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All fiat currencies are no more than floating abstractions of value. Society has put its faith in fiat currency issued by governments. These government-issued currencies are not backed by a physical commodity, such as gold or silver, but rather by the promises from the government that issued it. A difficult question investors today face is determining which assets will appreciate most thus rising in value and which form to hold their wealth.The value of fiat money is derived from supply and demand and the stability of the government that issues it. Over the years many promises have been made that simply cannot or will not be honored. History and many real-life examples exist that indicate that promises are easier to make than keep.

It is very possible in the near future we may see a strong bifurcation of the financial system. The Hard Asset Inflation / Paper Asset Deflation Theory laid out below is based on the idea that as wealthy individuals begin to realize the fragility of the current financial system they will shift their investment preferences to items of substance.

This repositioning of wealth in assets could occur rather rapidly during a period of inflation. If such a revamping of how the wealthy invest takes place it could drastically add to any inflationary trends. In short, some investments would fall like a stone while others soar. Imagine real estate doubling in value while pensions are cut and stocks falter. This dovetails with my theory t he Fed should be ecstatic so many people have been willing to invest in intangible assets because it has helped to minimize inflation.

…click on the above link to read the rest…

The Long Wave Versus the Printing Press

August 7, 2023

The Long Wave Versus the Printing Press

Winter has been coming for a very long time. Here’s why

The fascinating thing about “long wave” analysis (broadly defined to include Kondratieff waves, Elliott waves, and William Strauss and Neil Howe’s Fourth Turning) is that while each theory uses its own indicators and terminology to show how societies move through recurring cultural/psychological/financial stages, they’ve all reached the same conclusion: we’re toast.

The first decade of this century marked the theoretical end of an Elliott Wave Grand Supercycle — and of an even bigger wave that began in the Dark Ages…

…the start of Kondratiff winter…

…and the beginning of a Fourth “Crisis” Turning. As Strauss and Howe put it in 1997:

Around the year 2005 [give or take a few years], a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation and empire.…Sometime before the year 2025, America will pass through a great gate in history, commensurate with the American Revolution, Civil War, and twin emergencies of the Great Depression and World War II….The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort – in other words, total war…

But a funny thing happened on the way to the Greater Depression: We’ve somehow kept it together, inflating the 2000s housing bubble and, when that burst, replacing it with the everything bubble. Policymakers, talking heads, and most investors (judging by the past year’s stock market action) seem to think that a normal recovery is underway and that a crash remains a low-probability event.

…click on the above link to read the rest…

I also hate this conclusion (on net zero)

July 9, 2023

I also hate this conclusion (on net zero)

I begin the final section of my chapter on Energy Collapse with the subtitle “I also hate this conclusion”. Because I did not want to discover that modern societies cannot continue their energy trajectories by simply displacing fossil fuels with new technologies. But that is what the sum of the relevant research shows us. In addition, the pursuit of the total electrification of economies will have hugely damaging effects on the biosphere, due to the mining involved. This is the awkward reality that most Western environmentalists are ignoring. The ‘green’ capitalists are extremely happy for us to keep ignoring that reality, as then any pressure for action translates into more money and pleasure for them. But if activism is about our personal commitment to higher goals, whether using moderate or radical tactics, then it must start with a fair assessment of reality and possibility. Otherwise, how is such activism not simply a mix of self-aggrandisement and emotional distraction by keeping busy?

The book Breaking Together is now available in audio, and Chapter 3 on Energy Collapse can be heard for free on soundcloud. To convey some of the arguments, below I share the first and last sections of the chapter. The image of the Kintsugi Tesla is from the Kintsugi World art project which accompanies the book.

