Monday, June 27, 2011

The Gold Standard and Freegold – A discussion of freedom

There has been a lot of talk lately on the web about the return to the gold standard. In order to have a rational discussion on the issue, we must first determine what is the gold standard, what are the advantages and disadvantages to it and is there a better alternative.

First, the gold standard is generally defined as a currency fractionally based in gold reserve, not to hard money gold based economy. Not gold coins in circulation, but gold backed currency. In the modern definition of the gold standard, the legal tender currency would be based in gold deposits held by the bank and fully exchangeable for gold in the bank’s vault on demand. A depositor would deposit his gold in the bank and be paid interest on this deposit. The bank, using fractional reserve banking, would loan out gold certificates against the deposited gold. A gold based currency has worked in the past to provide a limitation to the size of currency in circulation. The anti-gold backing pundits use this as its main disadvantage by stating, somewhat correctly, that there is not enough above ground gold in the world to conduct the vast amount of trade that happens in the modern world. This argument is made from a strict static view of commerce and trade.

No, there is not enough gold to back the economy of the world if you value gold at $42.20 an ounce, the laughable “official exchange” rate. Laughable even when the government exchanges gold through its mint to selected dealers at somewhat true market price of over $1500 an ounce. Nor is there enough gold if priced at ten times that price $15,000 an ounce. And if you were to add, not just the currency in circulation, but the credit and derivatives in existence, the task would become even more insurmountable.

FOA and FOFOA have quoted prices of over $50,000 an ounce in order to gain parity with the current amount of currency in circulation. I suspect that once you include the shadow banking and underground economies, the number would be several magnitudes higher. But the fallacy is using the dollar as the reference point instead of using gold as the reference point. It is an easy trap to fall into. We have been conditioned for many years to think of the value of products based on the officially sanctioned currency. We see a 3,000 sq ft home in Houston and think, $250,000 dollars. We see a nice economy car and think $15,000 dollars. So it is easy to see it as impossible to replace this with gold. Imagine if you had to buy a car and could pay ¼ ounce of gold, a small coin, or buy the house for 4-5 ounces of gold. Sounds implausible right? We are conditioned to think in dollars.

Those in favor of the gold standard argue correctly, that the gold standard by its nature, restrains the government from the massive expansion and deficit spending of the welfare state. They argue that without the ability to exponentially create currency out of thin air, it would be impossible for the government to expand beyond the surplus production of its citizens.  This, by the way, it’s the main point of opposition of the gold standard by welfare statists. They argue that the government would be unable to make the “necessary investments” in the “people” if restricted by a hard money standard.

Both arguments are correct, based on their respective goals. But they both fail in the basic premise. That currency, especially government fiat currency is money. It is not.

All fiat currencies are a mechanism to steal your wealth.

Every day, you and I accept electronically generated digits in exchange for our labor. These electronic coupons serve their limited purpose of exchanging labor for wealth. But the failure is our desire to equate currency with money. We fail to understand that fiat currencies always explode into devaluation. We do not see that, as the currency is devalued by our Federal Overlords, our labor is devalued along with the currency. This is theft. There is no other way to describe it. The Aristocracy of pull is organized into rival gangs whose purpose is to be at the top of the ponzi scheme that is plundering your labor.

They don’t mind slavery, as long as they are the ones holding the whip.

Although the gold standard might restrain the government from indirectly stealing your wealth thru inflation, even under a gold standard TPTB would find a way to keep plundering your labor. The leaches are not going to go away. Their free ride is an accepted way of life and too many of us have come to accept it.

The solution is not to attempt to make currency a simile of money. Fiat currency is an artificial construct designed to keep you in bondage. You cannot make a poison into goodness. A compromise between food and poison always kills the host.  The solution is to understand the limited purposes of currency and then act accordingly.

Divest yourself of the idea that currencies are money or even worst, wealth.

Stop participating in the Ponzi.

You must relearn the meaning of wealth and money. You must rethink your goals and your strategy to get there.

Wealth is the products, tools and knowledge that man needs to live.

Money must maintain its exchangeability with wealth at as a minimum the same rates as to when you saved it.

Investments are wealth purchased that produce residual income above the original effort or the value of the money invested.

Currency is just a method of exchanging your surplus production for another’s surplus production.

Credit is the anti-wealth. Credit borrows from your future production in order to provide wealth today.

The validity of any of those forms is dependent upon two factors, your purpose and timeline.
 If your purpose is just to get by until next paycheck, currency can serve that very limited purpose. Understand that currency is subject to theft by TPTB by design. Your currency will rapidly devalue and be subject to taxation not only at production, but anytime you exchange it thru different forms. Taxed when you first produce it (income tax); taxed when you purchase wealth or money (sales tax); and taxed again if you convert money or wealth back into currency (capital gains tax).

 If your intention is to save your surplus production for your near term use, as in the next 1-15 years, keeping your surplus production in wealth makes sense. Think about it. If you are saving your surplus production in order to exchange it for your most basic needs, then saving it in the form of the actual needs, before it loses purchasing power, is the smartest strategy. Shelter, energy, food, water and clothing are your most basic needs. Why would you store your surplus production in a medium that loses purchasing power in order to purchase those needs in a year or five when you could purchase them now and limit your loses? Purchasing and storing food, as an example, can provide future food. You will need to eat in the future. You are using some of your production for food. Why not buy extra food and store it? This method has the advantage of protecting your surplus production against TPTB. You cannot be taxed on the can of beans in your pantry. As long as it has not expired, it retains its value to you as food. Same is true of clothing, furniture, spare light bulbs, anything you know that you will spend currency in sometime in the future.

If your intention is to store your surplus wealth for over 20 years, to include passing it to the next generation, money is the most efficient method of storage. Money can provide similar protection than stored wealth with some distinct differences. Money is portable. You can take an ounce of gold with you a lot easier than 1500 notes worth of rice and beans. It provides flexibility. It is easier to trade an ounce of silver for five gallons of gasoline than you could trade a 50 pound bag of rice for the same 5 gallons of gasoline. It is also less subject to natural disasters and easier to store. Its timeline extends across several generations. Disadvantages? Money could be subject to confiscation. Money is subject to market disruptions. If there is no gasoline to be had, money will not get you any.        

Can gold and silver be money?

Let us look back at the 1964 example. I’ll quote myself from an earlier post here:

“If your father would have saved 10,000 dollars in silver coin (real money) in 1964, he could have given you $360,000 in Federal Reserve Notes today. And that is at zero risk. He could have stored it in a box in the attic and still increased his ability to exchange money for wealth.”

Yes, gold and silver do meet the long term preservation of surplus production requirements. Gold and Silver can be used to build intergenerational wealth. You can store gold for 40 years and hand it over to your children for them to store and pass along to their children. Gold can be used to provide capital investments in wealth production tools or instruments. As an example, gold can be accumulated for 20 years in order to buy that bar in Key West you have been dreaming of. Or to provide your grandchild with the education he could use to produce a critical commodity for his future wealth.

And here is where Freegold enters the picture. Freegold is gold unbound to currency. Gold used as money but without a direct relationship to the financial markets. Gold used as pure money. Imagine that you can save ten ounces of gold today. Now imagine that in the future, gold is not valued in currency and not subject to transference into currency before it can be used for the purchase of wealth. You could buy a used car for an ounce of gold and your seller could purchase a year worth of grain for his family with that same ounce. Gold as a universal method of exchange completely separated from government dictates, influence or theft. Gold can provide free men voluntarily trading with freemen a true measure of value.

