Sovereign Nation Debt Defaults Will Worsen Great Depression II

As several semi-sovereign EU nations go bankrupt, this is spooking world markets and we see yet another downturn in world stock markets as every gears up for the Big Bankruptcies.  This is the usual thing that happens during Great Depressions.  And this one will go down in the books as the Second Great Depression.  There seems to be little understanding about how depressions work differently from mere recessions.  The key difference is the number of sovereign government collapses.  That is, instead of peripheral minor government failures, we get major, imperial power collapses.

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ΩΩFirst a very funny and well made video comparing the Austrian School to the Keynesian School of economic thought:

ΩΩYou might say, the Keynesian School and the Austrian Schoolcould be characterized as ‘Bubble, bubble versus toil and trouble.’  The Austrians think we have to tighten our belts and work harder while the Keynes fans want us to make a government bubble to replace the credit bubble that pops.  Both are right but both are also wrong.  The Keynes model increases the likelihood of a government collapse in bankruptcy while the Austrian model guarantees riots, revolutions and ethnic cleansing.  This brings me to my great theme here: the need for balance.

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ΩΩThat is, all absolutes are bad but balancing them is good.  Balancing things is difficult at all times and requires being alert and moving fast to readjust things when they begin to teeter too much on one side of the scale or the other.  Of course, this means having a nimble mind and working swiftly instead of the ‘wait and see’ attitude which paralyzes most people.  That is, the greatest danger is the assumption of a status quo.

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ΩΩNo status quo lasts forever or even very long.  Eventually, it increases its negatives over time due to accumulating forces of various sorts.  If we keep going in some direction, eventually we will be too committed to this process and when it is painfully obvious that one’s direction must be changed, the difficulty rises exponentially with time so the more time passes, the more difficult the adjustments needed to restore balance.

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ΩΩThis simple dynamic is nearly impossible for most economists to understand due to the yin/yang nature of economic debate.  Now that the people who understood the intersection between labor and capital have been knocked out of the debate temporarily (yes, very temporarily!) the knuckleheads of the Austrian/Keynesian schools can go batter each other to death, arguing about impossible systems in the real world.  That is, if EITHER party wins the debate, the result will be global economic and military warfare along the lines of WWI and WWII.

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ΩΩFrom my blog last year: IMF GRAPHS AND CHARTS SHOWING GREAT DEPRESSION II « Culture of Life News 2

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ΩΩThe world credit bubble is like a camel passing through the eye of a needle.  Worse, the passage of time clearly shows why government bail outs in the wake of massive credit bubbles doesn’t work so well: instead of individuals and businesses going bankrupt, the governments begin to go bankrupt.  Usually, there is a two and a half year delay.  The second wave of bankruptcies is far, far more dangerous than the first wave due to the second wave causing wars, mayhem and murder.  Usually, the very first countries to tip into bankruptcy sees only local riots and maybe an insurrection which we see already in places like Iran or Greece.

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ΩΩThe graphs from the Great Depression show clearly how the second wave works: after stocks fall greatly, they begin to crawl back bit by bit and everyone is hopeful and then some major sovereign bank suddenly collapses. In 1932, this was the Anhalt Bank in Vienna.  The failure of one sovereign bank suddenly is ‘contagious’ and all the rest follow in quick order.  During the last Great Depression, the British empire was finally forced off of the gold standard while the US had to halve the value of the dollar in order to save the gold standard and a new draconian law was put in place, cutting off the US public from its own gold reserves while allowing foreign powers to tap into our gold reserves.

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ΩΩGold plunges to 3-month low as dollar soars on jobless data, Europe debt woes: I must say, warnings to gold lovers that gold is no nostrum for protecting paper money invested in gold falls on deaf ears.  People get mad at me when I explain things and this is a typical example.  That is, History is pretty severe about how gold can collapse in value when there is instability just as easily as instability can lead to gold gaining in value.  Thinking that gold will only go up and up and up is silly.  It never has and never will.

