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The beginning of the end

Wednesday, December 3, 2008, 9:33 AM

I am often asked what signs I use to measure where we are in the crisis and whether it will get worse or better.

This next article posits the emergence of a new type of bond sold by the US that is not denominated in US dollars. This would be the equivalent of a road sign reading, “No bridge, 10 feet.”

Here’s the idea:

Japan economists call for US borrowing in other currencies
TOKYO - Japanese economists, increasingly concerned that the United States might seek to pay its enormous and growing debt obligations in a weakened US dollar, are looking to the possibility of US Treasuries being issued in yen.

Few truly appreciate what a gift, and exorbitant privilege, it has been for the US to be able to both issue and pay off its debts in the same currency. Compare this to a third world country forced to borrow from the IMF in another currency. In order to pay back the loan, they have to acquire whatever that currency happens to be. This means that they must run a positive trade balance of some sort or they may have to sell off key internal assets. Either way, a rigor is imposed on their actions that is missing for the US.

The US government needs to borrow at least US $1 trillion in the coming year, excluding the US Treasury's $700 billion plan to bail out the financial and other industries, said Kazuo Mizuno, chief economist in Tokyo at Mitsubishi UFJ Securities Co, a unit of Japan's largest publicly traded lender by assets. That amount is likely to grow as the US government continues to rescue failed parts of the economy and has to raise more debt - that is, issue government bonds, or Treasuries - to fund such rescues.

My comment here is that if Japan is already worried about $1 trillion in borrowing, wait until they find out about the $2 trillion in borrowing. A good understanding of the Treasury market funding cycle helps here too. Because it is not just the $2 trillion in new borrowing that must be accommodated.  There is roughly $1.8 trillion in “roll-over” funding for past borrowing that must occur as well.  These are enormous numbers that will vastly exceed total world savings next year, if my predictions about the downturn are correct.

Faced with the unprecedented growth of the US budget deficit and the prospect of an increasingly weaker dollar compared with the yen reducing the value of Treasury debt held by Japan, economists in Tokyo are calling for the administration of president-elect Barack Obama to issue US Treasuries denominated in yen and other currencies. The issuance of foreign currency-denominated US Treasures would reduce the perceived risk of holding the debt.

And that, my friends, was a call for the beginning of the end of the free ride. If (or when) the US is forced to borrow real money from other countries that it cannot simply print out of thin air, then it will have to work for it, like everybody else. This will mean that our trade balance must be, at worst, zero, or else our currency will constantly erode. While a weaker currency can help the exporters, it also means that the cost of external borrowing goes up, which can quickly morph into a borrowing spiral,where a weaker currency and more borrowing create the conditions for each other’s existence.

Unthinkable? Well, no, it’s happened before.

The idea of issuing foreign currency-denominated US Treasures is not new. The Jimmy Carter administration, buffeted by the two oil crises of the 1970s, sold "Carter bonds", denominated in German marks and Swiss francs, in 1978 to attract foreign investors into Treasuries.

“Carter bonds” they were called. And what will these bonds be called then?

"The US will be forced to issue foreign currency-denominated US Treasures in its hour of need," said Mizuno. "The US cannot finance its deficit by itself. The US financial system cannot survive without foreign investors. We will see 'Obama Bonds' in the future."

“Obama bonds."  Interesting ring to that.

Right now this is all conjecture, but if or when the US begins to issue bonds in foreign currencies to fund its excesses, then this will be a road sign that the end of the old paradigm is upon us.

Caution: Bridge out

For now, I am keeping a close eye on this ‘trial balloon,’ as the denomination of US bonds in anything other than US dollars would be a tectonic shift for the US and for the global economic landscape. 

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78 Comments

barrt's picture
barrt
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Re: The beginning of the end

Hi folks, just some thoughts to aid discussion ;-)

Could this be a way out for the US? a 'softer landing' transfer of power rather than a hard collapse? Every cloud has a silver lining they say

Wouldnt it be coooool if the new pres name was Barack James instead?

Amazing to be watching the US empire crumbling here in slow motion! lets hope peace can prevail

and hey! dont be scared of having to work you guys, the rest of the world will help you, we have been doing it for years! Just cut back on the armies and guns and stuff, crazy big cars, 4 houses, plastic surgery ect ect

Can anyone lend me a yen?

Davos's picture
Davos
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Re: The beginning of the end

Interesting read.

I can't help but wonder if other countries will try go further with this, say a decoupling the buck from commodities.

If they do I wonder if they will wind up on the same dead end street as John F and Bobby. 

farstriker11's picture
farstriker11
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Re: The beginning of the end

This was on Foxnews.com. This is even scarier than Chris' rabid skunk problem imho!

 

ST.
LOUIS — A St. Louis city leader frustrated with the police response to rising
crime called Tuesday on residents to arm themselves to protect their lives and
property.

Alderman Charles Quincy Troupe said police
are ineffective, outnumbered or don't care about the increase in crime in his
north St. Louis ward. St. Louis has had 157 homicides in 2008, 33 more than last
year at this time.

"The community has to be ready to defend
itself, because it's clear the economy is going to get worse, and criminals are
getting more bold," Troupe, 72, said Tuesday.

Troupe said that when he and residents
approached a district police commander last year, they were told "there was
nothing he could do to protect us and the community ... that he didn't have the
manpower."

Police did not immediately return requests
for comment. Chief Dan Isom told the St. Louis Post-Dispatch he understands
Troupe's frustration but doesn't support citizens arming themselves.