That is why I am opposed to the gold standard and prefer Freegold instead. The gold standard would only serve as a means to reviving or extending the life of a currency that is controlled by the government and designed with theft in mind.

Currency, even if propped up by gold, serves the money changers; Freegold serves the producers of wealth.

Monday, June 20, 2011

The Alchemists of Money part deux

What is alchemy? Alchemy was a proto-science that focused on turning base metals into precious metals, especially gold (chrysopoeia) and silver (spagyric) by use of a mythical “Philosopher’s Stone”.  Many years were spent in research and experimentation by the early scientists and mystics in their search of the magic stone.

Why would sovereigns across the globe spend treasure in search of the stone?


Remember from an earlier post that the sovereign maintained power by maintaining the population of serfs dependent on their king. If the king was unable to feed, clothe and house their population, the serfs would lose faith in their king and revolt. Growing populations placed growing burdens to feed and maintain the population. Technological efficiencies were far and few in between. Only those who were sponsored by the king stood to profit of their inventions and there was no natural mechanism or opportunity for innovation and thought to flourish.
The only way for a sovereign to expand his resources was either by conquest or trade. Conquest brought along a new set of challenges. The more territory that was conquered, the more mouths to feed. Trade required that a kingdom had something of value to trade. In effect, in order to gain wealth a kingdom must have surplus wealth. There lies the dilemma. Sovereigns could not give up control of the means of production without losing control and they could not increase production from serfs that had nothing to gain and no means to become more efficient in production of wealth.

The easiest solution was to find a way to convert a worthless and abundant material, such as lead, into a valuable commodity, such as gold. Chance provided the answer.

A bit of History

During the late middle ages, Italian trade of textiles and other consumer goods flourished. Since the goods were sold on credit, merchant ships did not pay directly for the goods. A ship’s captain did not buy the goods, he only transported them. The credit was extended to the merchant’s agent on the receiving port. Because of this credit, bills of exchange became prevalent. A bill of exchange was basically a receipt. The Italian manufacturer selling his wares to a British merchant would load his goods in a London bound ship and receive a bill of exchange for the value of his goods. The bill of exchange was a note from the ship’s captain to the manufacturer guaranteeing the delivery of his goods to London. Once in London, the ship’s captain would receive gold in exchange for the Italian goods and return to Italy were he would exchange the gold for the bill of exchange, extinguishing the debt. This is a very simplified explanation of the process that could involve dozen of exchanges along the trade route and many different bills and ships. But the basic process succeeded in replacing money for a symbol of money, currency, if only for a specific period of time.

Later goldsmiths began issuing vault receipts in exchange for gold. You would store your gold in their vault for safe keeping (for a fee) and receive a receipt for your gold. If you needed to go to the market, you would go to the goldsmith, present your receipt and withdraw your gold. Soon after, people found it more convenient to trade the goldsmith receipts in the market instead of withdrawing the gold. This practice cemented in people’s minds the idea that the paper receipt was as good as the gold in the vault.  So far, no problem. But then the goldsmiths started to notice a trend. Most people would not withdraw their gold and just trade the receipts. If people did not claim their gold, there was no reason why the banker, I mean goldsmith, couldn’t just issue more receipts than the amount of gold he had in the bank, ahem, vault. This was the birth of Fractional Reserve Banking. This was their way to turn a common almost free product, a banknote, into gold. Here was their Philosopher's Stone.

Let the theft begin!

Bankers began loaning receipts for gold to businesses and merchants for all kinds of things. The customers would pay a small fee for the loan (interest) and the banker would make money on the transaction. As long as not everyone claimed their gold, no one would know that the receipts held no value. And if the customers became wise to the game or the banker made bad loans that went unpaid? The banker would shut his doors and run. That was the birth of the bank run.

These practices continued, with small changes, for hundreds of years. Bankers would create receipts for gold they did not possess, collect interest on loans of money that did not exist and run away once the customers began claiming their gold.  Banker’s power grew exponentially. Since they held the gold, they made the rules. Need to buy some sailing ships to go to the new world? Talk to the banker. Need money to finance a war against your neighboring country? Talk to the banker.

By the time that the American colonies broke away from the crown, the founding fathers were well aware of the game and fought to control it or kill it entirely. The US constitution reserves the power to coin money and establish the value thereof exclusively in Congress, not at the banks. It also forbade the States from making anything but silver and gold as money. You would think that this would have ended the scam, right? No Siree, too much money to be made. Local banks continued the practice of issuing notes (receipts) on gold and silver they claimed was in their vault. This practice caused the inevitable panics (bank runs). Many a banker was hung from the nearest tree for defrauding their customers. By the 1860’s banks held control of a vast majority of the gold and silver available in the US. Yes, their customers held receipts for all that money, but the merchants depended on the banks for credit.

President Lincoln, in the months leading to the Civil War, attempted to borrow money from the banks to finance the war. The banks refused. After all, if the US was divided into smaller States, it would make it easier for France and England to reclaim the continent. And guess where the biggest banks were based? London. President Lincoln decided to take a page from early colonial days and began issuing his own fiat currency, the greenback. He financed the war with this currency and by the end of the war the greenback was in broad circulation. Bankers did not like the competition. They bribed congress critters into recalling the greenbacks from circulation limiting the currency circulation to banker issued currency. Happy days are here again (for the bankers)!

Legalized Theft

But bankers continued to have a problem. If enough customers redeemed the banknotes for gold or silver, it would break the bank and lead to a bankruptcy (see how all these term have an actual meaning?). In order to solve the problem the banks worked to establish a central banking authority. With a Reserve Bank, bankers could place a percentage of their gold and silver into a vault and, in case of a run on the bank, borrow enough gold and silver to stay solvent. The problem was that after Andrew Jackson killed the Second Bank of the U.S. the idea of a central bank was not too popular. The bankers began a propaganda campaign that rivaled Tokyo Rose. They purchased reporters and newspapers to create fear in the general population. They financially backed (or outright bribed) congress critters that would toe the line. The most powerful bankers met at a private resort off the coast of Georgia, called Jekyll Island, to once and for all protect their power. Finally, in 1912, their chosen Presidential candidate, Woodrow Wilson, won the Presidency of the US and in 1913 pushed the Federal Reserve Act thru congress giving bankers a monopoly charter to all money in the US.

From Freedom to Slavery

Two problems remained. One, since the Federal Reserve Notes were still tied to money (silver and gold), there was a limit of how many notes could be issued. Second, since the notes are not actually money, how would the banks make money?

Let me go a bit deeper into the second one. If I print a note and loan it to you at interest, where is the interest coming from? Put another way, if I print a million notes and loan them to the government at interest, let’s say 10%, where is that 10% coming from? After all, I loaned you a million dollars in notes (monopoly money) and I expect you to pay me with real money. Where is the government going to get the additional one hundred thousand to pay me back?

Easy, by stealing a portion of the production of its citizens. In 1913, the same year that the Federal Reserve Act gave a group of private banks a monopoly on the creation of currency, the US congress passed the sixteenth amendment and the Income tax. This was the source of revenue for the bankers.  
The surplus production, the wealth, of every citizen of the Republic was now to be transfered to the bankers.

Let’s pause for a second. The banks created banknotes (monopoly money) based on some gold and silver (real money) holdings in the bank. They loaned this currency to the Federal Government and received interest on the loan based on a percentage of the surplus production of every citizen. We had effectively and legally become indentured servants to the banks.  

