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The global reset scam

The global reset scam

This article takes a tilt at increasing speculation about statist global resets, and why plans such as those promoted by the World Economic Forum will fail. Central bank digital currencies will simply run out of time.

Instead, the collapse of unbacked fiat currencies will end all supra-national government solutions to their policy failures. Already, there is mounting evidence of money beginning to flee bank accounts into stocks, commodities and even bitcoin. This is an early warning of a rapidly developing monetary collapse.

Moreover, nothing can now stop the collapse of fiat currencies, and with it schemes to control humanity for the convenience and ambitions of government planners. There can only be one statist solution and that is to mobilise gold reserves to back and save their currencies, which in order to succeed will have to be fully convertible into circulating gold coinage. It will also require the role of governments to be reset into a non-welfare, non-interventionist minimalist role, which can only be achieved after a complete collapse of the current fiat-financed system.

Anything less will fail.

The Deep State and The Blob fuel conspiracy theories

Increasingly, people are beginning to realise that their world is undergoing a period of rapid change, with the future of fiat money now uncertain. For most, it is too difficult to even contemplate. But growing uncertainties are driving wild speculation about what those in authority now have in store for the human race in the form of a global reset. It is a time for conspiracy theorists, aided and abetted by our politicians and central bankers who are being increasingly evasive, because events are spiralling out of their control.

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The monetary logic for gold and silver

The monetary logic for gold and silver

A considered reflection of current events leads to only one conclusion, and that is accelerating inflation of the dollar’s money supply is firmly on the path to destroying the dollar’s purchasing power — completely.

This article looks at the theoretical and empirical evidence from previous fiat money collapses in order to impart the knowledge necessary for individuals to seek early protection from an annihilation of fiat currencies. It assesses the likely speed of the collapse of fiat money and debates the future of money in a post-fiat world, in which the likely successors are metallic money — gold and silver— and some would say cryptocurrencies.

Early action to lessen the impact of a failure of the fiat regime requires an understanding of the role of money in order to decide what will be the future money when fiat dies. Will we be pricing goods and services in gold or a cryptocurrency? Will gold be priced in bitcoin or bitcoin priced in gold? And if bitcoin is priced in gold, will its function of a store of value still exist?

Introduction

This week saw the news that a vaccine had been found to combat the coronavirus. At least it offers the prospect of humanity ridding itself of the virus in due course, but it will not be enough to rescue the global economy from its deeper problems. Monetary inflation is therefore far from running its course.

The reaction in financial markets to the vaccine news was contradictory: equity markets rallied strongly ignoring rapidly deteriorating fundamentals, and gold slumped on a minor recovery in the dollar’s trade weighted index. Rather than blindly accepting the reasons for outcomes put forward by the financial press we must accept that during these inflationary times that markets are not functioning efficiently.

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The Consequences of Budget Deficits For International Trade

In all the economic mayhem ahead, no one is yet thinking of the consequences for trade imbalances. The twin deficit hypothesis informs us that skyrocketing US budget deficits will lead to increasing trade deficits, a situation with serious political consequences. Furthermore, with foreign interests already saturated with dollars and financial assets denominated in them, far from investing their growing surpluses in yet more dollars and dollar-denominated investments, they will become increasingly aggressive sellers.

This article walks the reader through the main issues of international trade in a developing slump and finds worrying parallels with the Wall Street crash and subsequent events. While the parallels are worrying, the major differences between then and now suggest that this time outcomes could be even more economically challenging.

Introduction

Following the presidential election this week, the new President of the United States will face an economic slump. Long before the covid-19 lockdowns, economic and financial developments threatened to undermine both the US economy and the dollar.

The similarities between the situation today and the end of the roaring twenties, and the depression that followed, are enormously concerning. Both periods have seen a stock market bubble, fuelled by bank credit and an artificial monetary stimulus by the Fed. Both periods have experienced an increase in trade protectionism:  In October 1929, the month of the crash, after debating it for months Congress finally passed the Smoot Hawley Tariff Act, raising tariffs on all imported goods by an average of about 20%. In 2019, US trade protectionism against China put a stop to the expansion of international trade. These facts, which should continue to concern us, have been buried by the immediacy of the coronavirus crisis, which is an additional burden for the global economy today compared with the situation ninety years ago.