Carrying guns, he said, is not a "recipe for
a less violent community."

Davos's picture
Davos
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joe2baba's picture
joe2baba
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Re: The beginning of the end

i think with the correct marketing strategy the yen backed bonds will work.

here is my strategy. it is all about marketing to the sheeple. the sheeple are hopelessly addicted to tv esp sports. one of the most recognized names in all of sports in the u.s. is barry bonds.

many people on the right like to call obama "barry"

the problem with "obama" bonds is you have to start from scratch with name identification.

if you call the bonds "barry bonds" people will get the connection immediately.

a superstar who hits homeruns on a scale greater than anyone in the history of the world. he did it thanks to the wonder drug steroids. the sheeple do not care how it got done just so long as they got to see history being made. never mind it is the end of the innocence it is performance that counts. we simply must do something.

barry needs to do it quickly tho before the steroids oh i mean  koolaid wears off

vesperto's picture
vesperto
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Re: The beginning of the end

Bartt wrote: 

"Can anyone lend me a yen? "

 

Actually, I thnk that should be:

"Once I built a tower

And now it's done.

Buddy, can you spare a yen?"

maveri's picture
maveri
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Re: The beginning of the end

[Ed: Gobbledy-gook removed]

maveri's picture
maveri
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Re: The beginning of the end

I'm really sorry about the above comment - I didn't realise we couldn't post directly from word etc! I tried editing it etc but I can't take out the word embedded bits :(

Anyhow - what i wanted to post was:

 

The 'beginning of the end' or the 'Beginning of a New Beginning?  :-)

Whilst many the world over dislike America for it's foreign policies and
greed I for one take no pleasure if it all turns pear-shaped and civil unrest
results. Lots of innocent people get caught in the turmoil when that happens.

To see America actually
having to pay its way will be interesting, it could also force America
to learn to negotiate on an equal footing in the world stage instead of
pointing a gun. To add value instead of adding force would be good.

Lets hope the enemies that the US has created can understand that it was
capitalism and the greed of that system that caused this and not the actual
average American citizen, who are no different to anyone else in the world and
just want to get on with their lives day by day.

My sincere hope is that capitalism does indeed fall but that people band
together to work on a new system that will be fair and equitable to all - much
like the principals that America was founded upon but seems to have lost along
the way (note: I am also pointing the finger at us here in Australia as well -
we are headed down the same greed highway too).

We feel your pain in more ways than one...

:-)

 

p.s.

I have been listening to Naomi Klein - very interesting stuff indeed. Let's
hope the capitalist factions don't try and apply the principals that she
describes here amidst the turmoil!

 

EDIT: grrr - it still doesn't work even when I used the paste from word option :(

rlee's picture
rlee
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Re: The beginning of the end

Hey Joe,

 

You may have really "Hit" on something here!  (LOL) 

Arthur Vibert's picture
Arthur Vibert
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Re: The beginning of the end

We can all relax! The bottom's in!

 

NEW YORK (Reuters) –
Legg Mason's star stock-fund manager Bill Miller said on Wednesday the "bottom has been made" in U.S. equities and that the Federal Reserve should consider purchasing stocks and junk bonds to pull the United States out of the financial crisis.

Speaking at Legg Mason's annual luncheon for media, Miller said that
all long-term investors believe that stocks today are cheap.

 

Oh, wait...

 

Miller told Reuters on the sidelines that his funds "performed far worse than I would've predicted we would" this year.

For the year, Miller's flagship Value Trust (LMVTX.O) fund was down 59.7 percent as of Tuesday, compared to a 41 percent decline in the reinvested returns of the S&P 500 index, according to Lipper Inc., a unit of Thomson Reuters.

Performance over the year-to-date, one-, three- and five-year periods
for Value Trust put it at the bottom of the barrel among its peers,
Lipper data shows.

 

Okay... maybe not so much :(

 

Arthur

DrKrbyLuv's picture
DrKrbyLuv
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Re: The beginning of the end

This might be good that finanally someone can put a stop to the Federal Reserve banks and our treasury czar. The US economy is and has been sick for a long time and the banksters have been gaming the global markets while we are set up for a major fall.

How can any economy that runs huge trade deficits and budget deficits ever be considered healthy? And none of our leaders will dare mention either, as if these fundamentals will go away if they can "jump-start" our markets and debt.

My prediction - as long as the federal reserve theives are allowed to prey on our nation, we will be in financial chaos. END the FED!

 

 

 

sargnkllkh's picture
sargnkllkh
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Re: The beginning of the end

An interesting scenario will be before the government once non US currency is required to pay the bills.

Another country not so long ago had a similar problem.

Iraq had a large financial deficit to Kuwait but it also had a really large army (compared to Kuwait) sitting on Kuwait's border too. I guess the answer to the problem was simple for Sadam Hussan in the end and he rolled in the troops. However I doubt he ever expected the massive backlash from other parts of the world culminating in the current Iraq war we have today.

Given that history repeats and the United States owes/will owe a lot of money to the gulf states (Saudi Arabia especially) then I expect we will see some military "debt reduction" strategies emerge in the future. I can't see any country that would take up the moral mantle to fight the USA to stop another "war on terror" or what ever excuse is given to 1. remove the outstanding debt and 2. secure an energy future.

So when will the troops be pulled out of Iraq ?, seems to me that there may be a more pressing agenda to just leave them there for a little bit longer. 

Call me cynical, only time will tell :)

 

gyrogearloose's picture
gyrogearloose
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Re: The beginning of the end

I had that problem too.