—

I was wrong about Elon. Or to be more precise, I was wrong about Tesla, the car company—not the physicist. Back in 2007, I included Tesla Motors in a report for the environmental group WWF, as one of a handful of companies that would be shaping our future. I was particularly impressed with how the company was tackling the stigma about driving electric vehicles and using a sportscar style and luxury pricing to shift those perceptions…

…click on the above link to read the rest…

Modern Currency Policy: Nations Compete, Citizens Suffer

June 28, 2023

Modern Currency Policy: Nations Compete, Citizens Suffer

Below we consider how modern currency policy may not be so good for, well, the people…

This is why gold inevitably enters the conversation, for unlike policy makers, this old pet rock garners more trust.

Gold, of course, loves chaos, tanking currencies and cornered, debt-soaked nations, the numbers of which rise with each passing day.

We see currency debasement as mathematically and historically inevitable, though we have no clue (no one really does) as to the precise date, trigger or time the already teetering fiat money systems fall over the global debt cliff.

We only know that the $300+T cliff is here, and that nations are racing toward it at historical speed, with equally historical consequences.

Physical gold holders, however, enjoy a certain and calm advantage: They don’t need to be precise timers; simply patient owners.

As for more signs of the move toward weakening currencies in general, and a weakening USD in particular, let’s look at some more history and current facts.

Hot vs. Financial Wars: Today’s Evidence, Tomorrow’s Polices

As headlines change with daily Western biases regarding the military war in Ukraine, America’s financial war with the East (i.e., China) will continue into the next generation.

It’s no secret to me, or many others, moreover, that the war in the Ukraine is a US proxy war against Russia, in which Ukraine (and its citizens) are merely a convenient battering ram against Putin.

That’s just my opinion, but we’ve seen this “freedom” movie before. Many times, and in many countries, none of which ended with much “freedom” …

But as to financial wars, they too are just an extension of politics by another means, and with the growing waves of de-dollarization rising in speed and height following the predictable ripple of effects of the 2022 sanctions against Russia…

…click on the above link to read the rest…

ANALYSIS: Will Zimbabwe Pave the Way for Gold-Backed Money?

June 1, 2023

ANALYSIS: Will Zimbabwe Pave the Way for Gold-Backed Money?

People walk past the Reserve Bank of Zimbabwe building in Harare, Zimbabwe, on Feb. 25, 2019. (REUTERS/Philimon Bulawayo/File Photo)

Will gold rescue Zimbabwe from the ashes of economic despair and usher in a new economic era?

Since Zimbabwe declared independence from the former Republic of Rhodesia in 1980, the southern African country has been ravaged by inflation and overall economic turmoil. Over the past 40 years, the annual inflation rate has only touched single-digit territory twice: 1980 (7 percent) and 1988 (7 percent).

Excessive money printing, fiscal mismanagement, economic sanctions, and currency instability have been the root causes of its perpetual financial crisis, resulting in political and social upheaval.

In 2008, Zimbabwe was given the unfortunate record of the highest inflation rate in the world, touching 250 million percent. This forced then-President Robert Mugabe and his government to abandon the Zimbabwe dollar and begin relying on nine foreign currencies, particularly the U.S. dollar and the South African rand. In 2019, Harare introduced a new Zimbabwean currency, but it did not take long for the revival of hyperinflation, with the inflation rate surpassing 600 percent by March 2020.

After numerous trials and errors on the monetary policy front, the Reserve Bank of Zimbabwe (RBZ) experimented with something old and something new: a gold-backed digital currency.

“Pursuant to the resolution of the Monetary Policy Committee (the MPC) on 28 March 2023 to complement the issuance of physical gold coins with gold-backed digital products, the Bank wishes to advise that it will be issuing gold-backed digital tokens with effect from 8 May 2023,” said RBZ Governor John Mangudya in a statement. “The gold-backed tokens will be fully backed by physical gold held by the Bank.”

Central bank officials say this money will be supported by 140 kilograms (4,900 ounces) of gold.

…click on the above link to read the rest…

Doug Casey on the Death of Privacy… and What Comes Next

May 28, 2023

Doug Casey on the Death of Privacy… and What Comes Next

International Man: In practically every country, the allowable limit for cash withdrawals and transactions continues to be lowered.