Slavery died: 1864 – reborn as a zombie: 1913

 But wait, it gets better. In 1932 President Roosevelt found himself in dire need of money. He had decided, incorrectly, that the only solution to the depression that had begun in 1929 was complete management of the economy and a generous public works program. All this requires money. But Federal Reserve notes were backed by gold and there was not enough gold available in the banks to massively expand the available currency. President Roosevelt did what any other dictator would do. He nationalized all gold, made it illegal to be owned by US citizens and turned the gold over to the Federal Reserve at a fixed rate of $20 notes per ounce. Then, after confiscating the gold, he devalued the notes to $35 an ounce effectively doubling the US supply of currency.

At this point the bank receipts for your money became backed, not by the expectation that you could get your money back, but by a promise that you could not. Paper was now more valuable than gold.

Gold, a valuable commodity used as money, that retained its purchasing power thru generations, was replaced by paper currency backed by nothing and immediately devalued. In one stroke, your stored surplus production was converted into worthless inflating currency. You could no longer depend on the stability of money in order to store your surplus production for the future. Now your surplus production was stolen twice; once by taxation in order to pay interest to the bankers, and second by the purposeful devaluation of the currency.

Let’s return to the wampum. Your 20 hours worth of surplus production, the ones you traded for wampum, were now traded by edict for 20 wampum receipts and could only purchase half a bushel of wheat!

You could no longer save your surplus production with the assurance that it could be turned into wealth at a later date.  You could no longer depend on that surplus labor to purchase the same amount of wealth it did when you first saved it. As an effect, your wealth was destroyed by the government and the bankers.

Enter inflation, stage left

As the funding needs of the Federal Government increases, the printing of notes also increases. This is exponential in nature. The more the Federal Government borrows from the bankers, the more interest they owe the bankers and the less each note is worth.

Now you know why the harder you work, the less you can buy. Why, even with generational increases in production efficiency, the price of wealth when compared with your production; increases more and more. It takes you more hours of production today to have the same wealth your parents enjoyed.

This is not an idle claim. Let’s look at just one critical product, gasoline. In 1964, the last year where 90% silver quarters were issued, a gallon of gasoline cost an average of .27 cents a gallon or about ¼ ounce of silver. Today a gallon of gasoline is about $3.60 a gallon, a 13 times increase in price. You would think that with technological advances in the last 47 years, it would actually be cheaper. It actually is cheaper, when measured in silver. One quarter of an ounce of silver today is worth $8.93. So the same quarter of an ounce of silver can buy you 2 ½ gallons of gas! Efficiency has made gasoline 2 ½ times cheaper than it was in 1964.

Wait. What?

Yes my friend, the laws of efficiency are alive and well. Gasoline is 2 ½ times cheaper today, in money, than it was in 1964. The laws of inflation are also alive and well. Gasoline is 13 times more expensive, in currency, than in 1964.

If your father would have saved $1,000 dollars in silver coin (real money) in 1964, he could have given you $36,000 in Federal Reserve Notes today. And that is at zero risk. He could have stored it in a box in the attic and still increased his ability to exchange money for wealth.
Remember what I said in our last conversation about the difference between money and currency. Money holds its value at a generational level. Currency looses value at a daily basis.

Let’s look at it a different way. Let’s say that your dad had a car that gave him 15mpg in 1964 and worked at a minimum wage job at 1.25 an hour. He would have had to work 216 hours to buy enough gas at .27 cents a gallon, to travel 15,000 miles. Today at $7.25 an hour, you would have to work 496 hours to pay for the gas, at $3.60 a gallon, to travel the same 15,000 miles on the same 15mpg car. You have to work more than twice as long, even after increases in productivity, to purchase the same wealth!

Feel free to take that to your next family reunion. You are welcome.

Saturday, June 18, 2011

The Alchemists of Money

Before we begin our journey, I need to establish some definitions. Without a clear understanding of what things are, it becomes impossible to examine them.

I want to clear some misconceptions and misinterpretations of the actual nature of money. There are several terms that are generally used interchangeably and incorrectly so. This, my dear reader, is by design and demonstrably so.

The first concept I want to define is currency. Currency is not money or wealth. Currency can be used to purchase money or wealth but it is not either by itself. 

What is currency? Currency is any agreed upon medium of exchange.

Casino chips, Chuckee Cheese bucks and airline reward points are all currencies. The value of a currency is your ability to trade the currency for actual money or wealth. You can voluntarily accept this medium of exchange either by the apparent benefits of accepting the currency or by your desire to participate in an activity that requires the use of such currency to participate. Monopoly “money” is a good example of a currency. Although it has no value outside of the game of monopoly, while playing, you behave as if it had value because it has value for the limited duration of that activity.

The first disadvantage of currency is that it is generally based on faith; on your faith that you can exchange the currency, at a later point, for money or wealth. The problem is that the value of the currency is subject to the desires of the issuing authority and the agreement by the trading party of the value of it. You could choose a particular airline because you believe that you will accumulate enough miles to trade the bonus points (currency) for free flights (a tangible benefit). Of course, the airline has the ability to change the terms of the program, therefore the value of the reward points (currency) as it wishes and reducing the expected benefit that you based your original decision on.

I have no philosophical disagreement with currencies. As long as they are used by two parties in a free agreement to the value and usage, they can provide benefit to all parties involved. Casino chips provide the casino with a captive audience that fails to psychologically connect monetary losses in chips with losses in wealth. Casino patrons gain the advantage of the entertainment gained by participating in the casino.

My opposition to currencies begins when the currency becomes a fiat standard. Fiat, a Latin word meaning “let it be so”, is a government imposed medium of exchange. Governments decree that a particular medium of exchange will be used for all transactions as “legal tender” and removes the voluntary element from the transaction. Let’s forget for a moment that government’s involvement in voluntary commercial transactions between free people is an abomination. The fact that a government can decree the method of exchange and the value of such method is ripe with the opportunity for theft. More on that later.

Money, the second concept we need to discuss, can be used as currency and it is by itself a tangible good. As an example, in early colonial days, tobacco was used as money. Tobacco, a valuable export crop could be used as a method of exchange and then traded for gold or other goods. Since tobacco has an inherent value in and of itself, it is money fulfilling the role of currency.

In general money must have inherent, widely accepted value, it must be easy to recognize and divisible into smaller units and it must retain its value for a reasonable period of time. Beads, gold, silver, spices, tobacco and other consumer goods have been historically used as money. Please understand that for a commodity to be money, even if used as currency, it must meet its general value, divisibility and longevity requirements. It must also, ideally, be rare and require work in order to exist.

Sea shells picked up on the beach could be used as currency but are not money. The ease of collecting them and its wide availability make them inherently worthless. Diamonds, although somewhat rare and requiring work, are not easily divisible or recognizable (cubic zirconia anyone?)

Certain commodities fill the role of money better than others. Thru history, men have chosen gold and silver as ideal forms of money. Gold and silver are relatively rare, limited in availability (cannot be manufactured), divisible, durable and inherently valuable. For centuries, men have known the medicinal properties of silver. Gold, although we have only recently discovered many of its advantages in electrical and thermal conductivity, it’s extremely durable and malleable.

The next term that demands clarification is wealth. What is wealth? Wealth is not money or currency. Money and currencies are vouchers for future wealth.  Wealth is, in essence, the tools and supplies needed to support your quality of life. A plot of farm land is wealth, when owned by a farmer. A steel lathe is wealth, when owned by a machinist in the production of goods. A loaf of bread or a bushel of wheat is wealth. Any item that can keep man alive, healthy or assist in that man’s production is wealth. The can of beans in your pantry is wealth. The Federal Reserve Note in your pocket stamped “one dollar” is not. You use currency or money to purchase wealth. The car you fully own in your driveway is wealth. The $20k balance in your 401K is not.

At its essence, wealth is the product of your efforts.