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ΩΩIts main function as a balancing device to prevent credit bubbles has been tossed aside and now it is merely another investment bubble/crash system that is prey to the same economic forces that hammer all other systems.  There is only one good element to this elemental metal: it never falls to zero like paper money.  A significant difference between ‘money’ and ‘metals’.  When economic storms blow in, saving oneself is a lot trickier than people imagine.  When it takes $300 in gold coin to buy a loaf of bread, this isn’t a good bargain at all.  We know from previous drastic collapses that people who have the means to produce AND protect food are the ones who win, not holders of any form of ‘money’ or ‘wealth’.

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ΩΩThe collapse of Iceland and the potential collapse of Ireland, Greece, Spain and Portugal is causing world credit markets severe difficulties since the previous solutions by governments of sucking down all the credit bubble toxins are now causing the poisoned public bodies to keel over and die.  And the death of a sovereign nation has far graver aftereffects compared to mere banks or mere businesses.

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Greece, Spain, Portugal Bonds Remain Under Pressure – WSJ.com

Financial markets gyrated downward again Friday as investors turned skittish on banks that may have exposure to the sovereign debt of troubled European economies. The concern was that banks, especially in Europe, could face a new round of problems due to their ownership of sovereign debt in countries such as Greece, Portugal, Spain and Ireland, where there is growing risk of default. That could slow a nascent recovery in a sector that may not be equipped to handle another crisis.

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ΩΩGenerally speaking, when small nations go bankrupt while big creditor empires are whole and well, there is no worry about a domino effect leading to a global depression.  But is only ONE empire goes bankrupt, this causes the collapse of not only most other small nations but usually, more than one empire.  The collapse of first the Austrian rump empire and then the much more dangerous German empire led to the British and French empires weakening and dying internally, too.  And worse: the US empire took a huge hit from these government debt failures and it slid into severe economic distress, too.

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ΩΩThis is a key point the Chinese are very aware of since they read enough history books and looked at enough graphs to see the progression of events.  The US speculative bubble popping was a difficulty but manageable but the sovereign collapses were not.   We know from History that all of this debt was sorted out extremely violently and many millions of people died in the process.  Unlike Americans, Europeans are much more sensitive to all of this due to many of the millions who died were killed in Europe.  So they are justifiably nervous this time around.

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ΩΩGreece, Italy, Spain and Portugal have a long history of overspending and then going into default.  Normally, there is this relaxed attitude (I think due to it being very balmy and pleasant unlike the grim cold north) about this business.  But this time around, there is real nervousness since these bankruptcies can pull into the danger zone major creditor nations, mainly Germany.  When Germany is in distress, all of Europe is in distress, big time.

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ΩΩToday, I went to the national banks of Greece, Spain and Portugal but before we look at the statistics there, we have to consider the dire condition of the world’s #2 (or #3 this year) creditor nation: Japan.  Japan has the world’s #2 FOREX holdings and is the #3 export profit power after Germany and as of this month, China.  Yet Japan is going bankrupt.

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Japan Must Heed Warning of Greek Debt, Nakamura Says (Update1) – BusinessWeek

The example of Greece, along with concerns about the credit quality of countries including Spain and Portugal, shouldn’t be regarded as “a burning house on the other side of the river,” Seiji Nakamura said in a speech in Fukuoka today. Nakamura also rejected the idea that further BOJ liquidity injections could end the country’s bout with deflation.

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Prime Minister Yukio Hatoyama’s government has yet to lay out a plan to rein in Japan’s record debt after Standard & Poor’s cut the outlook for its sovereign credit rating last month. Nakamura’s comments today also signal rising tension with the government after Finance Minister Naoto Kan urged the BOJ to be “flexible” in the fight against falling prices….

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…..Nakamura also said relying on fiscal stimulus to spur an expansion without having a strategy to cut public debt will only exacerbate the government’s fiscal situation. “Excessive dependence on emergency stimulus, which should be temporary, could cause significant problems in the future,” Nakamura said. “Japan must reconsider policy measures to counter emergencies while also examining its fiscal- rehabilitation plans seriously in order to achieve stable and balanced growth.”

