Like A Thief In The Night

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  • Mon, Sep 27, 2010 - 05:32pm

    #1
    Davos

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    Like A Thief In The Night

Like A Thief In The Night (Link to article on FSN)

Gold – Currency status since 2600 BC

 

To date, the crime syndicate has struck 3,800 times. At the bottom of this article you will find a partial list of the mob hits that have been made by the organized crime syndicate many refer to as: La Cosa Nos(Cen)tra(l) Banksters. The families of the diseased are large – entire nations. They made the unfortunate and common mistake of trusting their late, and once rich Uncle Currency with safeguarding the value stored in their life savings. Those that didn’t take out a life insurance plan suffered. Many, like the little children of Argentina, actually starved to death. 

The modus operandi is identical in every case. The loot is taken first, the heist ends with a rub on the mark.

like a thief in the night

Let’s look at the above crime scene. Germany lost World War I. They were saddled with war debt and forced to pay reparation. The French took over Germany’s industrial base when the Germans got behind on their payments. Without the industry revenues the German government began printing to cover their debt and avoid default. 

‘Gave up its industrial base’.

“…government began printing to cover their debt and avoid default.”

Sound familiar? 

It should. Globalization off-shored the bulk……

 

  • Tue, Sep 28, 2010 - 11:59am

    #2
    Peak Prosperity Admin

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    Re: Like A Thief In The Night

The World Monetary Earthquake, The Dash From Cash
By Ben Davies, CEO of Hinde Capital
September 28 (King World News) – Tinker, Tailor, Soldier, Sailor, Rich Man, Poor Man, Beggar Man……..Thief

Globally GDP has been anaemic since the crisis first arose in 2007.  The inevitable conclusion of most countries today is that the best way to extricate themselves from the current mess is to shift effective demand away from imports onto domestically produced goods.   The preferred method is competitive currency devaluations.   

Unfortunately this is not possible for all, and leads to friction as countries effectively steal other nations output to bolster their own.   Plato and Aristotle referred to this as ‘overgrazing’, the ‘tragedy of the commons’.  Nothing changes.   This always leads to heightened tensions and conditions of capital controls and other protectionist behaviour such as punitive tariffs and quotas on imports often prevail.   Friedman’s flat world aside – it is already happening.

To maintain the last decade of prosperity (illusion) countries are systematically hell bent on exporting themselves to economic health.   This is a zero sum game.  Not all countries can export at the same time by definition that the global balance of payments will not then balance.   For one winner there is a loser.   The implication on import prices is dramatic.   Inflation is imported or exported depending on your view point around the world.   Let’s rephrase ‘inflation’ – global citizens will experience a rise in the value of goods due to creation of more money used to devalue their currency.   

The pursuit of mercantilist traditions may help alleviate the collapse in output for some, and the ensuing rise in goods prices may help government reduce the value of their debts; but at what costs? Increased international tensions and let’s not forget the internal social unrest that is accompanied by citizens whose wages have not kept abreast of these rising prices.   

As the traditional English folk tune rhymes Tinker, Tailor, Soldier, Sailor, Rich Man, Poor Man, Beggar Man……..Thief.   Rich or poor, you beg from your neighbour there is no two ways about it in the world of current accounts – you are a thief.   

It is politically more savoury to expropriate the output from another country, unfortunately this will be at the loss of the majority.

Within a single week 25 nations have deliberately slashed the values of their currencies.   Nothing quite comparable with this has ever happened before in the history of the world.   This world monetary earthquake will carry many lessons.

Henry Hazlitt 1948 wrote this in a book “From Bretton Woods to World Inflation”, which predicted the inevitable collapse of this fixed exchange rate mechanism.   It was a compilation of his editorials from both his time at the New York Times and Newsweek, which ridiculed the prevailing economic Keynesian thinking to great effect.   A brilliant journalist, economists and liberal philosopher, this man intuitively understood the pernicious nature of the Bretton Woods fixed exchange rate arranged in 1944.