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Hyperinflation is here

Hyperinflation is here

Definition: Hyperinflation is the condition whereby monetary authorities accelerate the expansion of the quantity of money to the point where it proves impossible for them to regain control.

It ends when the state’s fiat currency is finally worthless. It is an evolving crisis, not just a climactic event.

Summary

This article defines hyperinflation in simple terms, making it clear that most, if not all governments have already committed their unbacked currencies to destruction by hyperinflation. The evidence is now becoming plain to see.

The phenomenon is driven by the excess of government spending over tax receipts, which has already spiralled out of control in the US and elsewhere. The first round of the coronavirus has only served to make the problem more obvious to those who had already understood that the expansionary phase of the bank credit cycle was coming to an end, and by combining with the economic consequences of the trade tariff war between China and America we are condemned to a repeat of the conditions that led to the Wall Street crash of 1929—32.

For economic historians these should be statements of the obvious. The fact is that the tax base, which is quantified by GDP, when measured by the true rate of the dollar’s loss of purchasing power and confirmed by the accelerated rate of increase in broad money over the last ten years has been declining sharply in real terms while government spending commitments continue to rise.

In this article it is documented for the dollar,but the same hyperinflationary dynamics affect nearly all other fiat currencies.

…click on the above link to read the rest of the article…

The emerging evidence of hyperinflation

The emerging evidence of hyperinflation

Note: all references to inflation are of the quantity of money and not to the effect on prices unless otherwise indicated.

In last week’s article I showed why empirical evidence of fiat money collapses are relevant to monetary conditions today. In this article I explain why the purchasing power of the dollar is hostage to foreign sellers, and that if the Fed continues with current monetary policies the dollar will follow the same fate as John Law’s livre in 1720. As always in these situations, there is little public understanding of money and the realisation that monetary policy is designed to tax people for the benefit of their government will come as an unpleasant shock. The speed at which state money then collapses in its utility will be swift. This article concentrates on the US dollar, central to other fiat currencies, and where the monetary and financial imbalances are greatest.

Introduction

In last week’s Goldmoney Insight, Lessons on inflation from the past, I described how there were certain characteristics of Germany’s 1914-23 inflation that collapsed the paper mark which are relevant to our current situation. I drew a parallel between John Law’s inflation and his Mississippi bubble in 1715-20 and the Federal Reserve’s policy of inflating the money supply to sustain a bubble in financial assets today. Law’s bubble popped and resulted in the destruction of his currency and the Fed is pursuing the same policies on the grandest of scales. The contemporary inflations of all the major state-issued currencies will similarly risk a collapse in their purchasing powers, and rapidly at that.

…click on the above link to read the rest of the article…

China is killing the dollar

China is killing the dollar

Introduction

On 3 September, China’s state-owned Global Times, which acts as the government’s mouthpiece, ran a front-page article warning that

“China will gradually decrease its holdings of US debt to about $800billion under normal circumstances. But of course, China might sell all of its US bonds in an extreme case, like a military conflict,” Xi Junyang, a professor at the Shanghai University of Finance and Economics told the Global Times on Thursday”[i].

Do not be misled by the attribution to a seemingly independent Chinese professor: it would not have been the front page article unless it was sanctioned by the Chinese government. While China has already taken the top off its US Treasury holdings, the announcement (for that is what it amounts to) that China is prepared to escalate the financial war against America is very serious. The message should be clear: China is prepared to collapse the US Treasury market. In the past, apologists for the US Government have said that China has no one to buy its entire holding.

…click on the above link to read the rest of the article…

Inflation, deflation and other fallacies

Inflation, deflation and other fallacies

There can be little doubt that macroeconomic policies are failing around the world. The fallacies being exposed are so entrenched that there are bound to be twists and turns yet to come.

This article explains the fallacies behind inflation, deflation, economic performance and interest rates. They arise from the modern states’ overriding determination to access the wealth of its electorate instead of being driven by a genuine and considered concern for its welfare. Monetary inflation, which has become runaway, transfers wealth to the state from producers and consumers, and is about to accelerate. Everything about macroeconomics is now with that single economically destructive objective in mind.