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ΩΩFurther down, I tear apart the increasingly shrill Krugman, the doyen of Keynesian love at the NYT.  The point is, the Japanese are fully aware that their ZIRP system is bankrupting the government and fully incapable of escaping this dynamic because they waited far too long to balance all their systems.  Instead, they hoped to export their way out of this mess they created when the US devalued the dollar by nearly 50% with the Plaza Accord deal with Japan in the mid-1980’s.  Unlike China today, Japan ceased growing its own domestic markets and now there is this constant depression as far as labor is concerned.

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ΩΩFor nearly 20 years, the status quo in Japan has been grossly unbalanced and any attempt at escaping this without amputations and immense pain have been abandoned and now the entire nation is waiting passively for things to right themselves organically: that is, they want Libra to reset the scales.  Now, hoping for this is one thing.  Experiencing it is another.  That is, the natural forces at work are evolutionary and quite violent.  For Libra will not reset the scales until they are totally out of balance and then the offending side is unceremoniously dumped and the empty scales are ready for another round.

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ΩΩJapan will eventually be forced to disgorge all of its FOREX holdings as well as its immense US debts it compiled during the trade surplus years.  This, in turn, will cause China’s massive holdings to lose value and China will also dump this into world markets and the US dollar will become the Zimbabwe dollar as it rapidly loses value over the course of less than a year.  Since we import much of our goods we use to keep going, we will see tremendous inflation here as the dollars flood back home, worthless in the bitter end.

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ΩΩHolding gold for this event makes some sense, by the way.  But don’t expect to be happy with the results.  Using hard earned cash to buy gold and then use this to buy mere food at tremendous price is not a good thing, it is survival (but having a farm beats this totally!).  Japan, like the US, has abandoned most of its farms and the vast majority of people now live in cities.  People in cities suffer the most in currency collapses.

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Beware Financial Contagion – WSJ.com

The markets are waking up to the risks: The surge in the cost of insuring government debt against default is starting to affect domestic companies. Take utility Energias de Portugal, whose credit default swaps have suddenly surged higher after having been unaffected by the rising cost of Portuguese sovereign CDS during the last two months of 2009. The cost of insuring EdP’s debt has risen much faster than that of similar companies based in countries with stronger fiscal positions. Similarly, Spanish telecoms group Telefónica, Portuguese bank Banco Espirito Santo and Greek telecom OTE led the widening in CDS spreads in Europe on Thursday.

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ΩΩThe fiscal problems in the Balmy Comfy Countries is translating into another needle to thread with a credit camel.  The effort of funding any borrowing will cause insurance costs to rise and for example, in the US, most of our borrowing insurance if not ALL of it is from the government, not private bankers. The degrading of Japan’s debt rating has also caused the insurance costs of all other entities to rise which is why world stocks are taking a second major downturn in anticipation of sovereign defaults in the future.  Now, I like to go to the source for information.  First, the Bank of Greece for their latest report:

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http://www.bankofgreece.gr/BogEkdoseis/sdos200911-12.pdf

ΩΩ18 billion euro rise from 2006 which meant it nearly quadrupled in just 4 years and since this chart doesn’t have 2010, it is now probably more than quadruple the 2006 amount.

ΩΩWe see here that the worst is over and there was some recovery but the damage inflicted is too great and there will probably be another major downturn for the government bail outs didn’t fix the fundamental problems.  Instead, it brought up a much bigger fundamental problem: the potential bankruptcy of the state itself.

ΩΩEU sentiment for the future is barely more than half of what it was in 2007. In Greece, it is half.  And Greek hopes are far lower than EU hopes!  A bad sign.  People are unhappy in Greece and they translate this directly into riots and mayhem.

ΩΩThis graph shows how the dynamic unbalance gets suddenly much worse: just when governments must spend to save the economy, the government share skyrockets due to declining GDP.  This is a classic ‘horns of dilemma’ business.  Economics has many such dark dynamic systems which are very hard to escape which is why one must always be wary of falling into these things.  That is, the need to avoid credit bubbles is most urgent!  Bubbles are not benign, they are deadly traps we seem unable to resist.  In particular, it is laughably easy to create and grow credit bubbles since they are literally created out of thin air.