Further, rampant currency debasement is lowering the real value of these ridiculous limits.

Why are governments so intent on phasing out cash? What is really behind this coordinated effort?

Doug Casey: Let me draw your attention to three truths that my friend Nick Giambruno has pointed out about money in bank accounts.

#1. The money isn’t really yours. You’re just another unsecured creditor if the bank goes bust.

#2. The money isn’t actually there. It’s been lent out to borrowers who are illiquid or insolvent.

#3. The money isn’t really money. It’s credit created out of thin air.

The point is that cash is freedom. And when the State limits the utility of cash—physical dollars that don’t leave an electronic trail—they are limiting your personal freedom to act and compromising your privacy. Governments are naturally opposed to personal freedom and personal privacy because those things limit their control, and governments are all about control.

International Man: Governments will probably mandate Central Bank Digital Currencies (CBDCs) as the “solution” when the next real or contrived crisis hits—which is likely not far off.

What’s your take? What are the implications for financial privacy?

Doug Casey: CBDCs are proposed as a solution, but in fact, they’re a gigantic problem.

Government is not your friend, and CBDCs are not a solution.

If they successfully implement CBDCs, it would mean that anything you buy or sell, and any income you earn, will go through CBDCs. You will have zero effective privacy. The Authorities will automatically know what you own, and they’ll be in a position to control your assets. Instantly.

…click on the above link to read the rest…

A Pyrrhic End to 130 Years of Vicious Bad Money and Banking Crises

April 23, 2023

A Pyrrhic End to 130 Years of Vicious Bad Money and Banking Crises money printing The original vicious circle starts with inflationary interventions in an up-to-then well-anchored monetary regime. Consequent asset inflation spawns a banking crisis. That leads to the installation of anticrisis safety structures (one illustration is a novel or enhanced lender of last resort). Alongside a possible monetary regime shift, these damage the money’s anchoring system. A great asset inflation emerges and leads on to an eruption of another banking crisis, devastating in comparison with the first.

An array of additional safety structures is put in place which makes the now-bad money worse than before. After a long and variable lag, a long and violent monetary storm means the safety structures fail, a banking crisis again erupts but this time milder than the previous.

Then a further tinkering with the safety structures causes money to deteriorate even more in quality. Another shift in monetary regime coincidentally does much additional damage. Consequently, in time, a new crisis erupts much worse than the last one.

The safety engineers do more work, causing yet more damage to the mechanisms essential to sound money. But now the safety structures are so pervasive and strong across the banking industry that there is widespread belief that bank crisis eruptions will be smaller or, more likely, totally repressed.

Subsequent events demonstrate those beliefs to be hollow. There is a new round of safety structure elaboration leading to further monetary deterioration. Regime officials declare the end of bank crises.

The cumulative economic cost of this vaunted triumph over bank crisis is an advance of monopoly capitalism and monetary statism that throttles the essential dynamism of free market capitalism. Malinvestment becomes cumulatively larger. Living standards in general suffer. The severely ailing money which subsists is beyond any cure except the most radical.

…click on the above link to read the rest…

The schizophrenic understanding of money in economics

April 3, 2023

The schizophrenic understanding of money in economics

One of the great ironies of economics is that, while the public regards economists as experts on money, the issue of how money is created is still not settled within economics.