Murmurings of such ‘beggar-thy-neighbour’ currency devaluations have once again sprung up amongst the financial literati and rightly so.   Better late than never.   The truth be told is that we have been living in a highly unstable world even more so than under BW I.   The dollar pegs, primarily the Asian renminbi dollar semi-fixed exchange rate, what most refer to as Bretton Woods II, have (arguably) been responsible for the financial friction we observe today.

The RMB and US dollar are constantly colliding into each other. The clashing of these two tectonic currency plates has just begun to accelerate at an alarming rate.   Ironically the move to greater currency flexibility on the part of the RMB against the dollar stands ready to produce the almighty mother of seismic monetary events – the collapse of the fiat currency system.   The implications for government bonds, equities and real assets are profound.   Are we being overly sensational? We don’t think so.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/9/28_Ben_Davies_-_The_World_Monetary_Earthquake.html

  • Tue, Sep 28, 2010 - 01:03pm

    #3
    Peak Prosperity Admin

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    Re: Like A Thief In The Night

 

From the article

To maintain the last decade of prosperity (illusion) countries are systematically hell bent on exporting themselves to economic health.   This is a zero sum game.  Not all countries can export at the same time by definition that the global balance of payments will not then balance.   For one winner there is a loser.   The implication on import prices is dramatic.   Inflation is imported or exported depending on your view point around the world.   Let’s rephrase ‘inflation’ – global citizens will experience a rise in the value of goods due to creation of more money used to devalue their currency. 

To me the implication is that all countries are trying to make their exports “cheaper”, not more expensive.  In order to achieve price inflation without affecting demand, wages must rise.  For the most part there seems to be little wage “inflation” amidst an abundance of labor and plant capacity on a global basis. In fact what appears to be happening is a decline of income, both real and nominal.  The oddly sticky price of oil ( I suspect collusion of govt, banks and producers to save the collective butts of the ME) only adds to the toxic mix reducing demand on other consumer goods – effectively a tax to bail out the ME from their wild spending spree of the last decade. The simple fact remains that most of this “printing’ is accomplishing very little beyond inflation of financial markets (most would be 50% or more lower without it) and papering holes in bank balance sheets – virtually none of it escapes the financial sphere to mingle in the real world. I still contend that the full extent of debt deflation is not and cannot be revealed – to do so would collapse most of the banks on the planet.  They keep feeding the black hole which is in reality is only aiding its growth.  To kill it, it must be starved, not fed.

While there certainly has never been a fiat without a fatal ending, it is likely a bit premature to call for the death of the current global fiat scheme.  The failure of the global fiat scheme is in essence a failure of the global government structure.  The possibility of “mad Max” on a widespread basis would be highly elevated and certainly more prominent as population density rises.

And when fiat dies?  With 6 billion on the planet and only a tiny percentage holding gold and silver in a recognizable and usable form, the likelihood of a specie backed system suddenly arising seems remote.  In fact, were gold and silver to be broadly recognized as a medium of exchange, those holding might as well paint a giant target on their backs.

As to the comparison to Wiemar, its unfounded.  We don’t have war reparations that must be repaid.  In fact it would be nice if everyone repaid us for bailing out their butts in WWI and WWII.  With interest and penalties (using the standard IRS formula) that should total about $50,000,000,000,000. Smile

 

  • Tue, Sep 28, 2010 - 03:42pm

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    Re: Like A Thief In The Night

[quote=yobob1]

As to the comparison to Wiemar, its unfounded.  We don’t have war reparations that must be repaid.  

[/quote]

We do have off-budget war expeditures that are paid for by issuing debt.  Billions per week…

  • Tue, Sep 28, 2010 - 04:01pm

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    Re: Like A Thief In The Night

[quote=yobob1]

As to the comparison to Wiemar, its unfounded.  We don’t have war reparations that must be repaid. 

[/quote] I’d really encourage you to Google how much of the current budget goes to war, past and present. While we aren’t paying reparations we are paying out the %$$ for our wars.

States 1812-1814 Continental Currency – Failed
United States 1861-1865 Confederation Notes – Failed

We’ve had 2 currencies that failed due to war.

Secondly, 

Let’s look at the above crime scene. Germany lost World War I. They were saddled with war debt and forced to pay reparation. The French took over Germany’s industrial base when the Germans got behind on their payments. Without the industry revenues the German government began printing to cover their debt and avoid default. 