Wealth is produced by you or traded for freely with those that produce other goods in exchange for yours. If you are a machinist, you trade the products of your labor (a new engine part) for the products of someone else’s labor (the wheat produced by the farmer who needed the new engine part). Since you still need to eat and the farmer does not always needs a new engine part, currency serves a valuable means to measure the value of your production to others and as a means to trade for the production of others.

Money, in the other hand, serves as a storage mechanism for future wealth. You store your surplus production as money in order to exchange it for someone else’s future production. That is why it is critical that the value of money be stable thru generations and free from outside interference. Let’s say that you spend 20 hours of labor in order to earn, by your production, 20 units of wampum.  You save these 20 units of wampum with the expectation that in a future date, the 20 units of wampum will purchase the same amount of wealth that it could have purchased when you earned them. If your wampum would buy you a bushel of wheat today, you know that 20 hours of your labor are worth one bushel of wheat. You should reasonably expect that one year from now, if you have an accident or disease, that you can still trade the stored surplus production, the 20 wampum, for a bushel of wheat. You should also reasonably expect that, at the end of your life, you are free to pass along you wealth (land, factories, cars) or your money, the accumulated wampum, to your progeny in order to build multi generational wealth. Your surplus production today can be added to the surplus production of your children to benefit your grand children. Their surplus production, when added to yours, can amount to a fortune of wealth in the benefit of their grandchildren.

When you take into account improvement in efficiencies of production created by the minds of men, the storage of your surplus production should actually be exponential. The farmer that could only plow 10 acres of farmland with a plow and an ox is exponentially more efficient than the savage that plowed 1 acre with a stick or a hand plow. The farmer that can plow 100 acres, in the same amount of time, with a tractor, is 10 times more efficient than the farmer with the ox and 100 times more efficient than the savage with the stick. It stands to reason, that as the technological efficiencies created by the minds of men increase production, generational wealth would also grow exponentially. Yet it doesn’t.

Credit or debt is a lien on your future production. A farmer that borrows in order to purchase seed or buy a tool to increase his production; does so on the expectation that he can pay back the debt with a portion of his surplus production. If the farmer is wise, his debt can be easily eliminated with the increased efficiencies gained by the wealth purchased on credit and his new efficiency will, within reason, improve all future production well beyond the extinguishing of the debt.

Debt is not wealth.

 Debt borrows future wealth in order to provide it today. If the debt results in increased production above and beyond the cost of the debt, it is a useful tool. A man borrowing money from investors to purchase a factory that can reasonably be expected to produce many times more money than it cost, is engaging in productive borrowing and using an available tool efficiently. A bum borrowing money to buy a bottle of whiskey is not. Using your credit card to buy a new computer that can improve your efficiency as a writer or accountant is using debt wisely. Purchasing a new laptop on credit to surf for porn is not. A student loan taken in order to learn a critical skill that you can reasonably use to earn, by means of your production, many times more wealth than the cost of the education and the difference between having the skill or not having the skill can be a wise investment in your future. An $80,000 dollar student loan to get a degree in women studies in order to gain the “college experience” and ending up working in Wal-Mart is not. President Jefferson borrowing money to purchase the Louisiana territory from the French in order to gain a large amount of arable land for the nation is smart borrowing. The Federal Government borrowing 100 million dollars from the Chinese government in order to give it as a gift to the” Palestinian” authority is not.

The last concept I want to discus today is investment. This widely misused word has a specific meaning.

An investment is wealth acquired today for the purpose of increasing future production or wealth.

The home you purchased on credit to live in is not an investment. The home itself is wealth and the mortgage is a liability (debt). A commercial property purchased as a rental unit that can reasonably produce long term residual income is an investment. Purchasing new clothing in for a job interview is an investment. Spinner rims and a killer radio system for your Gremlin is not.

It is critical that you understand these concepts before we venture down the rabbit hole. The Alchemists of Money have worked very hard in confusing the real meaning of these terms to their advantage and are using your confusion to rob you blind.

... to be continued

The Collapse of the U.S. dollar

 The following is an excerpt from an essay written by George Goodman in the 1960’s. I have taken the liberty of juxtaposing our current financial news and some fictional future to the original in order to make the comparison easier to most readers. The original text is in italics in order to make it easier to read.

Before World War I Germany was a prosperous country, with a gold-backed currency, expanding industry, and world leadership in optics, chemicals, and machinery. The German Mark, the British shilling, the French franc, and the Italian lira all had about equal value, and all were exchanged four or five to the dollar. That was in 1914.

Before the turn of the century the United States was a prosperous country. The technological revolution had rapidly increased the standards of living of most of the population. The fall of the Soviet Union, along with the beginnings of fiscal restraint during the 1990’s and the massive increase in revenue brought in to the Treasury by the expanding market, brought the US Federal Government budget to the closest it had been in two generations to a balanced budget. The United States was the leader in computer and networking equipment. The rapidly growing internet required massive outlays worldwide for infrastructure and software, most of it produced in the United States. The US dollar was the world’s reserve currency and traded close to parity with the British Pound, the European Euro, the Japanese Yen and the Australian and Canadian dollars. That was in 2000.

 In 1923, at the most fevered moment of the German hyperinflation, the exchange rate between the dollar and the Mark was one trillion Marks to one dollar, and a wheelbarrow full of money would not even buy a newspaper. Most Germans were taken by surprise by the financial tornado.

In 2013, at the most fevered moment of the US Hyperinflation, the exchange rate between the US dollar and the Euro was one trillion dollars to one Euro, and a week’s wages could not even pay for a single meal. Most Americans were taken by surprise by the financial tornado.

"My father was a lawyer," says Walter Levy, an internationally known German-born oil consultant in New York, "and he had taken out an insurance policy in 1903, and every month he had made the payments faithfully. It was a 20-year policy, and when it came due, he cashed it in and bought a single loaf of bread." The Berlin publisher Leopold Ullstein wrote that an American visitor tipped their cook one dollar. The family convened, and it was decided that a trust fund should be set up in a Berlin bank with the cook as beneficiary, the bank to administer and invest the dollar.

“My father was an HR manager,” says Walt Johnson, an internationally known water consultant in Lima, Peru, “he had contributed to his 401k investments every pay period faithfully. He started it in 1990 and had made maximum contributions even after his mortgage went underwater. By the time he became unemployed in 2012 and cashed out, he bought a gallon of water and a box of ammo. This was before firearms were made illegal.” New York Times publisher Markos Moulitas tweeted that a Chinese visitor tipped the waitress one Yuan. The family convened, and it was decided to purchase a share of Apple Computers with the Yuan as an investment for the future.

In retrospect, you can trace the steps to hyperinflation, but some of the reasons remain cloudy. Germany abandoned the gold backing of its currency in 1914. The war was expected to be short, so it was financed by government borrowing, not by savings and taxation. In Germany prices doubled between 1914 and 1919.

After four disastrous years Germany had lost the war. Under the Treaty of Versailles it was forced to make a reparations payment in gold-backed Marks, and it was due to lose part of the production of the Ruhr and of the province of Upper Silesia. The Wiemar Republic was politically fragile.

 In retrospect, you can trace the steps to hyperinflation, but some of the reasons remain cloudy. The information technology business crash, known at the time as the dot com bubble, prompted the US central bank, the Federal Reserve, to lower interest rates in order to stimulate the economy. The US Federal Government abandoned all fiscal restraint and invaded the regions that were then called Iraq and Afghanistan. The wars were expected to be short, so they were financed by borrowing, not by savings or taxation. The Federal Reserve rates, although successful for a while in re-inflating the economy, caused an explosion in home prices. In the US home prices doubled between 2000 and 2007.