In 2014, the Bank of England published a landmark paper explicitly rejecting the textbook model of money creation, stating that:

Money creation in practice differs from some popular misconceptions—banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits…

The reality of how money is created today differs from the description found in some economics textbooks: Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. In normal times, the central bank does not fix the amount of money in circulation, nor is central bank ‘multiplied up’ into more loans and deposits. (McLeay, Radia, and Thomas 2014, p. 14)

Several other Central Banks published related papers, notably the Bundesbank in 2017, which stated that:

It suffices to look at the creation of (book) money as a set of straightforward accounting entries to grasp that money and credit are created as the result of complex interactions between banks, non- banks and the central bank. And a bank’s ability to grant loans and create money has nothing to do with whether it already has excess reserves or deposits at its disposal (Deutsche Bundesbank 2017, p. 17)

And yet, just five years later, the Nobel Prize in Economics was awarded to Bernanke, Diamond and Dybvig for work which, as the “Scientific Background” to the Prize noted, claimed that banks function as “financial intermediaries” which “channel funds from savers to investors, receiving funds from some customers and using the funds to finance others”….

…click on the above link to read the rest…

The Fed Proposes a 4th Function of Money: Means of Social Control

March 23, 2023

The Fed Proposes a 4th Function of Money: Means of Social Control

A Federal Reserve white paper has come up with a new function for money. Let’s tune in.

Docket No. OP – 1670

Please consider Docket No. OP – 1670 on Interbank Settlement of Faster Payments.

The Federal Reserve Board announced that the Federal Reserve Banks will develop a new round-the-clock real-time payment and settlement service, called the FedNow^sm Service, to support faster payments in the United States.

This is a direct response to the threat posed by digital currencies and blockchain. According to one Fed official, “Last summer, the U.S. Treasury recommended that ‘the Federal Reserve move quickly to facilitate a faster retail payments system, such as through the development of a real-time settlement service, that would also allow for more efficient and ubiquitous access to innovative payment capabilities.”‘ We believe this effort requires a proof-of-authority quantum computing based blockchain system.

As we noted in our paper “Blockchain, Cryptocurrency and the Future of Monetary Policy,” confidential, not-for-distribution research sent to select members of the House Financial Services Committee, it is critical to understand that bitcoin was created in direct response to the failure of global regulators to protect the public in the years leading up to the financial crisis of 2007/2008. Thus, the ethical and monetary functionality of cryptocurrency is superior to that of paper money. Eventually, cryptocurrency is going to dominate.

As also noted in our paper, “The main economic attributes of a technically effective currency rests on three functions: as a unit of account, a store of value and as a medium of exchange.”

But there is a fourth function of money: as a means of social control. The centralized monopoly over the functions of money held by sovereign governments and central banks has generated great income and wealth imbalances…

…click on the above link to read the rest…

#246: The Surplus Energy Economy, part 1

February 25, 2023

#246: The Surplus Energy Economy, part 1

FROM FIRST PRINCIPLES

Introduction

We have reached a turning-point at which economics and the economy have parted company. Orthodox economics continues to promise growth in perpetuity, but the economy itself is going in the opposite direction.

The explanation for this is simple. Conventional economics assumes that the economy is driven by money, which is entirely under our control. But the economy is, in reality, not a financial system, but a physical one, which uses energy to convert raw materials into the products and services which constitute prosperity. The modern economy has been built on abundant, low-cost energy from fossil fuels, but this dynamic is winding down and, as we shall see in a future instalment, we have no complete (or timely) alternative with which to replace it.

The aim with The Surplus Energy Economy is to set out a comprehensive assessment of the condition and prospects of the world economy and financial system, seen from the perspective that the economy is shaped by energy, not money. This series of articles will be as specific as possible, using data from the SEEDS economic model.

The conclusions reached here necessarily contradict the orthodox line, which is that the supposed ‘normality’ of growth will soon return, and that seamless transition to renewable energy sources will deliver economic expansion in perpetuity.

The economy is analysed here as a material system which has started to contract after reaching physical constraints imposed by the availability and cost of energy. Similar limits apply to environmental tolerance for energy-based economic activity.

Findings will come later in this series, but we are completely unprepared for the reversal of prior growth in the economy. The ending of growth has not arrived without warning, and we can identify a precursor zone, starting in the 1990s, which was characterised by deceleration, followed by stagnation.