Falling prices, the outcome of commercial competition and sound money are more aligned with the interests of ordinary people, but that is so derided by neo-Keynesians that today almost without exception everyone believes in inflationism.

And finally, we conclude that the escape from failing fiat will lead to rising nominal interest rates, with all the consequences which that entails. The inevitable outcome is a flight to commodities, including gold and silver, despite rising interest rates for fiat money.

Demand-siders and supply-siders

In a macroeconomics-driven world, economic fallacies abound. They are periodically trashed when disproved, only to arise again as received wisdom for a new generation of macroeconomists determined to justify their statist beliefs. The most egregious of these is that inflation can only occur as the handmaiden of economic growth, while deflation is similarly linked to a recession spinning out of control into the maelstrom of a slump.

This error is the opposite of the facts.

Conventionally, macroeconomists split into two groups. There are the Keynesians who believe in stimulating demand to ensure there will always be markets for goods and services, which they attempt to achieve through additional spending by governments and by discouraging saving, because it is consumption deferred.

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An unexpected systemic crisis is for sure

An unexpected systemic crisis is for sure

Downturns in bank credit expansion always lead to systemic problems. We are on the edge of such a downturn, which thanks to everyone’s focus on the coronavirus, is unexpected.

We can now identify 23 March as the date when markets stopped worrying about deflation and realised that monetary inflation is the certain outlook. That day, the Fed promised unlimited monetary stimulus for both consumers and businesses, and the dollar began to fall.

The commercial banks everywhere are massively leveraged and their exposure to bad debts and a cyclical banking crisis is now certain to wipe many of them out. In this article we look at the global systemically important banks — the G-SIBs — as proxy for all commercial banks and identify the ones most at risk on a market-based analysis.

Introduction

In these bizarre markets, the elephant in the room is systemic risk — visible to all but simply ignored. This is partly due to everyone in government and central banks, as well as their epigones in the investment industry and mainstream media, believing our economic problems are only a matter of Covid-19. In other words, when the pandemic is over normality will return. But Covid-19 has acted like a conjurer’s distraction: it has deflected us from the consequences of Trump’s trade wars with China and the liquidity strains that surfaced in New York last September when the repo rate soared to 10%.

The liquidity strains and the severe downturn in the stock markets that followed earlier this year before mid-March have been buried for the moment in a tsunami of central bank money. Liquidity problems following last September’s repo crisis and the S&P 500 index collapsing by one third between 19 February and 23 March were a clear signal that the multiyear cycle of bank credit expansion had already peaked. Ever since the last credit crisis in 2008, the banks had recovered their lending confidence and expanded bank credit, a classic expansionary phase.

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The Eurozone’s financial disintegration

The Eurozone’s financial disintegration

xau pic

Introduction

The Euro Crisis Monitor (above) shows the increasing imbalances in the TARGET2 settlement system between all its members: the ECB (itself with a €145bn deficit) and the national central banks in the Eurozone. Other than minor differences reflecting net cross-border trade not matched by investment flows going the other way, these imbalances should not exist. But following the Lehman crisis and as the Eurozone developed its own series of crises, imbalances arose. Commentators have grown used to them, so have more or less given up pointing them out. But in the last few months, the apparent flight into the Bundesbank (€995,083m surplus) has gathered pace, as have the deficits for Italy (€536,722m) and Spain (€451,798m). It is time to take these rising imbalances seriously again.

Target2 — the ECB’s flexible friend

Target2 is the settlement system for transfers between the national central banks. The way it works, in theory, is as follows. A German manufacturer sells goods to an Italian business. The Italian business pays by bank transfer drawn on its Italian bank via the Italian central bank through the Target2 system, crediting the German manufacturer’s German bank through Germany’s central bank.

But since the Lehman crisis, and more noticeably the last eurozone crisis, capital flows appear to have gravitated from Portugal, Italy, Greece and Spain (the PIGS — remember them?) to principally Germany, Luxembourg, Netherlands and Finland in that order. Before 2008, the balance was maintained by trade deficits in Greece, for example, being offset by capital inflows as residents elsewhere in the eurozone bought Greek bonds, other investments in Greece and the tourist trade collected net cash revenues.

