity? Destroying currency to control inflation during rough times would meet a fair amount of resistance. Judging by history (i.e. the Great Depression) this 18 month period led to a lot of misery.

I was of the opinion that the currency needed to be tied to something tangible and mandated by law to enforce. This stops generational tyranny, i.e. one generation racking up debts at the expense of the other without their consent. However, the American Constitution already does this but no one seems to care about it anymore. Instead, I like the idea of alternative currencies that can't be taxed. Government can still determine what form of currency it wants to be paid in but it can't tax people converting between currencies, nor can it mandate what constitutes a currency.

Tim Ladson's picture
Tim Ladson
Status: Bronze Member (Online)
Joined: Sep 22 2012
Posts: 71
Generation on Generation

We are being played by those who are reaping benefit from the status quo.

I am an early boomer who can see fault with my generation's stewardship of the country during our turn at the wheel.

As was mentioned earlier in this thread my generation grew up on endless blessings as a result of the US being the only whole man left standing after the rest of the world tried their best to destroy each other. Thanks to the Soviet Union, Hitler was finally beaten and the US was the beneficiary.

The US was able to become the dominant world power which resulted in life being glorious for those of us lucky enough to be born in the late 1940's,50's and early 60's. As has also been mentioned, if that's all you know, you think that's how things are.

I learned too late, that our normal was in fact an aberration, not only historically but ecologically. I think my generation is responsible for taking the gift we were given and driving all systems to their extremes, financial, political, social etc. We had an opportunity to throttle back militarily, politically and economically, but we did not.  

Here we are.

After these multi decade abuses of all systems we find ourselves broke and keeping our lifestyle supported with ever increasing amounts of debt, which is being noticed by some as maybe being a problem.

So now we fight over who's fault it is that we are broke and fighting over who's going to eat the lower expectations going forward.

It seems to me that we should turn our attention to who is the biggest beneficiary of our current status quo and see if there is any fat we could cut and be put to better use for the general populace and not just certain corporations and elites.      

I recently watched a video profiling a former CIA officer named Kevin Shipp, who being in a position to know, added up our current budget expenditures on the 17(?) security agencies, the defense department, foreign aid, etc.,etc., and came up with the astounding figure of $800 billion. That is a very large portion of our budget for the whole year.

So it appears to me that we are borrowing money to keep this absurd fantasy afloat, giving the majority of the spoils to the military/industrial/security/banking complex and we are then turned on each other to fight over who gets the scraps.    

I admit that my generation isn't blameless in where we have gotten ourselves, but this ball was already rolling when we became "The Man". I think it's human nature to react to your surroundings as they appear to be (this will go on forever) which is what I believe happened during my lifetime. To think differently requires wisdom which seems to in short supply, especially now.     

The Peace Dividend expected after the collapse of the Soviet Union has been captured by those who need more war and thus control of the citizenry in order to keep the money flowing their way.  They have succeeded stupendously while we are at each other's throats and stuck paying the bill.

Tim. 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4631
depression

Luke-

I agree that nobody anywhere would vote for austerity immediately after a deflationary crash.  That policy is insanity anyway - we see just how successfully it has worked in Greece.  People would all vote for reflation, because they'd be voting their own situation.

Rich people could flee to gold, while poor people could get government support while the currency reflated and forex rates get hit.  Maybe it would be a wash in the end.

As I think it through, banks can still engage in fractional reserve lending even if they don't have the right to create new bank credit for loans.  It all depends on what that reserve ratio is; how much capital they need to keep around in order to provide for losses.  And that's really just a rate limiter, its not some sort of absolute limit on lending.

What would happen if we changed the nature of lending entirely?  For instance, if depositors in banks basically had their money tied up to the duration of the loan.  So if a borrower wants a 5-year car loan, then some depositor has to agree to a 5 year CD in that same amount, with the bank taking the spread.  Depositor only gets money back as the loan is repaid.  And if borrower defaults, depositor loses cash.  (Assume this is "pooled", so borrowers aren't taking individual loan risk)

This is what it would look like if we get rid of fractional reserve lending.

I suspect money would become a lot more expensive, since it would be more scarce.  Who wants to tie up their money for 5 years - much less 30?  But there wouldn't be any more bank failures.  And everyone would understand risk.  And money could only be created by the people, not the banks.

Its a thought experiment.  I'm not sure I'm for it.  I'd need to model it in some sort of simulation to see how it affected things.

Waterdog14's picture
Waterdog14
Status: Silver Member (Offline)
Joined: Jan 18 2014
Posts: 114
Sacred Economics

The economy as we know it is doomed.  The wealth gap, derivatives, pensions, debt, endless pursuit of more money and more stuff, expectation of endless growth on a finite planet.  Even those of us who see these issues don't see the real cause of the problems.  We're like fish in water or birds in air.  We can't see the water (mindset) that surrounds us.  When did people learn that it's ok to take everything away from fellow man, monetize it, and sell it back to them?  What would it take to shift away from the current mindset?

http://sacred-economics.com/

http://sacred-economics.com/film/

 

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 295
Insurance Derivatives

I had a recent correspondence with Pam Marten over at Wall Street on Parade and hear is what she had to say...The Mega Wall Street banks do not own the Mega insurance companies that have exposure to the hurricane disasters.However,the Mega Wall Street banks do use Mega insurance companies as counterparties to their derivative contracts.Unfortunately,the Wall Street banks keep the details of who is on the hook for their over-the- counter derivatives a secret...even from the regulators for the most part.The Wall Street banks likely have syndicate loan exposure to companies in the hurricane impacted regions but probably not enough to sink the largest banks.It does,however,add to the growing list of bad loans the biggest banks have not taken adequate loan-loss reserves to cover.hope that helps...I suggested she write on the subject because analysts are trying to find out who may be holding the bags...

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