One more to the left is paste as plain text. Works for me ;-)

 

Headless's picture
Headless
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Re: The beginning of the end

Chris said: "For now I am keeping a close eye on this ‘trial balloon’ as the denomination of US bonds in anything other than US dollars would be a tectonic shift for the US and for the global economic landscape."

And if the Japanese won't let us get away with counterfeiting their money, we have another plan: The Century Bond (100 Years)

http://www.bloomberg.com/apps/news?pid=20601087&sid=azGBEQQJhY24&refer=home

And with its issuance, Bernanke's helicopter can be put to immediate use after the dollar drops are over: he can use it to search for the end of the yield curve...

Damnthematrix's picture
Damnthematrix
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Re: The beginning of the end
sargnkllkh wrote:

energy future.

OXYMORON....

Oil's under $45 in case no one noticed.  VERY bad sign. 

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davefairtex
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Re: The beginning of the end

I totally agree with Chris. Iceland (and borrowers in eastern europe) got into deep trouble because they started borrowing money in euros and swiss francs - currency that their central bank doesn't print. This exposes them to exchange rate risk. Once the USG goes down that route, it really is the beginning of the end. I mean, it's a good thing in some sense, because it will impose real discipline, but the party really will be over. Next people will want to be repaid in gold, or grain, or lumber, or farmland. And then where will we be?

Davos's picture
Davos
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Re: The beginning of the end

I don't know, I see stuff like this and wonder if the U.S.A. would ever allow a gold standard - or another country to depeg the buck to oil or any commidity. I kind of think that if we can't print we can't empire...

Kind of makes me think another WW might not be out of the question. If we loose our right to print I think it is plausable that these guys would be crossing the Chesapeake bay. We, after all, have made quite a few friends out there.

What are your thoughts?

 capt.cps.oio48.271108192529.photo00.photo.default-512x388.jpg?x=400&y=303&q=85&sig=V_VTdBflo7xRcF.i_bSl8g--

RUSSIAN BATTLESHIP TO CROSS PANAMA CANAL

EndGamePlayer's picture
EndGamePlayer
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Re: The beginning of the end

Now isn't this as if zeigeist wrote a perfect prediction of events? So how will the king george play out? I hear some people are saying Obama doesn't have a valid US birth certificate - suppose they will try to claim him not a US citizen?

http://ca.news.yahoo.com/s/afp/081203/canada/canada_politics

 

The END

onlymyopinion's picture
onlymyopinion
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Re: The beginning of the end

Dec 03, 2008

http://www.cfo.com/article.cfm/12720870/c_12718000?f=home_todayinfinance

Goldman Sachs, meanwhile, sold $500 million in three-year floating-rate notes under the TLGP. It is part of a larger note offering being sold in euros, according to Bloomberg News. That makes Goldman the second U.S. lender to issue debt in the currency under the TLGP, according to the wire service. The notes are being priced to yield 45 basis points more than the benchmark mid-swap rate, the report said, citing a person who declined to be identified before the sale is completed.

Last week, JPMorgan Chase raised about $2.8 billion from guaranteed bonds denominated in euros and pounds. In addition, Wells Fargo plans to issue three-year fixed- and floating-rate bonds, according to a regulatory filing. And GE Capital plans to sell three-year fixed-rate notes, according to a filing.

Well, so much for the dollar.

Banks aren't stupid. What do you think their view towards the dollar's value is down the road?

Damnthematrix's picture
Damnthematrix
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Re: The beginning of the end
Davos wrote:

I don't know, I see stuff like this and wonder if the U.S.A. would ever allow a gold standard - or another country to depeg the buck to oil or any commidity. I kind of think that if we can't print we can't empire...

Kind of makes me think another WW might not be out of the question.

It wouldn't be one you'd win.....

Last time the US won a war (WWII) it was awash in oil, the biggest producer in the world at the time.  If you were on your own, where would you find the energy to fight a WW?  The US can't even keep a lid on Iraq, so what's the point ofstarting another WW?  I don't get this.  Another WW wouldn't be the beginning of the end, it would be the END.

 

Doug's picture
Doug
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Re: The beginning of the end
davefairtex wrote:

I totally agree with Chris. Iceland (and borrowers in eastern europe) got into deep trouble because they started borrowing money in euros and swiss francs - currency that their central bank doesn't print. This exposes them to exchange rate risk. Once the USG goes down that route, it really is the beginning of the end. I mean, it's a good thing in some sense, because it will impose real discipline, but the party really will be over. Next people will want to be repaid in gold, or grain, or lumber, or farmland. And then where will we be?

This will hasten the process:

http://www.ft.com/cms/s/0/33f5d15a-c010-11dd-9222-0000779fd18c,Authorised=true.html?nclick_check=1

Quote:

The current strength of the dollar is temporary and the US currency risks a hard landing in 2009, according to a team of United Nations economists who foresaw a year ago that a US downturn would bring the global economy to a near standstill.

In their annual report on the world economy published today, the economists say the dollar's sharp rebound this autumn has been driven mainly by a flight to the safety of the international reserve currency as the financial crisis spread beyond the US.

The overall trend remains a downward one, however, reflecting perceptions that the US debt position is approaching unsustainable levels. An accelerated fall of the dollar could bring new turmoil to financial markets. "Investors might renew their flight to safety, though this time away from dollar-denominated assets, thereby forcing the US economy into a hard landing and pulling the global economy into a deeper recession," the report says…..