…click on the above link to read the rest…

Gold’s return as money

February 18, 2023

Gold’s return as money

The consequences of Russia and her Asian allies embracing gold backing for their currencies are poorly understood in western capital markets. This move could lead to the destruction of the global fiat currency system.

According to evidence which is widely ignored in western capital markets, a move by Russia to put a new trade settlement currency and possibly the rouble as well onto a new gold standard is becoming a certainty. As a weapon of mass fiat currency destruction, the timing is probably bound up in on-the-ground military considerations, which are already showing signs of escalating in Eastern Ukraine.

As well as using gold to undermine the western currency system, a return to a credible gold standard has significant advantages for Russia and for her allies in the Shanghai Cooperation Organisation, the Eurasian Economic Union, BRICS+, and all their commodity suppliers beyond Asia. At the same time, it would destroy the west’s fiat currencies and financial system.

This article explains how one part of the global economy can thrive while the other collapses.

Introduction

Recently, I have written about the signals emanating from Russia that President Putin is minded to re-adopt sound money by returning to some sort of gold standard. We do not yet know the details, but consider what he said at the St Petersburg International Economic Forum in June last year:

“Caught in the inflationary storm, many nations are asking, why bother exchanging goods for dollars and euros when they are losing value right before our eyes? Indeed, the economy of imaginary wealth is being inevitably replaced by the economy of real valuables and hard assets.

“According to the IMF, today’s global foreign currency reserves contain 7.1 trillion dollars and 2.5 trillion euros. And this money is depreciating at an annual rate of about 8%…

…click on the above link to read the rest…

A tale of two worlds

February 5, 2023

A tale of two worlds

In the war between the western alliance and the Asian axis, the media focus is on the Ukrainian battlefield. The real war is in currencies, with Russia capable of destroying the dollar.

So far, Putin’s actions have been relatively passive. But already, both Russia and China have accumulated enough gold to implement gold standards. It is now overwhelmingly in their interests to do so.

From Sergey Glazyev’s recent article in a Russian business newspaper, it is clear that settlement of trade balances between members, dialog partners, and associate members of the Shanghai Cooperation Organisation (SCO) optionally will be in gold. Furthermore, the Russian economy would benefit enormously from a decline in borrowing rates from current levels of over 13% to a level more consistent with sound money.

To understand the consequences, in this article the comparison is made between the western alliance’s fiat currency and deficit spending regime and the Russian-Chinese axis’s planned industrial revolution for some 3.8 billion people in the SCO family. China has a remarkable savings rate, which will underscore the investment capital for a rapid increase in Asian industrialisation, without inflationary consequences.

With a new round of military action in Ukraine shortly to kick off, it will be in Putin’s interest to move from passivity to financial aggression. It will not take much for him to undermine the entire western fiat currency system — a danger barely recognised by a gung-ho NATO military complex.

Introduction

In the geopolitical tussle between the old and new hegemons, we see the best of strategies and the worst of strategies, where belief is pitted against credulity. It is the season of light and the season of darkness, the spring of hope and the winter of despair…

…click on the above link to read the rest…

Hyperinflationary Hell: Lebanese Central Bank Devalues ‘Lira’ By 90%

February 1, 2023

Hyperinflationary Hell: Lebanese Central Bank Devalues ‘Lira’ By 90%

Cash is now king in Lebanon, where a three-year economic meltdown has led the country’s once-lauded financial sector to atrophy and turned the country into a Venezuelan-esque hyperinflationary hell. The country has been hit hard by events over the past few years, starting with COVID.

In August 2020, the city of Beiruit was practically destroyed by a massive blast which killed at least 200 people and triggered as much as $15 billion in damage…

In March 2021, violent protests erupted across Lebanon as the currency collapse accelerated and with it the economy and people’s living standards.

And most recently, In December 2022, the Lebanese parliament failed for the eighth consecutive time to elect a new president, as a majority of lawmakers opposed the options laid on the table.