After 10 disastrous years the United States abandoned the wars. The bursting of the housing bubble in 2006-2008 caused severe stress to ever extended banks. The banks faced with massive mortgage foreclosures, filed insurance claims against major insurers and financial firms. Financial giants like Lehman Brothers and insurer AIG could not cover the claims. The US government, in an attempt to rescue the financial system, paid the claims shifting the now worthless debt to the public balance sheet instead of the private banks balance sheet. By spring of 2009, the US auto industry, heavily leveraged and with massive labor and retirement costs, demanded that the US government rescue them also. The Federal Government nationalized 2/3 of the domestic auto industries in order to prevent their collapse. The United States was politically divided and fragile.

But the bourgeois habits were very strong. Ordinary citizens worked at their jobs, sent their children to school and worried about their grades, maneuvered for promotions and rejoiced when they got them, and generally expected things to get better. But the prices that had doubled from 1914 to 1919 doubled again during just five months in 1922. Milk went from 7 Marks per liter to 16; beer from 5.6 to 18. There were complaints about the high cost of living. Professors and civil servants complained of getting squeezed. Factory workers pressed for wage increases. An underground economy developed, aided by a desire to beat the tax collector.

But average American habits were very strong. Ordinary citizens worked at their jobs, watched popular TV programs and spent their time lost in social media sites. They generally expected things to get better. But most were living in homes they could not longer afford. Prices of staples doubled from 2009 to 2011. Gasoline reached $6.00 dollars a gallon from $2.50. Milk went from $3.85 a gallon to $7.50. Bread from $1.00 a pound to $3.50 for a ¾ pound loaf. People complained about the high cost of living. Although government employees were receiving cost of living adjustments, the private sector workers complained of getting squeezed. Union workers, especially in nominally recovering factories like Ford Motor Corporation, demanded a return to earlier benefits and salary increases. A small grass root movement, nick named the “Tea Party”, arose from the populace to demand changes in government spending and taxation.

On June 24, 1922, right-wing fanatics assassinated Walter Rathenau, the moderate, able foreign minister. Rathenau was a charismatic figure, and the idea that a popular, wealthy, and glamorous government minister could be shot in a law-abiding society shattered the faith of the Germans, who wanted to believe that things were going to be all right. Rathenau's state funeral was a national trauma. The nervous citizens of the Ruhr were already getting their money out of the currency and into real goods -- diamonds, works of art, safe real estate. Now ordinary Germans began to get out of Marks and into real goods.
On June 12, 2012, Lyndon Larouche fanatics assassinated Ben Shalom Bernanke, the chairman of the Federal Reserve Bank. Bernanke was a controversial figure, but the idea that a powerful member of the Federal Government could be killed by a car bomb in the nation’s capital shattered the faith of Americans who wanted to believe that things would get better and that political violence could not happen in their society. Rumors and gossip in the social network sites and talk radio fueled the national trauma. Some nervous citizens had already been getting their money out of the banks and purchasing real goods such as precious metals, food, guns and ammunition. Now ordinary Americans began rushing into the market place to change their currency into real goods.

Pianos, wrote the British historian Adam Ferguson, were bought even by unmusical families. Sellers held back because the Mark was worth less every day. As prices went up, the amounts of currency demanded were greater, and the German Central Bank responded to the demands. Yet the ruling authorities did not see anything wrong. A leading financial newspaper said that the amounts of money in circulation were not excessively high. Dr. Rudolf Havenstein, the president of the Reichsbank (equivalent to the Federal Reserve) told an economics professor that he needed a new suit but wasn't going to buy one until prices came down.

Small farm plots, wrote Canadian historian John English, were bought by city people that had never grown a single crop. Luxury brand items, like coach handbags, were bought by the poor with government assistance cards. Sellers held back because the dollar was worth less every day. As prices went up, the demand for bank credit was greater, and the Federal Reserve Bank responded to the demands. Foodstuffs, skyrocketing in price, prompted the Federal Government to issue additional bonds from the Treasury and issue electronic subsistence cards to the citizens to prevent rioting in the streets. Yet, the ruling authorities did not see anything wrong. Leading financial websites and cable networks would point to the rise of stock prices as proof that the economy was recovering. Nobel Laureate, Paul Krugman wrote articles claiming that the economic recovery could only be accelerated by the Federal Government issuance of more debt.
Why did the German government not act to halt the inflation? It was a shaky, fragile government, especially after the assassination. The vengeful French sent their army into the Ruhr to enforce their demands for reparations, and the Germans were powerless to resist. More than inflation, the Germans feared unemployment. In 1919 Communists had tried to take over, and severe unemployment might give the Communists another chance. The great German industrial combines -- Krupp, Thyssen, Farben, Stinnes -- condoned the inflation and survived it well. A cheaper Mark, they reasoned, would make German goods cheap and easy to export, and they needed the export earnings to buy raw materials abroad. Inflation kept everyone working.

Why did the US government not act to halt the inflation? It was a deadlocked government, especially after the tea party movement had elected their candidates to the congress. The Federal Government, divided along ideological lines, became impotent. The President tried to bypass the congress by issuing a series of executive orders in a vain attempt to manage the economy from the oval office. Congress sued the President and defunded most executive branch agencies to prevent the President from dictating national policy from his desk. The Federal Reserve Bank became the de facto government of the US in economic matters. The great US industry giants, Apple, Microsoft, General Motors, Netflix, condoned the inflation and survived it well. A cheaper dollar, they reasoned, would make US products cheap and easy to export, and they needed the export earnings to prop up their balance sheets. Inflation kept the stock market working.

So the printing presses ran, and once they began to run, they were hard to stop. The price increases began to be dizzying. Menus in cafes could not be revised quickly enough. A student at Freiburg University ordered a cup of coffee at a cafe. The price on the menu was 5,000 Marks. He had two cups. When the bill came, it was for 14,000 Marks. "If you want to save money," he was told, "and you want two cups of coffee, you should order them both at the same time."

The presses of the Reichsbank could not keep up though they ran through the night. Individual cities and states began to issue their own money. Dr. Havenstein, the president of the Reichsbank, did not get his new suit. A factory worker described payday, which was every day at 11:00 a.m.: "At 11:00 in the morning a siren sounded, and everybody gathered in the factory forecourt, where a five-ton lorry was drawn up loaded brimful with paper money. The chief cashier and his assistants climbed up on top. They read out names and just threw out bundles of notes. As soon as you had caught one you made a dash for the nearest shop and bought just anything that was going." Teachers, paid at 10:00 a.m., brought their money to the playground, where relatives took the bundles and hurried off with them. Banks closed at 11:00 a.m.; the harried clerks went on strike.

So, the Federal Reserve thru Quantitative Easing, began flooding the banks with credit, and once started it could not stop. The credit demands due to price increases became dizzying. Prices at online retail outlets would update on a minute basis. A house wife in Topeka ordered gifts at and before she could checkout, the prices in her basket had gone up 30%. The online chat support recommended that she chose everything she wanted ahead of time and checked out immediately in order to beat the price increases.

The Federal Reserve Bank could not keep up with the credit demands. Individual Sates began issuing I.O.U.s and collecting property taxes on a weekly basis. A school teacher described payday, which was every day at 11:00. “We would all rush to the nearest ATM hoping to get some dollars and do our shopping for the day at Wal-mart before they changed prices or ran out for the day. You needed cash, because if Wal-Mart ran out of food, you would have to go to the corner market and buy food with cash from the back of a pickup. Sometimes an armored truck would arrive at the ATM and we would have to wait until they reloaded the machine just to get some cash”. People would place on line orders for gold and silver with their credit cards knowing that by the time the bill arrived they could sell off the gold at a local pawnshop, pay off the credit card and make a profit.