The UN team says that, as the financial crisis spread beyond the US, there has been a massive shift of global financial assets into US Treasury bills, driving their yields almost to zero and pushing the dollar sharply higher. But at the same time the US's external debt has risen to new heights that could provoke a dollar collapse.

The report recommends reform of the international reserve system away from almost exclusive reliance on the dollar and towards a globally backed multi-currency system.

 

lionelorford's picture
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Re: The beginning of the end

Maveri,

"My sincere hope is that capitalism does indeed fall but that people band together to work on a new system that will be fair and equitable to all.. " Here Here. 

However, there is no need to sincerely hope that Capitalism falls - it's unsustainable, it's reached it's limits to growth in it's most essential comodity (oil) and is already falling.  Capitalism is in terminal decline (or collapse) cannot be revived in anything like it's current form. This truly represents an emergency because we have no other economic system to replace it, no other way to run the system that provides us with our needs and wants. 

I recomend that all who read this site, read the ececutive summary of my forthcoming book "Peak Capitalism: Our Oppportunity to Choose between Survival and Collapse" in which I explain the problems we face and put forward a proposal for transition to a new economic system.  here's the link: http://members.optusnet.com.au/~lionelorford/Peak%20Capitalism%20exec%20summary.pdf 

My email is available from my personal website:  http://members.optusnet.com.au/~lionelorford/  Well considered, constructive criticism is welcome. 

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Ray Hewitt
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Re: The beginning of the end

However, there is no need to sincerely hope that Capitalism falls -
it's unsustainable, it's reached it's limits to growth in it's most
essential comodity (oil) and is already falling.  Capitalism is in
terminal decline (or collapse) cannot be revived in anything like it's
current form.

Oh my gosh! Lionelorford doesn't know the difference  between socialism and capitalsm, so he's blaming the collapse of socialism on capitalism. Central banking is right out of Marx's Communist Manifesto. We are not living under a capitalist system by any means. The book should be titled "Peak Socialsm." 

What a great irony. The former socialist nations of Asia are growing wealthy through capitalism and the former capitalist nations in the West are sinking into socialist poverty.

 

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lionelorford
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Re: The beginning of the end

hewittr,

Your response is so ridiculous that I really shouldn't respond - but I just can't help myself. 

The Central Banking system is privately owned by a tiny rich elite and effectively places control of our money in private hands while exerting vast influence over our governments and the information given to the electorate. How can this be something that Marx would recomend?   I openly admit that I have not read his Manifesto (or Das Capital) but I would be interested in a few quotes to support this proposition. 

You really need to understand the stuff I put forward in my book - but alas, it would seem that your belief system would not allow you to read it. 

A major concern with my proposal is that it will be branded - by the likes of yourself and many others - as socialism.  It would be disingenuous for me to claim otherwise, although I do believe that mine is a proposal to avoid the pitfalls of 20th century socialism.  My proposal is to maintain free enterprise within a monetary system controlled by 'we the people'. 

Ray Hewitt's picture
Ray Hewitt
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Re: The beginning of the end

Lionford

You twist the facts. The Federal Reserve Act was signed into law by President Wilson in 1913. It was set up as a banking cartel to get around the Constitution. It would be very disingenuous of you to argue that the Federal Reserve system is a private free market monopoly. It was set up subsidize government deficits with fiat money. It's right there #5 in Marx's ten points. Look it up.

The origins and purpose of the Federal Reserve is covered in The Creature from Jekyll Island, on Chris's recommended
reading list. You are correct about the tiny wealthy elite. Which
argues that our government is more accurately a plutocracy or a
form of corporatism. But free market capitalism it ain't. Once government takes charge, it ain't free anymore.

You really need to understand the stuff I put forward in my book - but
alas, it would seem that your belief system would not allow you to read
it. 

First you'll have to convince me you understand free market capitalism. If you don't understand it, then you are not qualified to criticize it.

My proposal is to maintain free enterprise within a monetary system controlled by 'we the people'.  

Controlled by the people? That sounds Orwellian to me. To a capitalist that means private ownership in a laissez faire setting. To a communist that means State ownership. A State sanctioned cartel like the Federal Reserve is a form of State ownership.

I have to go for the day. Do return. I'm sure I can pick your ideas apart with ease.

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Brandon
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Re: The beginning of the end

I'm confused by the link which lionelorford produced. In it it is stated:

"Capitalism is a monetary system in which all money is created as interest bearing bank debt,
through a system known as Fractional Reserve Banking."

But that sounds like the definition of a debt-based money system, not capitalism. Not that Google is the end all of true definitions but it is a voice:

http://www.google.com/search?q=define%3A+capitalism&ie=utf-8&oe=utf-8&aq...

By a majority of these definitions, capitalism can exist independently of fractional reserve banking.

I do not claim to be an expert in fractional reserve banking, capitalism, socialism, or any other "ism" for that matter, but it didn't add up for me. I'm open to clarification.

Also, I found this statement:

"...However, it is crucial to have an inspirational leader to rally the people and generate
a sense of common purpose; and indeed, the people often choose inspirational leaders in
troubled times. The election of Barack Obama is a highly pertinent example of this.
The importance of his election, both for America and the rest of the world, can hardly be
overstated. He has restored to America the hope that their democracy can be made to work.
He has restored hope to the international community that America will again constructively
engage with the world to meet the monumental challenges that we face, after the devastating
antipathy towards international cooperation of the Bush Administration."