In this sense, it would be wrong to suggest that trade imbalances have led to Target2 imbalances. But part of the problem must be put down to the failure of private sector investment flows to recycle.

…click on the above link to read the rest of the article…

Explaining the Credit Cycle

EXPLAINING THE CREDIT CYCLE

This article summarises why the credit cycle leads to alternate booms and slumps. It is only with this in mind that they can be properly understood as current economic conditions evolve.

The reader is taken through three monetary models: a fixed money economy, one governed by changes in bank credit, and finally the consequences of central bank intervention.

Classical economics provided the basis for an understanding of the effects of bank credit expansion. The theory, embodied in the division of labour, eluded Keynes, who was determined to justify an interventionist role in the economy for the state.

 Neo-Keynesian policies have been responsible for growing monetary intervention. This article serves as a reminder of the distortions introduced by the credit cycle and why central bank monetary policies are fundamentally destructive of the settled economic order that exists without monetary expansion.

Defining the problem

The credit cycle drives the business, or trade cycle. It should be obvious that changes in the quantity of money, mostly in the form of bank credit, has an effect on business conditions. Indeed, that is why central banks implement a monetary policy. By increasing the quantity of money in circulation and by encouraging the banks to lend, a central bank aims to achieve full employment. Other than quantitative easing, the principal policy tool is management of interest rates on the assumption that they represent the “price” of money.

But there is also a cyclical effect of boom and bust, linked to changes in the availability of bank credit, and so modern central banks have tried to foster the boom and avoid the slump.

…click on the above link to read the rest of the article…

Explaining the credit cycle

Explaining the credit cycle

This article summarises why the credit cycle leads to alternate booms and slumps. It is only with this in mind that they can be properly understood as current economic conditions evolve.

The reader is taken through three monetary models: a fixed money economy, one governed by changes in bank credit, and finally the consequences of central bank intervention.

Classical economics provided the basis for an understanding of the effects of bank credit expansion. The theory, embodied in the division of labour, eluded Keynes, who was determined to justify an interventionist role in the economy for the state.

 Neo-Keynesian policies have been responsible for growing monetary intervention. This article serves as a reminder of the distortions introduced by the credit cycle and why central bank monetary policies are fundamentally destructive of the settled economic order that exists without monetary expansion.

Defining the problem

The credit cycle drives the business, or trade cycle. It should be obvious that changes in the quantity of money, mostly in the form of bank credit, has an effect on business conditions. Indeed, that is why central banks implement a monetary policy. By increasing the quantity of money in circulation and by encouraging the banks to lend, a central bank aims to achieve full employment. Other than quantitative easing, the principal policy tool is management of interest rates on the assumption that they represent the “price” of money.

But there is also a cyclical effect of boom and bust, linked to changes in the availability of bank credit, and so modern central banks have tried to foster the boom and avoid the slump.

…click on the above link to read the rest of the article…

The new deal is a bad old deal

The new deal is a bad old deal

So far, the current economic situation, together with the response by major governments, compares with the run-in to the depression of the 1930s. Yet to come in the repetitious credit cycle is the collapse in financial asset values and a banking crisis.

When the scale of the banking crisis is known the scale of monetary inflation involved will become more obvious. But in the politics of it, Trump is being set up as the equivalent of Herbert Hoover, and presumably Joe Biden, if he is well advised, will soon campaign as a latter-day Roosevelt. In Britain, Boris Johnson has already called for a modern “new deal”, and in his “Hundred Days” his Chancellor is delivering it.

In the thirties, prices fell, only offset by the dollar’s devaluation in January 1934. This time, monetary inflation knows no limit. The wealth destruction through monetary inflation will be an added burden to contend with compared with the situation ninety years ago.

Introduction

Boris Johnson recently compared his reconstruction plan with Franklin D Roosevelt’s New Deal. Such is the myth of FDR and his new deal that even libertarian Boris now invokes them. Unless he is just being political, he shows he knows little about the economic situation that led to the depression.

It would not be unusual, even for a libertarian politician. FDR is immensely popular with the inflationists who overwhelmingly wrote the economic history of the depression era. In fact, FDR was not the first “something must be done” American president, a policy which started with his predecessor, Herbert Hoover. But the story told is that FDR took over from heartless Hoover who had failed to step in and rescue the economy from a free-market catastrophe, by standing back and letting events take their course instead.