The prolonged power vacuum only exacerbates the situation, as Beirut is currently unable to enact sweeping reforms demanded by international lenders as a condition for releasing billions of dollars in loans.

All of which has sent the ‘parallel’ FX rate to a stunning 60,000/USD (compared to the official Pound – often nicknamed ‘Lira’ – rate of 1500/USD)…

Source: LiraRate.org

As Reuters reports, Zombie banks have frozen depositors out of tens of billions of dollars in their accounts, halting basic services and even prompting some customers to hold up tellers at gunpoint to access their money.

This has prompted bank runs…

Not a week goes by without Lebanese depositors storming their own banks in a desperate attempt to access savings frozen after the country’s economy collapsed.

Banks began imposing draconian limits on withdrawals and transfers in 2019, leaving depositors able to access only a fraction of their savings in dollars and Lebanese pounds.

and heists…

The National has recorded 27 depositor bank “heists” since the start of the year, including armed and unarmed hold-ups and sit-ins.

…click on the above link to read the rest…

Here’s How “Prosperity” Ends: Global Bubbles Are Popping

January 30, 2023

Here’s How “Prosperity” Ends: Global Bubbles Are Popping

So here we are: the global credit-asset bubbles are popping, and the illusory “prosperity” generated by the bubbles is about to tumble off a cliff.

There are two kinds of prosperity, one fake, one real. Bogus “prosperity” depends on credit-asset bubbles inflating, magically creating “wealth” not from labor, production or improving productivity, but from the value of assets soaring as bubbles inflate.

This bubble-generated “wealth” then fuels a vast expansion of credit and consumption as assets soaring in value increases the collateral available to borrow against, and the occasional sale of soaring assets generate capital gains, stock options, etc. which then fund sharply higher consumption.

When the value of a modest home skyrockets from $200,000 to $1,000,000 in a few years, that $800,000 in gain was not the result of any improvement in utility. The house provides the same shelter it did when it was worth 20% of its current value. The $800,000 is gain is the result of the abundance of low-cost credit and the global search for a yield above zero.

Eventually, this vast expansion of “money” chasing yields and seeking places to park all the excess cash trickles into the real economy and the result is inflationary. Consider how soaring home prices affect rents.

When an investor bought the modest home for $200,000, the costs of ownership were low due to the costs being linked to the value: the property tax, insurance and mortgage were all based on the valuation. (The costs of maintenance were unrelated to valuation, of course, being based on the age and quality of construction.) Let’s say the modest house rents for $1,500 per month.

…click on the above link to read the rest…

The evolution of credit and debt in 2023

January 15, 2023

The evolution of credit and debt in 2023

The evidence strongly suggests that a combined interest rate, economic and currency crisis for the US and its western alliance will continue in 2023.

This article focuses on credit, its constraints, and why quantitative easing has already crowded out private sector activity. Adjusting M2 money supply for accumulating QE indicates the degree to which this has driven the US tax base into deep recession. And the wider effects on credit in the economy should not be ignored.

After a brief partial recovery from the covid crisis in US government finances, they are likely to start deteriorating again due to a deepening recession of private sector activity. Funding these deficits depends on foreign inward investment flows, which are faltering. Rising interest rates and an ongoing bear market make funding from this source hard to envisage.

Meanwhile, from his public statements President Putin is fully aware of these difficulties, and a consequence of the western alliance increasing their support and involvement in Ukraine makes it almost certain that Putin will take the opportunity to push the dollar over the edge.

Credit is much more than bank deposits

Economics is about credit, and its balance sheet twin, debt. Debt is either productive, in which case it can extinguish credit in due course, or it is not, and credit must be extended or written off. Money almost never comes into it. Money is distinguished from credit by having no counterparty risk, which credit always has. The role of money is to stabilise the purchasing power of credit. And the only legal form of money is metallic; gold, silver, or copper usually rendered into coin for enhanced fungibility.

…click on the above link to read the rest…

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