‘Gave up its industrial base’.

“…government began printing to cover their debt and avoid default.”

Sound familiar? 

It should. Globalization off-shored the bulk of our industrial base. In 1959, manufacturing accounted for 30%+/- of U.S. economic output. In 2008, it was 11%+/-. The United States lost 32% of its manufacturing jobs since 2000. Manufacturing employment in the U.S. computer industry is now lower today than it was in 1975. Asia produces 84% of all printed circuit boards. The United States has lost 42,000+/- factories since 2001. In 2008, 1.2 billion cellphones were sold, none were made here.

 

An out of control deficit has left Ben-Willy-Nilly-Bernanke printing. The formula for what we print is this: (Tax revenues taken in + What Communist China et al will loan us) – (What we owe out) = Counterfeit / print the difference.

  • Tue, Sep 28, 2010 - 04:01pm

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    Re: Like A Thief In The Night

duplicated

  • Wed, Sep 29, 2010 - 11:33am

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    Re: Like A Thief In The Night

I’m quite aware of our current war budgets – most of which is “off balance sheet” and not included in the pentagon’s “budget” – I should be so lucky to have a budget as flexible as theirs.  Both of your failed US currency examples are of “contrived” currencies created in direct relation to a specific war.  What you should really Google for is how similar the Continental is to the Euro. Your aforementioned examples were not the end of the world as there remained a functioning circulating currency of gold and “good” bank notes.  Of course it was the end of the world for Confederates – they lost the war.

Our loss of manufacturing is directly related to “free trade” which is a boldly stupid concept.  You simply cannot have free trade between severely disparate economies since manufacturing will move to the lowest cost producer which typically will employ people at slave wages, have draconian working conditions and hours, no costly pollution regulations and a government that is satisfied with wholesale corruption to grease the wheels.

Prior to the creation of the Fed, total govt expenditures (fed, state and local) as a percentage of GDP ran about 10% – today that number is in reality close to 40%.  Back then the bulk of the Federal revenue was tariffs.  It used to be that most imported goods were things simply not produced on shore or uniquely different.  Today everyone on the planet is trying to make the same items to sell to each other while consuming a lot of energy shipping it back and forth. In addition we have become incredibly efficient at producing stuff.  A relatively small percentage of the population makes everything for everyone else – 10% produce and 90% consume.  Most of us are just cannon fodder.  Point being, a small amount of legislation regulating imports (yes that’s tariffs – and I’m quite aware of Smoot – Hawley which really was a case of formalizing what was already happening) and altering tax laws could just as easily create the correct environment to encourage on shore production.  That sound you just heard was Wal-Mart imploding.

While our deficit is obviously far too large to be sustainable, it is not insoluble. A great deal of the current deficit is “stimulus” which is resulting in 0% gain in the real economy – it is arguably in negative territory since govt is actively competing for sparse dollars.  In the mean time the debt deflation monster is gobbling up dollars at a prodigious rate quietly in the background.  Virtually no one alive today has any real experience with a debt deflation of the size we face.  Logically it must be so – bust follows boom and baby, we had one whale of a multi-decade boom. It seems that every economist and financial guru on the planet knows exactly how to hit the “+” sign on their calculators in their rush to tally up the “printing” and yet not one seems to own a calculator with a “-” sign on it to account for debt deflation.  People love to focus on the US and our woes without any thought that this explosion of debt was a world wide insanity.   The bust will be a global cleansing once it finally occurs – that’s assuming we make it past Dec. 21, 2012 of course.

 

  • Wed, Sep 29, 2010 - 12:03pm

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    Re: Like A Thief In The Night

[quote=yobob1]

I’m quite aware of our current war budgets – most of which is “off balance sheet” and not included in the pentagon’s “budget” – I should be so lucky to have a budget as flexible as theirs.  Both of your failed US currency examples are of “contrived” currencies created in direct relation to a specific war.  What you should really Google for is how similar the Continental is to the Euro. Your aforementioned examples were not the end of the world as there remained a functioning circulating currency of gold and “good” bank notes.  Of course it was the end of the world for Confederates – they lost the war.