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ΩΩNow on to the Banco de España

ΩΩThe Spanish government debt has risen from 132 billion euros to over 400 billion euros since 1995.  It took 13 years to double.  And it can and will double in less than 3 years if it keeps shooting upwards at the present rate.  This, by the way, is a hockey stick graph.  After pawing through the data sets at the Bank of Spain, I could see that all the negative indicators were clustered not at the present but at the collapse of international banking when the US fell off the Derivatives Beast’s cliff and fell into the economic abyss.

http://www.bportugal.pt/en-US/Estatisticas/PublicacoesEstatisticas/BolEstatistico/Publications/C.pdf

ΩΩYikes!  Note how the derivatives business ran deep in negative numbers starting with the collapse of AIG and the end of the fiction that all derivative contracts have counter parties.  They most certainly do not….EXCEPT with sovereign governments!  Who are now taking body blows, trying to prevent the total collapse of the immense, gigantic derivatives bubbles.

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From Canada:  Growth in a time of debt — maybe – FP Comment

Maybe the reason the U.S. government is cancelling manned flights to the moon is that its debt has already arrived there. U.S. debt numbers are now beyond stratospheric and well into interplanetary. In the current fiscal year, this week’s budget tables show, Washington will spend $3.7-trillion despite revenues of just $2.2 trillion. The remaining $1.5 trillion it will borrow. Government borrowing at 10.6% of GDP is stunning enough. Borrowing to finance more than 40% of spending is truly amazing.

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That 40% is supposed to fall quickly to “just” 17% of total spending in 2015 — though of course nothing is for certain once Congress starts re-working the President’s proposals. But still: 40%! The worse we’ve done in the post-war era was 34%, in Pierre Trudeau’s last fiscal year in office. (Is there something about leaders whose names end in vowels?) …

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…So: two studies on debt — but only two — suggest that while the U.S. economy may hold up under the weight of all the new debt, the U.S. dollar won’t.

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ΩΩThis is what all our major trade partners fear the most: the US dollar collapsing.  So far, they all manipulated the US dollar to keep it afloat on top of a Red Sea of trade deficits.  The entire and ONLY excuse for cutting the gold standard was so the US dollar float would curb trade deficits. Right off the bat, our dire trade rivals, especially Japan, figured out that holding US dollars in FOREX holdings would keep the dollar artificially valuable.  For money is valuable only if people do NOT circulate it as the government runs in the red!  The minute they spend excess new money, it causes inflation.

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ΩΩSo Japan was very clever and now everyone is doing this and we have this immense overhang of US dollars that can and will inevitably pour out of all these sovereign holding pens and lose all value as a trade regulator.  The more our trade rivals hoard dollars, the more likely they will all dump them simultaneously as they all rush out of export markets to the US.  This is INEVITABLE.  The only question here is, who will do it first.  We already know that the Chinese plan to do this in 2020.  But someone might jump the gun.

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ΩΩWe saw already that Japan is increasing its FOREX holdings. So they are keeping on the present track until it fails.  The hoarding of US dollars has not diminished.  But again: this is due entirely to things being totally out of balance.  And eventually, it must be rebalanced.  The longer this takes, the nastier the rebalancing act.  Now, on to poor Professor Krugman flailing away at all this.  His analysis is terrible due to a refusal to understand how free trade has utterly destroyed our ability to balance our books in any way, shape or form.  Instead, he believes we can run deficits in EVERYTHING all the time!  How stupid is this?

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Op-Ed Columnist – Fiscal Scare Tactics – NYTimes.com

True, there is a longer-term budget problem. Even a full economic recovery wouldn’t balance the budget, and it probably wouldn’t even reduce the deficit to a permanently sustainable level. So once the economic crisis is past, the U.S. government will have to increase its revenue and control its costs. And in the long run there’s no way to make the budget math work unless something is done about health care costs.

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But there’s no reason to panic about budget prospects for the next few years, or even for the next decade. Consider, for example, what the latest budget proposal from the Obama administration says about interest payments on federal debt; according to the projections, a decade from now they’ll have risen to 3.5 percent of G.D.P. How scary is that? It’s about the same as interest costs under the first President Bush.