The flight from currency that had begun with the buying of diamonds, gold, country houses, and antiques now extended to minor and almost useless items -- bric-a-brac, soap, hairpins. The law-abiding country crumbled into petty thievery. Copper pipes and brass armatures weren't safe. Gasoline was siphoned from cars. People bought things they didn't need and used them to barter -- a pair of shoes for a shirt, some crockery for coffee. Berlin had a "witches' Sabbath" atmosphere. Prostitutes of both sexes roamed the streets. Cocaine was the fashionable drug. In the cabarets the newly rich and their foreign friends could dance and spend money. Other reports noted that not all the young people had a bad time. Their parents had taught them to work and save, and that was clearly wrong, so they could spend money, enjoy themselves, and flout the old.

The flight from currency that had begun with the buying of gold, farm plots and luxury clothing now extended to minor electronics and almost useless items. Disposable cell phones, faux jewelry, and name brand jeans were popular. The law-abiding country crumbled into petty thievery. Copper pipe and electrical cable was stripped from empty homes and construction sites. Gasoline was siphoned from cars in mall and airport parking lots. People bought things they didn’t need and used them for barter, portable games for food, leather belts for cigarettes. Rioting became common place in major cities. Prostitutes of both sexes roamed the streets. Common housewives would spend their days in online chat rooms trying to sell themselves. Crack cocaine became a common use drug. In the night clubs the newly rich and their foreign friends, mostly Chinese, could dance and spend money. Young people further disconnected from reality and embraced online societies. Rave clubs became the material world of their online personas and they would live out their online fantasies without any restrictions. Their parents had caused the collapse, so they would not abide by the rules anymore.

The publisher Leopold Ullstein wrote: "People just didn't understand what was happening. All the economic theory they had been taught didn't provide for the phenomenon. There was a feeling of utter dependence on anonymous powers -- almost as a primitive people believed in magic -- that somebody must be in the know, and that this small group of 'somebodies' must be a conspiracy."

Talk radio host, Mark Levin wrote: “People just didn’t understand what was happening. All the talking heads on cable TV couldn’t explain the phenomenon. There was a feeling of utter dependence on anonymous powers, almost as a primitive people believed in magic, that somebody must be in the know, and that this cabal of somebodies must be a conspiracy”

When the 1,000-billion Mark note came out, few bothered to collect the change when they spent it. By November 1923, with one dollar equal to one trillion Marks, the breakdown was complete. The currency had lost meaning.

When the 1 Trillion dollar note, the Junior (named after Dr. Martin Luther King Junior) came out, few bothered to collect the change when they spent it. By November 2012, with one Yuan equaling 1 trillion dollars, the breakdown was complete. The currency had lost its meaning.
What happened immediately afterward is as fascinating as the Great Inflation itself. The tornado of the Mark inflation was succeeded by the "miracle of the Rentenmark." A new president took over the Reichsbank, Horace Greeley Hjalmar Schacht, who came by his first two names because of his father's admiration for an editor of the New York Tribune. The Rentenmark was not Schacht's idea, but he executed it, and as the Reichsbank president, he got the credit for it. For decades afterward he was able to maintain a reputation for financial wizardry. He became the architect of the financial prosperity brought by the Nazi party.

What happened immediately afterward is as fascinating and the Great Inflation itself. The tornado of the dollar inflation was succeeded by the “miracle of the mineral credit”. Newly elected President, Chris Christi, appointed Allan Mulally CEO of Ford Motor Corporation, as the Secretary of the Treasury. In March 2013, Secretary Mulally presented President Christi a plan to replace the Federal Reserve Notes with a new currency. The mineral credit was not a new idea. It was similar in basic concept as the German Rentenmark of the 1920s but with a very American twist. Secretary Mullaly ordered an inventory of all mineral assets owned by the US, oil, natural gas, timber and precious metals. He ordered the US mint to coin all gold and silver owned by the US for immediate circulation as hard currency and to issue to the newly created third bank of the US credits based on the market value of the mineral assets. This new currency would float based on the monthly value of the minerals and the inventory of assets, audited quarterly. An initial exchange rate of 1 credit per billion Federal Reserve Notes was established to pay back outstanding debt and ease the transition from notes into the new credits. Although the Federal Reserve Bank and its notes were not abolished, the notes themselves became worthless and the reserve ended issuance by July of 2013.

Obviously, though the currency was worthless, Germany was still a rich country -- with mines, farms, factories, forests. The backing for the Rentenmark was mortgages on the land and bonds on the factories, but that backing was a fiction; the factories and land couldn't be turned into cash or used abroad. Nine zeros were struck from the currency; that is, one Rentenmark was equal to one billion old Marks. The Germans wanted desperately to believe in the Rentenmark, and so they did. "I remember," said one Frau Barten of East Prussia, "the feeling of having just one Rentenmark to spend. I bought a small tin bread bin. Just to buy something that had a price tag for one Mark was so exciting."

Obviously, though the credits were worthless, The United States was still a rich country, oil deposits, natural gas and minerals under Federal control were abundant. The backing of the credits was the value of the resources; but the backing was fiction; the US never intended to sell any of those assets in the open market. Nine zeros were struck from the old currency; that is one credit equaled one billion Federal Reserve notes. Americans wanted so desperately to believe in their currency and return to normalcy, and so they did. The issuance of hard currency helped them believe. “I remember,” said Mrs Potter from Topeka, Kansas, “the feeling of having that silver dollar to spend. I bought me a new handbag. Just to buy something that had a price tag of one dollar was so exciting.”
All money is a matter of belief. Credit derives from Latin, credere, "to believe." Belief was there, the factories functioned, the farmers delivered their produce. The Central Bank kept the belief alive when it would not let even the government borrow further.

All currency is a matter of belief. Credit derives from Latin, credere, "to believe." Belief was there, the factories functioned, the farmers delivered their produce. The restrictions of the mineral credit kept the belief alive when it would not let even the government borrow further.

Wednesday, June 8, 2011

What is the Matrix?

You're here because you know something. What you know you can't explain, but you feel it. You've felt it your entire life, that there's something wrong with the world. You don't know what it is, but it's there, like a splinter in your mind, driving you mad. It is this feeling that has brought you to me. Do you know what I'm talking about? –Morpheus

You have this strange feeling that something is wrong. You go to work, you pay your taxes, and you go to church. But there is something wrong. You can feel it right there at the base of your skull. You can almost see it out of the corner of your eye and you think if you could just turn fast enough...

There is an emptiness and a feeling of fear that you just can’t put your finger on. So you look for the answers.

The media tells you to consume more while at the same time makes you feel greedy for doing so.

Society tells you to buy a bigger house and a bigger car and a bigger boat while at the same time telling you about a poor boy in Brazil that you need to feed. You are confused. How can you be responsible for little Raul’s hunger? So you send a few bucks and hope he will be alright. Yet, you still feel guilty.

Churches tell you to give 10% of your income and care for the poor or face eternal damnation while and you see the preacher driving a new Cadillac.

Yet you continue to struggle. You work harder and harder. You produce more and more. You consume more and more. You see GE making billions and paying no taxes and feel too afraid to take a tax deduction.

Yet this feeling remains.

Its the feeling you get when you realize the Federal Taxes you paid could have paid for your kid’s college tuition instead of having to take out a student loan.