Our loss of manufacturing is directly related to “free trade” which is a boldly stupid concept.  You simply cannot have free trade between severely disparate economies since manufacturing will move to the lowest cost producer which typically will employ people at slave wages, have draconian working conditions and hours, no costly pollution regulations and a government that is satisfied with wholesale corruption to grease the wheels.

Prior to the creation of the Fed, total govt expenditures (fed, state and local) as a percentage of GDP ran about 10% – today that number is in reality close to 40%.  Back then the bulk of the Federal revenue was tariffs.  It used to be that most imported goods were things simply not produced on shore or uniquely different.  Today everyone on the planet is trying to make the same items to sell to each other while consuming a lot of energy shipping it back and forth. In addition we have become incredibly efficient at producing stuff.  A relatively small percentage of the population makes everything for everyone else – 10% produce and 90% consume.  Most of us are just cannon fodder.  Point being, a small amount of legislation regulating imports (yes that’s tariffs – and I’m quite aware of Smoot – Hawley which really was a case of formalizing what was already happening) and altering tax laws could just as easily create the correct environment to encourage on shore production.  That sound you just heard was Wal-Mart imploding.

While our deficit is obviously far too large to be sustainable, it is not insoluble. A great deal of the current deficit is “stimulus” which is resulting in 0% gain in the real economy – it is arguably in negative territory since govt is actively competing for sparse dollars.  In the mean time the debt deflation monster is gobbling up dollars at a prodigious rate quietly in the background.  Virtually no one alive today has any real experience with a debt deflation of the size we face.  Logically it must be so – bust follows boom and baby, we had one whale of a multi-decade boom. It seems that every economist and financial guru on the planet knows exactly how to hit the “+” sign on their calculators in their rush to tally up the “printing” and yet not one seems to own a calculator with a “-” sign on it to account for debt deflation.  People love to focus on the US and our woes without any thought that this explosion of debt was a world wide insanity.   The bust will be a global cleansing once it finally occurs – that’s assuming we make it past Dec. 21, 2012 of course.[/quote]

I’m always amazed at how smart members of this community are.  What I don’t get is that how someone with obviously 2x my IQ won’t take into account the ramifications of a destroyed currency or the consequences / ramifications of shredding social programs.  Wal-Mart’s CEO’s statement went viral with Art Cashin last week, described was a modern day monthly midnight occurrence of a breadline.  11:00 PM at Wal-Mart buyers lining up to once a month waiting for the stroke of midnight when their benefit cards get recharged with QE money to buy baby formula.  We have 40+ million (1 out of 8) people in electronic bread lines.  Elderly eating cat food.  Unemployed extensions keeping people on financial life support.  The idiot politicians are afraid of pitchforks and torches, and oh, by the way, they are the morons who would have to flip the life support switch.

Aint going to happen – is my take.  I do respect your opinion.  I do think anything can and likely will happen.  I am impressed with your well thought out and VERY well informed point of view – even though I think it is the remote possibility. Take care.

  • Wed, Sep 29, 2010 - 01:43pm

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    Re: Like A Thief In The Night

Davos, I doubt your IQ is half of mine – mine has oft been compared to room temperature.  Should you suffer that problem, please have your attendant check your drool bucket regularly. Smile

I don’t discount the power of currency debasement, but the reality is we’re trying to measure the unmeasurable with fiat comparisons. A lot of my perspective comes from what I see around me on a daily basis.  I am in no way wealthy – better off than most perhaps, but not “rich”.  Frankly I don’t give a rats ass how many Yen my Dollar will buy or whether the price of a new Mercedes went up 5% because the Euro rose.  I’m primarily concerned with what my dollar buys here.  But imports prices will rise to the moon!!!!!!!  And then who will buy them?  The purchasing power of Americans has declined – they’ve effectively been cut off the credit tree.  Double damning is they are actually paying down debt beyond what they’re defaulting on.  They are also clinging more tightly to any dollar they can lay hands on – the effect of the combination is reflected in the rising savings rate.