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Why, then, all the hysteria? The answer is politics.

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ΩΩProfessor Krugman is being coy here: the vast majority of our debts owed to international bankers and sovereign nations is in SHORT TERM DEBTS that must be rolled over and over like Sisyphus stone.  When the interest rates are ZIRP, it is easy as pushing a pumice boulder around…which can float on water.  But when interest rates suddenly rush upwards due to the US dollar collapsing in value, this quickly turns into a lead boulder that will roll backwards over us and crush us. Indeed, the Chinese 50 Year Plan is for this to happen!  Since they are the biggest credit holders, this means they can do this, easily, any time after this year.

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ΩΩNote Krugman crowing that we have no worry for a decade.  HAHAHA.  That means, we worry in 202o.  Which is the time frame for the Chinese chopping our heads off.  We see from the graphs in Greece that a ‘stable’ debt situation can shoot up very abruptly when world trade shifts.  The GDP share went from manageable to dire in just ONE YEAR.  Not a decade.  This is the nature of ‘tipping the scales': it is always sudden.  And violent.

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ΩΩBeing blase about developing problems means we make no hard choices.  Why can’t our government just spend its way to prosperity?  Of course, History is absolutely obvious that this is not a solution but a TRAP.  And because it is the easiest solution, it is the one we see used over and over again, always with the same results.  So pretending one can’t peer into the future to see what is going to happen next is childish.  And the petulance of Krugman who never, ever mentions the need to cut the size of our empire tremendously, cut the Pentagon totally and stop shipping dollars to Israel…he can’t talk about any of this because he approves of all of this!

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ΩΩLibra disapproved.  Being an elemental force like the goddess of Infinity and the goddess of Zero, she doesn’t give a hoot what the professor thinks.  She must balance her scales!  This is her sole function in the Universe.  Below is a grim graph showing how ‘privatization’ along with wild government overspending is sending the US into deep debt that is extremely dangerous and which will destroy us all:

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March « 2008 « 2ndlook – View From A Square Prism

ΩΩCorporate debt hasn’t grown that much in the last 20 years compared to household debt (credit cards, student loans and mortgages) but note the top three elements in this graph: this is sovereign debts!  All of it. The ‘financial’ debts are all directly connected with the international bankers playing the Derivatives Beast game with our government. Note how this ‘industry’ has mushroomed as debts have climbed!  It is  now a major element in our debt hockey stick graph.  That is, its share of the GDP is growing and this is a cancer just as the government privatization spending has mushroomed, too.  The ratio back in 1933 was very high at 24% due to the collapse in our GDP (see the dire Greek graph above to see how swiftly this can happen!) and today, it eats much more than the 33% above which is 2008.

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ΩΩDue to the collapse of our GDP numbers, it is now over 60%.  This is bad (see Greek graph above!) and if we have a second downturn, will be  much worse.  And this is what triggers defaults in any system: when profits vanish due to a sudden drop in sales, a solvent business can very suddenly end up bankrupt!  The US is kept alive only due to all our trade rivals wishing to keep the present status quo.  But since we know that China has definite plans to NOT keep the status quo but kill off our imperial powers, we know there looms a bad default by 2020 if not sooner.

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ΩΩThis is obviously noticed by our government which as decided this year to begin totally hostile relations with China.  Our normal badgering and whining about this or that is now becoming open threats such as the Pentagon asking the Chinese if they will nuke us if we attack them with non-nuclear bunker buster weapons in a sneak attack!  Good lord!  That news still astonishes me.  Coupled with the US expanding missiles aimed at Russia from Eastern Europe and we see WWIII developing.  All it needs is a very small pebble falling at the right moment.  Such as the assassination of some Archduke in some tiny province in the hinterlands.

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33 Comments

Filed under .money matters, Free Trade, Politics

33 responses to “Sovereign Nation Debt Defaults Will Worsen Great Depression II

  1. Duski

    http://www.news.com.au/business/secret-summit-of-top-bankers/story-e6frfm1i-1225827289543

    Well well well… wonder what they might discuss there?