Ordinarily, in everyday conversation, I don't correct people on this, but this document is written in a way that is, for the most part, polished and poignant, and it seemed to drop the ball in regards to the fact that the United States is a republic, not a democracy.  Again, ordinarily this isn't worth mentioning, but at times this paper gets so granular and is so painstakenly specific, that it was strange when this discipline was given up, seemingly conveniently, to make later connections which would be more difficult, though not impossible, to make without the use of the word "democracy".

Besides that, I think that your use of the word "hope" would be better exchanged for the word "optimism." 

For many, hope never leaves. For if it had, as is the premise of this statement, Obama would not have been elected. For Obama to be elected, hope would have had to already exist to mobilize one's self.  Therefore, I believe the election of Obama did not restore hope.

I believe you have, in fact, managed to overstate it.

An argument could more easily be made that it restored optimism, for even in hard times, real hope endures.

I can only speak for myself, but...

...Hope is what gives us the ability to make a difference in the lives of those around us, sometimes more so than any president.  Hope is what speaks to us to do what is right.  Hope is what helps us keep a watchful eye on those who are elected, and the strength to be diligent in this regard. Hope is what gives us the understanding that the ship can still be steered by the people, no matter who the president is. Hope is simultaneously our best reason against complacency, and our true cause for patience.

Hope is why we base our optimism on meaningful action, not on emotion.

True hope exists independently of our elected officials.

Thanks for posting the document.  I have not finished reading it, but plan to.

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Mike Pilat
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Re: The beginning of the end

LaFanze and hewittr: I agree with you 100%! Thank you for helping me maintain my optimism that this forum will not devolve into a senseless condemnation of capitalism based on false premises.

 The Federal Reserve has effectively created a Command Economy here in which they are able to manipulate prices by loaning money into existence and freely adjusting the money supply to suit their desires. There is nothing "free" or "for the people" about our present system.

 We have to realize that socialism always leads to inefficiency, failure, and collapse. We have no evidence to see otherwise. It tramples the rights of the individual under the false promises of collectivism while at the same time transfering the wealth of the People to the elite Commanders. That is exactly what is happening today with these bailouts.

 Fractional reserve, fiat banking is a monopolistic price fixing scheme that is incompatible with a finite world and civil, individual liberty and freedom. Incidentally, a banking cartel prevents the existence of true capitalism (i.e. we don't have capitalism today).

 I don't think I will ever trust the government to manage my life. It's made things bad enough already. 

The biggest Fraud of this era is that capitalism is what caused this financial crisis. That is the argument of the statists - the ones who want more control at the People's expense.

"I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them." --- Thomas Jefferson

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srbarbour
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Re: The beginning of the end
Quote:

 


Quote:

Davos wrote:

I don't know, I see stuff like this and wonder if the U.S.A. would ever
allow a gold standard - or another country to depeg the buck to oil or
any commidity. I kind of think that if we can't print we can't
empire...

Kind of makes me think another WW might not be out of the question.

 

It wouldn't be one you'd win.....

Last time the US won a war (WWII) it was awash in oil, the biggest
producer in the world at the time.  If you were on your own, where
would you find the energy to fight a WW?  The US can't even keep a lid
on Iraq, so what's the point ofstarting another WW?  I don't get this. 
Another WW wouldn't be the beginning of the end, it would be the END.

*Chuckle*

It is next to impossible to win a defensive guerrilla war when you refuse to oppress the population.   But it is relatively easy to win a guerrilla war if do suppress the population.   That's why Sadam didn't have so many guerrilla problems.

But no, any WWIII examination begs the question of what kind of war it'd be?   A nuclear war has an obvious end,  but is unlikely -- except between Pakistan and India.   The second greatest possibility would be a mess starting with North Korea nuking South Korea as part of an opening gambit for a unification war.   Probably while the USA and Japan are busy being depressed.

I'd pity the country that tried to directly invade the United States.   Unless they had Canada and/or Mexico on their side, they'd be screwed.   Talk about a logistical nightmare.   Worse, unlike in WWII where we landed on 'friendly-turned enemy territory' against an overstretched and already worn foe who was caught fighting on three fronts, this would be a direct attack against the heartland of the world's most powerful space, ground, air, and naval force.   (In conventional War, the United States was winning something like 100:1 in casualty rates against Iraq).   Worse, the one area of warfare that United States is bad at:  A Grinding Insurgency, would instead be working in the USA's favor.   We have no shortage of crazy gun nuts here that'd be happy to blow the heads off of every invading soldier, free of charge.

Lets be frank, the United States occupies what may be the world's most enviable defensive position.  The US would be sheer hell to invade even by a much stronger invading military force. 

If the United States is instead doing the invading, we already have a clear vision of what would happen.   Likely a rapid conventional victory against any but an alliance of several powerful military nations, followed by a grinding insurgency after which we'd go home asking ourselves what the heck we were doing in the first place.

Of course, all this ignores the fact that nearly all the major military powers that could effectively oppose the United States happen to be strong allies.... 

No, if you are looking for the embers of WWIII, look for countries who have neighbors they'd like to invade.  Especially those that might feel otherwise constrained by a powerful USA/NATO. 

In any case, I'd point out that the USA produces a good chunk of its own oil and gets lots of the remaining oil from Canada and Mexico.   We are certainly in a much much better oil position than Japan and Germany were at the beginning of WWII.

--

Steve 

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Mike Pilat
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Re: The beginning of the end

Lionel: I read more of your summary, you ENTIRE premise of Peak Capitalism is that fractional reserve banking and capitalism are the same thing. Nothing is further than the truth. This falsehood basically destroys the veracity of your entire document. With all respect, I hope writing like yours does not make it out to confuse people further about what the real Crisis at hand is

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Israel and Iran

You forgot Israel and Iran

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Re: The beginning of the end

LaFanze, can you explain " United States is a republic, not a democracy. "?  Why can't a Republic be a democracy?  The French Republique is a Democracy....  what's wrong with yours?