Its the feeling you get when you hear about some new TSA procedure or some new dictate from the politburo, while at the same time thinking that you live in the land of the free.

It is Cognitive Dissonance, your brain struggling to accept two diametrically opposed concepts.

I know exactly how you feel.

And I have a secret. I know why you feel this way. I know the secret your brain is struggling to reconcile.

I know why you're here, Neo. I know what you've been doing... why you hardly sleep, why you live alone, and why night after night, you sit by your computer... I was looking for an answer. It's the question that drives us, Neo. It's the question that brought you here. You know the question, just as I did. - Trinity

This secret is so terrible in its simplicity your mind can not accept that you have not seen it.

I can tell you the secret. But I can only show you the door, you have to be ready to walk through it.

This is your last chance. After this, there is no turning back. You take the blue pill - the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill - you stay in Wonderland and I show you how deep the rabbit-hole goes. - Morpheus

The reason why you have this constant feeling that there is something wrong. The feeling that you are a hamster going around and around a wheel and going nowhere. It is a terrible secret.

The fear you have been feeling? The fear that they are controlling you with?

The fear is not yours. The fear is theirs.

It is the fear of the evil leeches and moochers and swindlers that have built the Matrix around you. It is pure terror. Yes. The terror that you will discover this basic truth.

The Matrix is everywhere. It is all around us. Even now, in this very room. You can see it when you look out your window or when you turn on your television. You can feel it when you go to work, when you go to church... when you pay your taxes. It is the world that has been pulled over your eyes to blind you from the truth.-Morpheus

It is a banking system and a financial system. It is food marketing and food distribution. It is in what you buy and how you buy it. It packages, wraps and advertises. It recommends, it mandates, it controls. It is the reason why no matter who wins elections, nothing ever changes. It is in your kid's schools and in your entertainment.

What is the truth?

The system that you see around you is designed for one thing and one thing only. To turn man into a machine for the purpose of production. Production for the benefit of the Ruling Class.

What is the truth?

That you are a slave, Neo. Like everyone else you were born into bondage. Into a prison that you cannot taste or see or touch. A prison for your mind. - Morpheus

Is this too radical a concept for you? Did I go too far? I know you are thinking; “Common GS, I know things are getting bad, but we are sure to get a different President next time and we’ll be alright.”
Really? Do you really believe that it will make a difference? Do you really believe anything can make a difference at this point?

Do you believe that it is air you are breathing? In here?

I don't want you to believe me. Belief requires faith and I have no use for your faith. I only need you to understand.

Do not try and bend the spoon. That's impossible. Instead... only try to realize the truth.
What truth?
There is no spoon

That mortgage you bought your house with, the money did not exist before you signed it. You think that they loaned you their money? Nope, they loaned you yours. And they are charging you interest on it.

There is no mortgage.

That 401K you have been putting “money” in. You know the one. The one that will help you retire at 60 if you just follow that pretty green line. That is you loaning your wealth to investment bankers so they can buy new stuff. Do you really think you will ever accumulate enough to replace your income for 20-25 years? You were told that it would. But it won't. Don't believe me, do the math yourself.

There is no retirement.

Do you think that it is money you are working for? Look at it. Is that money? That piece of linen with pretty drawings or the digital entries in a bank's computer? The currency you are using is nothing more than credit coupons on your future labor and the labor of your fellow slaves.

There is no money.

Call me a radical. Hand me the tin foil if you wish. But at least open your eyes and look at the ugly truth in the face. You were born an Indentured Servant and are living in a system designed to keep you in the service of the Banking Masters for the rest of your life. The moment you wake, you wake in debt. Even if you succeed in paying off all your debt the very currency you are using is debt. And the Masters are making a profit from it.

Do you know how money is “created”?
The Treasury Department prints pretty pieces of paper called Treasury Notes. Not US Dollars; Treasury Notes. But, what is a note? A note is a promise. Not unlike a check or a mortgage. It is a promise to provide the holder of that note with a fixed number of dollars. And who is backing that promise? You are. Your future taxes. A portion of your future production. A piece of your life. The Federal Government is mortgaging a portion of your life to the holder of the note.

In exchange for what? I mean, if they are going to promise a piece of my life without my permission, it better be good. Right?
The Treasury Notes are sold in auction to three types of buyers: Direct, that is you and I, Indirect, that is Foreign banks using a primary dealer (a select group of banks) as an agent and the Primary Dealers. Who are the Primary Dealers? The banks that are the major shareholders of the Federal Reserve Bank, that’s who. Wait, isn’t the Federal Reserve Bank part of the Treasury? Nope. It is no more Federal than Federal Express. It is a private banking cartel established (privileged) by the Federal Government in 1913.

Ok, so what? you ask.

Want to know where the Primary Dealers get the “money”? Well, they borrow it from the Federal Reserve Bank at almost zero percent interest. And why wouldn’t they? After all, they own the Federal Reserve, why wouldn’t they borrow “money” from themselves at zero interest?

Ok, GS, but you still have not told me where money comes from.

Patience, Grasshopper. You didn’t think the Great and Powerful OZ would make it so obvious; did you?
Well, the Primary Dealers “borrow” the “money” by asking the Federal Reserve to place some zeros and ones in their reserve accounts. This request constitutes a “loan”. A loan from a Primary Dealer is considered by the Fed to be a “no-risk asset”. So the Federal Reserve places that “no-risk asset” in their “balance sheet” as a deposit and in exchange “loans” the money to the Primary Dealers.

Let me simplify it some more. I know, I know it’s too evil to be true.
The actual “loan” created the “asset” that created the “money”.

So, ok, the Primary Dealers conjured up the money from nowhere, and…? You ask.

The Primary Dealers then use this newly created “money” to purchase the Treasury Notes. In essence, they are loaning the US Government “money” that does not exists!

No way!

Yes way.
Oh, and that is not the best part. The Primary Dealers now use these Treasury Notes to pay back the loans they took from the Federal Reserve. So how do they benefit? They know that the Federal Reserve is the “Lender of Last Resort”. It must buy the Treasury Notes at whatever price (or yield) they demand. They also know that the Federal Reserve will buy the notes a few days after the auction. So they can front load the auction and pocket the spread.

So, let me walk you thru it. The Treasury sells these pieces of paper called Treasury Notes to the Primary Dealers in exchange for “money” they created out of thin air. The Primary Dealers sell these notes back to the Federal Reserve at a profit and settle the debt. Yes, they are making a profit from “money” that does not exist!

But wait, there is more! (imitating Billy Mays)

Do you know where the “money” the Bank loaned you for your mortgage came from? The “money” the kind neighborhood banker had you jump through hoops to get?

Don’t get ahead of me now.

It was created by your signature on the mortgage!
Yup. The moment you signed that document it became a Mortgage Backed Security (MBS). This MBS is deposited by the bank in their account at the value of your loan and a bank check is issued to you against this asset. They loaned you your money.

And that’s not all (Billy Mays from the great beyond again)

Since banks are only required to keep about 10% of their assets as reserves, they can now issue 90% of the value on your home as credit to others in the form of credit cards. Yes, your money was not only loaned to you, it was loaned to your neighbors, your dentist and your dog groomer!

And the best part, they are charging interest to ALL OF YOU. On your “money”. “Money” created on your credit. Based on a currency backed by your future production.

Is good to be the King

There is no spoon

Tuesday, June 7, 2011

The Alchemy of Money

  I began this blog a bit backwards. Usually an author’s first blog post sets the tone for the work to come. I did so but failed to focus on the real theme of this blog; MONEY.
What it is, where it comes from and what it represents. So I beg you forgiveness.