    (To Elaine: Yes it is same me, my email has changed.)

  2. emsnews

    Same you, new location, eh? :)

  3. emsnews

    Whoa! The BRIC bank heads are in a super secret meeting in Australia? Not the high in the Arctic meetings of the G7? HAHAHA.

    Next: they hold meetings at the top of the Tokyo Tower and that skyscraper in Dubai?

  4. if

    Lies, Damned Lies, and Unemployment

    Unemployment went up but the rate went down. The total unemployed rose a whopping 1.4M more than we had thought, from 7M to 8.4M. And yet the unemployment rate improved!? We have entered the the Bureau of Labor Statistics (BLS) twilight zone.
    Let’s start with the 1.4M increase in unemployed. Several days ago the BLS admitting that they had “created” 1.8M statistical jobs, which is more than the Obama administration claims the Stimulus “saved or created” in real jobs!

    http://tinyurl.com/6yv3kz

  5. Gus

    Mish had a great article
    on small banks.

    Those small banks that were not making loans had the best balance sheets. The small banks that were making loans were going under and when the
    FDIC came along they moved the accounts to the
    small banks with the best
    balance sheets. The small banks that were not making loans got the new
    accounts. So the best way to GROW your bank was to
    not make loans and get
    your new customers from
    the banks that went under
    making loans LOL.

    In my opinion the way to
    fix the world economy is this:

    Close the Fed. Issue money
    created out of thin air by the treasury dept. Money is
    spent into circulation. Not
    loaned into circulation by PRIVATE BANKS.

    The money when spent
    into circulation is backed
    by the goods produced in
    exchange for the money.

    When private banks loan money into circulation and
    charge interest-where does the interest money that has to be paid come from? It is not put into circulation.

    This system is
    always on the verge of collapse. It is a feudal banking system. The way
    it is kept going is to put more money into circulation by loaning more
    money into circulation so that most people can pay
    back the loans. Eventually
    when everybody is up to their eyeballs in debt and cannot borrow more money into circulation the
    entire system collapses.

    Then the bankers make money going short, they
    know the scam, they run it.

    Boom and Bust debt cycle.

    The constitution says the
    treasury dept creates money. It is SPENT into
    circulation.

    As you mentioned Elaine, wealth is created by combining human labor and raw materials.

    When Abraham Lincoln
    needed money to fight the
    civil war the BOE offered to
    loan him all the money he needed. The they told him
    it would charge 30% interest. Loncoln realized we would be owned by BOE for generations. Debt slavery.

    He then ordered as per constitution that the treasury issue the money.

    It worked, Lincoln’s treasury notes had green ink on one side, hence they
    were called greenbacks.

    After the civil war we did not have to pay back BOE
    or any PRIVATE BANKERS a huge debt plus
    interest.

    After Lincoln was assassinated greenbacks were taken out of circulation and replaced by
    debt based private banker
    notes.

    The treasury should issue
    treasury notes. Spend the
    money into circulation by
    paying workers to produce
    goods and infrastructure.

    The US Guv does not need to issue bonds that we taxpayers have to pay back
    plus interest. Congress can
    create money. Does not need to borrow from PRIVATE BANKERS.

    The whole monetary system we have now is a
    feudal SCAM to make the
    rich RICHER. They own the bonds. They don’t have to work for a living, they live off interest the peasants pay.

    The problem is the whole world has this system including China. It is the FEUDAL BOE system that
    supports the feudal control
    system of the ancient aristocracy.

    Many banks in China have
    non-performing loans.

    When PRIVATE BANKERS
    loan money into circulation the interest is not put into
    circulation so the debts can
    never be paid back.

    The world banking system
    can only be headed for
    total collapse. Including China.

  6. Joseppi

    The modern equivalent of an Archduke assassination event might be the attack on Iran which drives up the price of oil, which stresses Japan to the point of selling some of it’s US dollars – This turns into a stampede – The dollar collapses and the US goes berserk and begins hallucinating that everyone is against them (excluding Israel and England of course). Not a pretty vision dats for sure.
    Once again thanks Elaine, your mind stays so focused on the essential facts that create the future. I become more impressed daily. Gus your outline looks right on. Currency doesn’t have to be born illegitimately by the whore of debt.