This argument about Capitalism NOT beng the same thing as fractional banking is splitting hairs methinks.  Capitalism, by definition, relies on raising capital 'to get things done', so I fail to see how one would raise this capital without borrowing money from a bank, which all operate under the fractional system.

In fact, when I look out the window, EVERYTHING was built on debt, capital raised through fractional banking... 

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Re: The beginning of the end

"
I'd pity the country that tried to directly invade the United States."

Who'd want to...? 

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Re: The beginning of the end

"Lets be frank, the United States occupies what may be the world's most
enviable defensive position.  The US would be sheer hell to invade even
by a much stronger invading military force. "

All you'd need to do is turn the oil taps off.

There'd be gas riots in the streets in no time, and when you're all done killing each other over gas at the pumps, we could come in and pick off the leftovers.  Cinch...

But like I said, who'd bother.... 

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Re: The beginning of the end

As long as we control the seas, nobody will invade. China cant invade because the Navy they have is pathetic. The Army China has is huge, but how do you move it? Russia's Navy is for the most part, mothballed. The only thing that will invade us is ICBM's.

 

 

 

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Re: The beginning of the end

"In any case, I'd point out that the USA produces a good chunk of its
own oil and gets lots of the remaining oil from Canada and Mexico.   We
are certainly in a much much better oil position than Japan and Germany
were at the beginning of WWII."

Mexico? Haven't you heard of the Export Land Model?  Mexico will probably stop selling you oil some time in 2010.  Left to your own devices, your current reserves would last just six years at current consumption.

Re the second statement, WWII, it is rarely acknowledged, was all about oil.  Hitler attacked Nth Africa and Russia for its oil (as its CTL plants were totally inadequate at running a war), whilst Japan attacked Pearl Harbor after your then government decided to stop selling oil to Japan because of its imperialist ambitions in the Pacific.....  Japan invaded China, Indonesia and Malaysia entirely for their oil...

Funny how some things never change.  No one would bother invading the US for its oil, that's for sure! 

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Re: The beginning of the end

Greetings,

I worked in the record industry for a number of years and in that time I produced a lot of Hip Hop.  I knew that one of the artists I was working with was a Crip (he had been in prison and was currently earning a living as a Pimp btw).  

Stay with me here, there is a point to all this.

Anyway, about midway through his album I asked him some questions about the feud between his gang and the Bloods.  Furthermore, I explained to him that an outsider, such as myself, had a very difficult time understanding the differences between the two gangs.  "They wear red" he responded and gave me a look as to suggest that I might be dumb.  "I understand that" I replied, "but how are you different?"  "We wear blue - that is the difference."

The fact that other men wore a different color or did different things with their fingers made all the difference in the world to him.  One kid I knew got life in prison for murdering two kids on their way to school.  Their crime? He flashed them a gang sign and they didn't know how to respond.  Oh yeah, I don't do hip hop anymore.  Regardless, someone not immersed in that culture just can not see the difference between one gang and the next or know that the way you wiggle your fingers can mean life or death.

Now, I happen to be an Anarchist - a Noam Chomsky kind of Anarchist if that helps.  Anyway,  it is a political philosophy I've had most of my adult life.  I'm somewhat politically active, have a 501(c)(3) non profit corporation that restores and archives audio recordings of historical importance and I do other fun things to try to help my community.  Funny, but I've been this way so long that, like the gangs, Republicans, Democrats, Capitalists, Communists, Socialists, Fascists and Plutocrats all look the same to me - criminals.

I'm sick to death with everyone arguing about the merits of one criminal organization vs. another criminal organization.  

1. Communism (Soviet Style): A small group of people have most of the power and resources.

2. Democracy (American Style): A small group of people have most of the power and resources.

3. Fascism (All Styles): A small group of people have most of the power and resources

4. Capitalist Democracy (S. Korea): A small group of people have most of the power and resources

5. Capitalist Communist (China): A small group of people have most of the power and resources

It doesn't matter how you name it or mix and match the names because there is no difference.  The faster we all learn this the better off we will all be. Laughing

 

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Re: The beginning of the end

Actually, America stopped selling steel to Japan as well because it was alarmed of the naval buildup Japan was doing.

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Re: The beginning of the end
Damnthematrix wrote:

LaFanze, can you explain " United States is a republic, not a democracy. "?  Why can't a Republic be a democracy?  The French Republique is a Democracy....  what's wrong with yours?

This argument about Capitalism NOT beng the same thing as fractional banking is splitting hairs methinks.  Capitalism, by definition, relies on raising capital 'to get things done', so I fail to see how one would raise this capital without borrowing money from a bank, which all operate under the fractional system.

In fact, when I look out the window, EVERYTHING was built on debt, capital raised through fractional banking... 

How about:

http://www.1215.org/lawnotes/lawnotes/repvsdem.htm

Explains it better than I ever could, and in one page.

Keith

( a TRUE republican, stuck in a democracy. :-( 

 

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Re: The beginning of the end

One more for good measure, on gov't in general:

http://civillibertarian.blogspot.com/2006/10/how-government-destroys-moral.html

Keith.

 

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Re: The beginning of the end

Saddens me that legitimate discussion degraded into United States bashing.