"So you think that money is the root of all evil?" said Francisco d'Aconia. "Have you ever asked what is the root of money? Money is a tool of exchange, which can't exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil?

Money is not evil but a measure of goodness.

  Money is a medium of exchange between free men. Men of honor. Men who produce to the best of their abilities and provide a benefit to other free men. When money is earned in a free market, it represents the value of your life to others. It can only be that way. Men will not pay money for an inferior product when a superior product is available. Money is an organic being that chases the best of men and rejects the worst. The lazy and unproductive provide no value to others; therefore money does not follow them. Money is a certificate of achievement. It is a reward for your efforts in the eyes of your strictest critics, those who would trade the best of their effort for the best of yours.

   Money is a measure of value. Money represents the value of the lives of those who earn it to those who accept it. Money is what you expect for your efforts. Not just because of what wealth you can trade for it, but for what it represents. The approval of those who wish to freely trade their lives for the products of yours. Should a Doctor be better paid than his receptionist? Of course. The doctor earned his money after years of effort and preparation in his field. He sacrificed to learn his trade and to equip himself with the tools necessary to provide a critical service to those who need it. Without the doctor’s effort, there would be no receptionist.
Should an oil company make billions of dollars producing oil? Yes! Would life not be unbearable without all the things that oil provides? Do you know how to extract oil from the soil? Have you invested billions of dollars and decades into extracting the most efficient source of energy known to man? No? Then don’t begrudge the men who have. They produce something you cannot and have provided the life blood of the exponential leap in the quality of life enjoyed by humanity today. How much food do you think a farmer in Kansas could produce without a tractor? Not just the diesel the truck needs to run, or the oil that keeps the engine lubricated; but the excavating vehicle that dug out the iron ore and the dump truck that transported it to the smelter and the electricity that powered the lathes and the assembly line where the tractor was built? How many people could be fed without the incredible efficiency provided by just that one tractor?

You owe your life to that oilman.

So how much money should he receive for the value he brings to your life? Try to live without the products of his mind and hands and then decide.

Money is a means of storing wealth. Money is what you save until you are ready to exchange it for wealth. Money is not wealth, but a simile of wealth.  Saving gold and silver does not make you wealthy, your production does. But gold saves your surplus effort until you are ready to trade your efforts for the deserving effort of other producers. Gold, just by its nature, is instinctively and universally recognized as money. There is a reason why a dowry consisted of gold. It established a solid foundation for a new bride to acquire the wealth she needed to start a new home. There is a reason why gold was used as money even before biblical times. It is corrosion proof. It is rare and it is valuable. In every culture and in every period of recorded history gold has held value. Your life and the products of your mind should hold their value. Is there devaluation on the work a doctor did to save your life; or in the works of a sculpture or an architect? So why should the measure of their labor not hold the same standard?

Take a dollar bill out of your pocket. Look at it and tell me if you honestly believe that what you are holding in your hands is money. Is that piece of linen and ink the value of your mind and efforts? Is that the value of your life?
How did this happen? How could a piece of paper, or even worst, digital pulses of energy stored in a computer be the representation of your value as a man? Who did this to you? Who has swindled you into believing that you are only worth this cheap piece of paper? A cheap piece of paper that depreciates every minute of every day. A cheap piece of paper that must be spent before the work you did for it is lost. A cheap piece of paper that cost almost nothing for the paper masters to produce. It has no value, because it required no effort. Gold is mined out of the ground by the blood sweat and tears of those who mine it. Paper is just a dead tree and some ink. It is literally printed by the millions and requires almost no effort to produce. Who are the paper masters?

The Alchemists of Money.

Sunday, June 5, 2011

Have we ever been truly free? Part 3

We must take a quick pause here to examine another unique aspect of the American Revolution and compare it with its contemporary, the French Revolution. I must quote Bastiat, who, having observed both revolutions wrote the following anecdote:

Mr. de Lamartine once wrote to me thusly: "Your doctrine is only the half of my program. You have stopped at liberty; I go on to fraternity." I answered him: "The second half of your program will destroy the first."
 In fact, it is impossible for me to separate the word fraternity from the word voluntary. I cannot possibly understand how fraternity can be legally enforced without liberty being legally destroyed, and thus justice being legally trampled underfoot.

This is a key concept. The American Revolution was fought for Individual freedom. The French Revolution was fought for the power of the Collective

Let’s stew on that for a second. We can discover from history that tribal societies are  collectivist societies. Property is collectively owned and the efforts of the tribe must go towards a single objective or the tribe will perish. This is by design. Collectivist societies demand all efforts and production, even life itself, be sacrificed for the common good of the collective.

“The needs of the many outweigh the needs of the few…or the one” – Spock

This arrangement benefits the Ruling Class most. They don’t have to produce, they just have to order. Their job is to organize societies like giant factories and reap the benefits of the production. They manage, control and decide. The individual does not exist in this model and it is replaced by the amorphous “people”. Listen to a statist politician speak and you will hear it clearly. He is for the “people”. His actions are for the common benefit of the “people”. Also examine that they always speak about common effort and “shared sacrifices” or the “collective salvation” of societies. 

The French Revolution ended in tyranny because it only sought to replace one ruling class with another!

And that, my friends, is the logical destination of all collectivist societies. Collectivist societies are, at their core, tribal societies and will always revert to tyranny. So we have a new dictum:

A cultural acceptance of collectivism is a requirement to Tyranny and will always end in Tyranny

Men must accept collectivism in order for the ruling class to rule. They must accept the false logic of the Parent/Child relationship with their masters. And they must do so voluntarily. They must believe!

But how can you convince a man who at his core understands his survival depends on individual freedoms and self determination to join the collective? How can you make a man believe in the collective good? How can you make him a believer to the point that he will willingly sacrifice his property, mind and life for the good of the many? How can you make a man self destruct? You change the culture.

In order to change the culture, you must first become relevant to the members of that culture. They must need you. Remember that the King’s power came from controlling the means of production. Once the colonists learned they no longer needed the Kings permission to survive, they revolted. So you must create dependence. You must re-establish the parent/child need for survival. This one is easy. Quoting Bastiat again:

”… This fatal desire has its origin in the very nature of man — in that primitive, universal, and insuppressible instinct that impels him to satisfy his desires with the least possible pain.”

So you must appeal to the base impulses of men and provide all their needs with the least possible pain. Once they are dependent on you, you can rule them as you wish. Happy days are here again!

But wait, if everyone is dependent, who will produce? After all, you cannot plunder the production of dependents. You can make everyone partially dependent, but by default you will lose production. So how can you convince the producers to produce for your plunder?

Altruism and Patriotism. You must convince man that his sacrifice is goodness and that his benefit is selfish and evil. You must change the language and the culture to where his auto- destruction for the benefit of his brother and the honor of the country is his ultimate goal. You must make him his brother’s keeper.

Examine the cultural modifiers today. Mass media, schools, churches. They all use either altruism or patriotism to shape the argument.

”You are to help, because others are hungry”

 “You might be doing fine, but your neighbor is in need”

“How can you enjoy that fat steak when the population of India is starving?”

 “We must be frugal to save the planet”

“We must conserve resources to save mother earth”

“We have 20% of the world’s population and use 80% of the resources”

“Every night millions of children go hungry while yours don’t”

 “Little Mary Blight was denied health care for her pre-existing conditions”

 “You must sacrifice for the good of others”

“How can you be blind to the “X crisis?”

“Will you help? “

“Wont you be kind?”

“How can you be so selfish!”

And there it is in all of its glory. The ultimate form of control over man, GUILT

Man himself must believe that his freedom is evil in order to be ruled!