  7. Ian

    Elaine

    I hope you have a spare moment to read through the time line below. Fascinating reading.

    http://www.defence.gov.au/sydneyii/SUBM/SUBM.002.0203.pdf

    What appeared to be a fairly simple and tragic naval interaction, where the German ship sank the Australian ship and then sank as well, may have actually been a gold heist. The role of the British-commanded Dutch submarines is made clear, but what happened to them afterwards is not. There are also reports of Japanese submarines involved in this action – several months before they declared war. Japanese involvement, however, cannot be proved or disproved.

    This information has never been stressed in any of the inquiries into the sinking, but to their credit, the DOD isn’t hiding it either.

    Funny things happen down here quite a lot as we’re so far out of the way. Having 24 central bankers turn up for a BBQ isn’t that surprising. I hope they’ve brought their own beer.

    Sovereigns will go out of their way to pay off debt in any way possible if they can – otherwise there’ll be a scheme of arrangement put in place or a debt for equity exchange or in ancient times you lost your head. It’s just that settlements are rarely publicized.

  8. ralph

    Youre right Gus. Except the Constitution forbids the states from making anything BUT Gold and Silver legal tender. Reason being. They cannot be printed. The founders knew money had to remain scarce in order for a steady monetary deflation to always occur, so the peoples living standards would rise. DEFLATION of the money supply is good for EVERYONE, its makes your wages worth more and your living standard rise. When prices rise people become POORER. Inflation is a wealth transfer- a tax. Gold and Silver money DO NOT ALLOW wealth re-distribution. Their natural scarcity and inability to be rapidly re-produced make them the perfect numeraires for all goods to devalue against, making people RICHER- the ability to acquire more goods with less money.

  9. Frederick N. Chase

    If,
    As Reuters noted, “A sharp increase in the number of people giving up looking for work helped to depress the jobless rate.”

    (This kind of help we could do without!)

  10. Elaine~

    Hi Elaine,

    Hope you’re doing well. I’ve been recording and uploading new material to youtube. Fun. Went to a housewarming last night and sang and was asked where they could buy my CD. promising!

    I watched this link below yesterday and wondered what you thought of China asking it’s citizens to buy gold so they could eventually use it to mint their own currency backed by this gold. Instead of alarming the world with government purchases which would raise the price, they have individual citizens buy it in mass, then consolidate it in the future when they’re ready for the end game.

  11. B.A.

    Spanish public debt is currently one of the lowest in Europe, 52% of GNP, consequence of having used budget surpluses in the good years to pay it off, instead of overspending and over heating the economy. The cost differential with German debt is the lowest ever, at about 1%, lowest in historical terms, It used to be 7%. Spain has been a fiscally responsible country since the times of Franco, an austere man who left a deep imprint in the bureaucratic culture of public officials. It’s this kind of austerity that allowed Spain to join the Euro at the top of the class, with lower deficits and debts than proud Germany and France. All this and more has been ignored in the concerted ( and profitable ) effort to destroy the credibility of Spanish finances by pairing it with chaotic, weak Greece, and that quasi failed state, Italy.It’s good to have a historical perspective Elaine, but sometimes going back to the Imperial times might be a bit too historical.
    The current measures to face this crisis, and basically to appease the markets ( when in fact budget austerity in boom times and profligacy in hard times were the plan all along and have merit as strategy ) include a budget cuts of 50 billion euro and labour reform. There is clear awareness and pressure to reach a new grand agreement to make the labour market more flexible and it usually takes a left of centre government to make these measures palatable, specially when unemployment is so high and the opposition is ahead in the polls. The German and Scandinavian models have been studied carefully, as viable alternatives that maintain acceptable social nets. The President knows he risks his political future and his legacy on the unemployment results of the next two years. He will be very focused.
    There’s something about Spain and its success hat upsets some people. It has not followed the chaotic, under performer model expected of a Mediterranean country. Sure, it over relied on construction, sure, it maintained rigid labour market and other inefficiencies, but overall it has been a remarkable success story without being a member of the old boy club. $4,000 to $34,000 from 1982 to the present. Here is where the historical perspective does come handy: those who have once achieved imperial greatness are to be feared, lest they become a threat once again. British airports, British telecommunications giants, British banks, all bought by Spanish multinationals. Just top of my head, the full list is actually very long and very impressive. Santander recently became the third largest bank in the City, no less. And now, suddenly, we become what others have long hoped for: a financial failure on the verge of default. Markets, or rather market players have a way of writing self fulfilling prophecies. But as becomes clear to anyone reading this blog, when the fundamentals are strong, and leaders are dynamic, the smokes dissipate and the mirrors break.