Perhaps even more importantly is the sea change in attitude.  Thrift is the new “in thing”. This is not a revolutionary concept, our grandparents (assuming you’re near boomer age) went through the same thing in the 1930s.  I suspect the aftermath will be much the same – an extreme aversion to debt that will be passed on to the subsequent generations with diminishing effect until it is far enough in the rear view mirror so that we can repeat the same mistake again.

So what’s happening in the real world?  Real estate prices are still dropping – something I expect to accelerate going forward. (you might want to take a look at what IMO one of the best analyst’s view of the Case-Schiller is saying – http://www.safehaven.com/article/18369/this-gloomy-bloomberg-housing-article-is-not-gloomy-enough-and-would-be-gloomier-if-all-of-the-facts-came-to-the-forefront ).  Small business owners are not able to meet their pricing targets.

http://www.safehaven.com/article/18364/qe-engine-revs-car-goes-nowhere

Yes, recently commodity prices are higher.  A couple of isolated supply issues explain some of it, but the vast majority is due solely to the inflated nature of the financial markets relying on Fed spoon feeding compounded by the myriad of new and “innovative” ways to gamble.  It is my best guess that when we see an equity melt down that you’ll also see a melt down in commodities.  I beleive that is especially true in the PMs because of the ETFs – time will tell. I look at a world where obviously demand is down on a global basis. credit access and usage is declining and see no real demand driving price.

Assuming I’m correct the combination of a shrinking real world debt bubble, an equity melt down (retail investors have been exiting for months and buying fixed income in spite of the ludicrous IR) and the ongoing real estate debacle that has years and years to run (demographics also play a key role in RE) is going to reveal the true nature of this bust – and it won’t be inflationary.

Regarding the shrinking real world debt bubble – what I would call “productive’ debt not including govt and financial, most people don’t fully account for the simple fact that is what you and I down here on the street do to make things go.  Everything else on the planet is leveraged from that.  When Wall Street blew a hole in the block with securitization of really bad loans (almost all of them), we down here on the street were no longer able to drive the economy – other than in reverse towards the flimsy guardrail on the edge of 1,000 foot drop.  Effectively a fractional reserve fiat economy is totally dependent on debt growth of the little guy.  Think of it as an inverted pyramid of leverage with us as the peak stuck in the sand.  There is no substitute.

I tend to take a longer view of things than most people.  I’m also typically early in my actions and warnings – perhaps due to my impatience with the length of my views.

I’m also willing to change my views if I discover a flaw or something arises out of the tail of the bell curve.  I rarely bet on anything that I’m unsure will win.  All that said I still like to hedge my bets where its practical – I hold an appropriate “core” percentage of my assets in PM because I cannot fully discount the popular 0$ view.

  • Wed, Sep 29, 2010 - 03:09pm

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    Re: Like A Thief In The Night

Yobob – it’s great to have your talents plying these waters.

I love to disagree with you and have learned, over time, that the odds are not especially good in taking the other side.

In this conversation I do take a slightly different view from you in that I happen to believe that the middle class has less and less clout these days as the driver of anything except the purchase of bric-bracs from China.  

I view the concentration of wealth, into the hands of the very rich and nation-states alike, to be a new feature of the current landscape.  It is the desires and preferences of these two classes that can, without the assistance of the withering middle class, shove prices to and fro.

When it comes to “money” and how fast its disappearing because credit is evaporating (no argument from me on that), I view Treasury notes as a form of money and I happen to think there are far too many of them kicking about, especially in foreign hands.

Putting these thoughts together I cannot rule out the possibility that a destructive rise in prices could occur.  Will it destroy people who cannot afford to buy the products?  Sure, but that may not be relevant while the pendulum is swinging away from ‘paper’ and towards ‘things.’

I view this as very much of a live possibility and this is why I have positioned myself for both a rising price in ‘things’ as well as the possibility of a rise in the value of a dollar.  Although not equally I might add, I still favor the “dollar loses value” scenario by 7:3.

Either way a very large proportion of people lose purchasing power, and that’s the main message.  Trying to figure out which way this will happen requires constant vigilance, good data, and an open mind.  I’m trying to maintain all three, but typically settle for two out of three on any given day. 😉

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