…click on the above link to read the rest of the article…

The path to monetary collapse

The path to monetary collapse

Few mainstream commentators understand the seriousness of the economic and monetary situation. from a V-shaped rapid return to normality towards a more prolonged recovery phase.

The fact that a liquidity crisis developed in US money markets five months before the virus hit America has been forgotten. Only a rising gold price stands testament to a deeper crisis, comprised of contracting bank credit while central banks are trying to rescue the economy, fund government deficits and keep the market bubble inflated.

The next problem is a crisis in the banks, wholly unexpected by investors and depositors. At a time when lending risk is soaring off the charts, their financial condition is more fragile than before the Lehman crisis. Failures in European G-SIBs in the next month or two are almost impossible to avoid, leading to a full-blown monetary and credit crisis which promises to undermine asset values, government financing and fiat currencies themselves.

We can now discern the path leading to the destruction of fiat currencies and take reasonably guesses as to timing.

How central banks view the current situation.

The financial world is bemused: what is it to make of the economic effects of the coronavirus? The official answer, it seems, is on the lines of don’t panic. The earliest fears of millions of deaths have subsided and in the light of experience, a more rational approach of easing lockdown rules is now being implemented in a number of badly hit jurisdictions. Whether this evolving policy is right will be proved in due course. But the motivation is moving from saving lives to restricting the economic damage.

…click on the above link to read the rest of the article…

Time to learn about money

Time to learn about money

An unexpected destruction of fiat currency has been advanced by the monetary and fiscal response to the coronavirus. Financial markets have yet to discount the possibility of such an outcome, but in the coming months they are likely to awaken to this danger.

The question arises as to what will replace fiat currencies. In the past the answer has always been gold but today there are cryptocurrencies as well, whose enthusiasts are more aware than most of fiat money’s failings.

This article describes the basics about money, what it is and the role it plays in order to understand what will be required by the eventual replacement for fiat. It concludes that gold will return as the world’s medium of exchange, and secure cryptocurrencies, unable to provide the scalability and stability of value required of a medium of exchange will be priced in gold after the demise of fiat. But then the rationale for them will be gone, and with it their function as a store of value.

The destruction of fiat money

These are strange times. Circumstances are forcing governments to destroy their money by debasing it to pay for their obligations, real and imagined. If central bankers had a grasp of what money really is, they wouldn’t have got into a position where they are forced to use their seigniorage to destroy it. They are so ignorant about catallactics, the fundamentals behind economics, that they cannot see they are destroying the means of exchange they have imposed upon their citizens with far worse consequences than the abandonment of the evils they are trying to defray.[i]

…click on the above link to read the rest of the article…

Anatomy of a fiat currency collapse

Anatomy of a fiat currency collapse

This article asserts that infinite money-printing is set to destroy fiat currencies far quicker than might be generally thought. This final act of monetary destruction follows a 98% loss of purchasing power for dollars since the London gold pool failed. And now the Fed and other major central banks are committing to an accelerated, infinite monetary debasement to underwrite their entire private sectors and their governments’ spending, to prop up bond markets and therefore all financial asset prices.

It repeats the mistakes of John Law in France three hundred years ago almost to the letter, but this time on a global scale. History, economic theory and even common sense tell us governments and their central banks will rapidly destroy their currencies. So that we can see how to protect ourselves from this monetary madness, we dig into history for guidance to see who benefited from the Austrian and German hyperinflations of 1922-23, and how fortunes were made and lost.

Introduction

The way inflation is commonly presented by modern economists, as a rise in the general level of prices, is incorrect. The classical, pre-Keynesian definition is that inflation is an increase in the quantity of money which can be expected to be reflected in higher prices. For consistency and to understand the theory of money and credit we must adhere strictly to the proper definition. The effect on prices is one of a number of consequences, and is not inflation.

The effect of an increase in the quantity of money and credit in circulation on prices is dependent on the aggregate human response. In a nation of savers, an increase in the money quantity is likely to add to savers’ bank balances instead of it all being spent, in which case the route to circulation favours lending for the purpose of industrial investment.

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Olduvai IV: Courage
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Olduvai II: Exodus
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