"You"  "You"  "You" (directed toward Americans)

 

Where is the WE in the world? 

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Re: The beginning of the end
hewittr wrote:

However, there is no need to sincerely hope that Capitalism falls - it's unsustainable, it's reached it's limits to growth in it's most essential comodity (oil) and is already falling.  Capitalism is in terminal decline (or collapse) cannot be revived in anything like it's current form.

Oh my gosh! Lionelorford doesn't know the difference  between socialism and capitalsm, so he's blaming the collapse of socialism on capitalism. Central banking is right out of Marx's Communist Manifesto. We are not living under a capitalist system by any means. The book should be titled "Peak Socialsm." 

What a great irony. The former socialist nations of Asia are growing wealthy through capitalism and the former capitalist nations in the West are sinking into socialist poverty.

 

I think our country engages in acts of both capitalism and socialism.  I don't think this nation has ever experienced one or the other exclusively.  This nation has aspects of so many ideals, and to identify this country by one particular theory would be a vast mistake.  One of the reasons why this country is having such a hard time finding a solution is because they cannot identify the problem(s).  To be able to identify the problems requires one to identify from what system did the problem originate?  One system?  Systems within systems?  Systems within systems of systems?  They have their hands full in Washington.

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Re: The beginning of the end

Hello Again:

Just to clarify, I wasn't advocating WW3 or war. Or who would win/lose.

I hate wars. We went to war in Vietnam on faulty intelligence (read in James Bandofrd (?sp)  Body of Secrets). Irqaq - more faulty intelligence, no WMD's other than the ones Dony boy Rumsfield sold them in the 70-80s in the days where he used to hug Sadam.

I was just trying to bring to light that 53% of our budget/taxes/desretionary spendimg goes to "defense" spending. If we can't print money out of thin air I'm thinking we are going to be down to one general and one F-18.

In the news I see things indicating that some countries might take advantage of this (i.e. another Cuban Miscle crisis sort of a tension) here as Russia flexes its muscle closer to the US.

Personally, I can't imagine the powers that be allowing any standard other then print baby print to stand in the way of a "defense" budget. http://perotcharts.com/issues/ slide 12-16 (hat tip to, forgot who kindly posted this, but great watch indeed. By the way, Perot's real estate comp is in financial trouble).

I hope that clarifies my point of view, I wish we had a gold system or anything that isn't a print baby print system - but until there is "better" diplomacy (read any semblance of diplomacy, in other words when Condi and W retire thie a$$ kicking boots) I just don't see anything like this (a gold standard) happening.

Just my 2 cents.... 

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Re: The beginning of the end

Damnthematrix:

It is true that our system has been built on debt. But true capitalism does NOT require deeper and deeper overall debt to exist. Capitalism, in its purest form, works out of savings (yes, we don't really do much of that now). It means that someone, somewhere, produces more than they consume and therefore has saved up capital that they are willing to lend out to someone to finance a project. Today, there is no savings because, unfortunately, there doesn't absolutely need to be. The Federal Reserve will just print up all the money and more that we could ever want...

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Re: The beginning of the end

LaFanze,

Thankyou for your considered response.  I will reiterate a major point of my "granular and specific" work (thanks for the praise):

"Capitalism is a monetary system in which all money is created as interest bearing bank debt, through a system known as Fractional Reserve Banking."

This is the very nub of the issue.  Capitalism is a system whereby money is created by private banks as interest bearing debt, rather than by the government.  This is like saying that the USA is a country in North America bounded by Canada to the north and Mexico to the south.  Yes - you can make nit picking exceptions like saying “what about Hawaii and Sarah Palin Land?” but this is for all intents and purposes, it’s true.  You could also validly say that America is far more than a country as it’s worldwide influence is all pervading.  The same is true of Capitalism. 

StudentOfJefferson – I’m very glad that you confront me on this point, but Capitalism and Fractional Reserve Banking are the same beast.  One cannot exist without the other.  The very name Capitalism means the accumulation of capital – otherwise known as money.  This is no “falsehood”. 

Most people (particularly Americans) believe that Capitalism and Free Enterprise are the same thing.  Nothing could be further from the truth. Capitalism subverts free enterprise by concentrating all enterprise into the hands of the rich elite who hold the capital.  I thoroughly support free enterprise and rigorously oppose Capitalism. 

So thanks respondents, apart from this debate and other minor issues like the difference between hope and optimism, there has been little substantive criticism of my work. 

BTW -  the election of Barak Obama has restored my hope that America can once again be a force for positive change in the world rather than systematically destroying it.  The situation under Bush has been, for the rest of the world, truly hopeless.   All through this terrible era, I have lost hope that America could revive its democracy, but I have never lost my optimism. I was wrong in losing that hope.   LaFanze, I will reconsider this wording because you have pointed out the possibility of being misunderstood. 

This will probably be my last post to this string, so please respond to me via the contact on my website if you have anything important criticism to add.

Warm Regards to all,

Lionel

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Re: The beginning of the end

lionelorford: When Bush says we have "free markets" and "capitalism" it is no more true than when he says we are invading Iraq to retain liberty at home. It's doublespeak from an evil serpent of a President. But don't let his misinformation campaign fool you.

I don't know about you, but I don't have a mortgage or a car payment. I actually save money and that's how I buy things. Capitalism does not require fiat fractional reserve money. It requires savings that can then be loaned out.

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Re: The beginning of the end

Ok, now you have me pondering capitalism without a central bank.  The premise that a central bank/fiat money is required for an INCREASE in capital makes sense to me on the surface.  If a society and it's economy are to grow, then an increasing suppy of capital seems to be necessary. 

 How does overall capital increase without a central bank?  Is there no currency, only barter?  Competing currencies?  Say, gold, bananas and seeds?

Nice, thought provoking stuff here.

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Mike Pilat
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Re: The beginning of the end

MarkM:

As Chris points out, any currency system imposes its own biases on society. A commodity based currency would largely base wealth on the amount of a commodity you controlled.

If the real economy was growing and producing more goods and services, miners would tend to be stimulated to mine for more gold. Likewise, if the economy was going into a contraction, with fewer goods and services, there would be less of a need to increase the money and miners would tend to abandon mines and simply meet their basic needs (food, etc.) The point is that gold is a luxury that serves very little practical purpose to society. As a result, people only tend to be capable of mining for more gold when the economy is strong enough to support the miners. If the economy weakens, the mines tend to close.

It would be practically difficult to base a currency on a commodity that is doomed to depletion (such as oil) because eventually the amount of currency would shrink to extremely low levels that would probably not serve society's needs. Additionally, oil is harder to transport than gold.

While imperfect, a gold standard would be fairly stable because (unlike oil) the gold supply does not change much at all each year. Additionally, gold is not a basic human need and humans would only tend to acquire it once they had met their needs (food, shelter, etc.) and had a surplus. Gold does not degrade with time as it is highly resistant to corrosion. 

The simple bottom line, though, is that the supply of gold is largely market driven. Thus, the power is in the hands of the people and the market. This makes the money supply less prone to manipulation at the hands of the elite banksters.

Again, gold is not perfect, but I contend that it works far better than paper fiat. And we can all rest assured that gold has been highly valued since the days of King Tut in Egypt. I could be wrong, but I don't know of any fiat system that has lasted more than 50 years. With gold, goes economic freedom. With fiat, the money supply invites corruption.

 For the definitive defense of a gold standard and its necessity for liberty and freedom, read this essay by Alan Greenspan, written many years ago, before his apparent corruption:  here

 

Mike

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Ray Hewitt
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Re: The beginning of the end

Lionel says:

"Capitalism is a monetary system in which all money is created as interest bearing bank debt, through a system known as Fractional Reserve Banking."

Not even close.Capital comes from savings and profits, not from manufactured money.

It makes perfect sense when you think about it. Imagine your ship sank and you landed on a deserted island. Your first priority would be to find food and water. Once you build up a surplus, that gives you time to say find flint to make cutting tools. When your surplus of food and water runs out, you forage for another surplus. Then you have time to build cutting tools. This process repeated countless times is how wealth is created. The lesson is: one must save to produce. One cannot consume more than he produces.

Lionelford's definition creates a fraud whereby the federal government can spend without the constraint of taxes. It is the root cause of inflation and unsustainable as we are now learning. If we tried something like that it would be called counterfeiting and check kiting. Fractional Reserve Banking is a euphemism for embezzling, where your bank takes your deposits, your property, and loans them out to other parties. This builds up a debt pyramid that is destined to collapse. Living standards have to drop to get in balance with the massive increase in debt and the consumption of previous wealth.

Another way of describing Fractional Reserve Banking is to imagine you are the treasurer of your church and you have a gambling habit. So you take money out of the church treasury with the intention of paying it back with your winnings. It's not hard to figure out how that will turn out.

BTW -  the election of Barak Obama has restored my hope that America can once again be a force for positive change in the world rather than systematically destroying it. 

I'll give Lionel one year before his hope turns into despair. Obama is better suited to be a televangelist.

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Re: The beginning of the end

Capitalism...fractional reserve banking...socialism...free marketism.  These are all ideological models and most of you argue your points from a specific perspective.  All these perspectives could easily point to components and mechanisms that are this, that, or the other...the current system is an amalgamation of various perspectives...the only constant is that wealth (especially cross-generational) equals power which equals to political influence and control.  The utopianism of free marketites is as absurd as the utopianism of socialists.  They, or any other utopian ideology, depends upon assumptions of underlying human behavior..."this would work if everyone just behaved like....".  In the end, any societal stucture, markets included, are human creations...they don't exist outside of human behavior.  And I will repeat something I have stated in other discussions on this site...we will always end up with a complex, entangled, and rigged system no matter what.  People will always game ANY system and this will always be those that accumulate wealth.  The best bet is to preserve democracy above all and this is not acheived through any one economic ideology. 

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Mike Pilat
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Re: The beginning of the end

hewittr: Thank you, you made the savings case better than I did. You are right on.

ajparrillo: I understand your point and actually the Founding Fathers realized that a Republic form of government often doesn't last very long because somebody does come along and game the system. But a democratic republic, with free markets, is the ideal we should be striving for. Do you really want to be enslaved? I think it is safe to say that the Republic and the free markets haven't failed, but it is time that we actually return to them, because we have strayed far from that path.

 It isn't the free markets or the republic that is flawed, it is frankly the morality and integrity of the people in the system. It's been said that you get the form of government (or I can extend this to be monetary/economic structure) you deserve. 

For the people who think the banksters really are acting in everyone's interests, there isn't too much I can say, other than "open your eyes." But for everyone else, the time now is to take a stand and raise some awareness. We are losing our economic and personal freedoms every minute as the banksters get more and more power.

"Yes, we did create the near perfect republic. But will they keep it? Or will they, in the enjoyment of the plenty, lose the memory of freedom? Material abundance without character is the path of destruction." --- Thomas Jefferson

 

Mike

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