    ΩΩΩΩΩΩΩΩΩ

    ELAINE: A very good summary of what is going on. Of course, when GDP falls, the debt percentage rises…SUDDENLY which is my point. All nations are vulnerable to this! Especially the US and UK both of whom have a history of enforcing starvation solutions when other countries fall into trouble.

  12. justiceatsqualor

    @emsnews: “. . . the Keynesian School and the Austrian Schoolcould be characterized as ‘Bubble, bubble versus toil and trouble.’ The Austrians think we have to tighten our belts and work harder while the Keynes fans want us to make a government bubble to replace the credit bubble that pops. Both are right but both are also wrong. The Keynes model increases the likelihood of a government collapse in bankruptcy while the Austrian model guarantees riots, revolutions and ethnic cleansing. This brings me to my great theme here: the need for balance.”

    Two thoughts:(1) The problem with too much balance, and the problem with self-appointed philosopher-kings, is paralysis, and (2) if the Austrian model of simple “toil and trouble” in a zero sum game, without balloons or bubbles, “guarantees riots revolutions and ethnic cleansing” then what hope do we have in the much less than zero sum game, played on the backside of the Hubbert curve?

  13. Ian

    B.A.

    It can turn round so quickly though. Australia had a $12 billion surplus at the end of the last Government, a twelve year slog from a $90 billion deficit in 1996.

    The current Government turned it into a massive deficit (from memory $50bn – but don’t quote me) in the space of just a year. Most of the money was handed out to voters to buy a new plasma TV or spend on the poker machines in the finest Keynesian tradition. The craziest thing was to knock down existing State school buildings and build new ones for no good reason. Now kids go to school in building sites and will have no playgrounds for the next couple of years. JP Morgan and GS are rubbing their hands is glee, going to press today saying that Australia will have to borrow even more from overseas to keep this up.

    But at least the Government bail out of Australian banks seems to be coming to a close. And the announcement was on the weekend that all those central bankers were in town for the BBQ.

    http://www.smh.com.au/national/bank-guarantee-to-be-withdrawn-swan-20100207-nkf9.html

  14. Kartius

    Gold has its purposes. Its value will heavily depend on the fallout of a US bankruptcy. If we get another WWIII, then no, it would be of not much use. However, even during the German Weimar hyperinflation, foreign currencies retained much of their value and actually increased their purchasing power in Germany. In Zimbabwe, the dollar is used in the black market to trade for goods and services. So although there is a significant initial disruption, society general tends to move along if be it at a poverty stricken state.

    We can throw tantrums regarding the pillaging, but it won’t stop. Gold is the pragmatic approach. It is what it is. Nothing more and nothing less.

  15. B.A.

    Difference is Ian, in Spain money was being given to municipalities for shovel ready improvements works which for the most part were needed, not too individuals for consumption on foreign goods. The Spanish executive is more powerful than parliament once a large enough majority is secured and action is swift, specially for this kind of employment creating measures no one would dare opposing, so that, unlike in the States, jobs were created almost immediately. It was not some uncontrolled over spending, though I guess, to foreign banks and credit rating agencies, any spending that makes people’s lives better is overspending. What makes absolutely no sense is talking about default, and not just talking but acting on it by short selling Spanish debt so that, in fact, it dos become more expensive to finance such debt and, they hope, default does become a reality. We are very far away form that possibility but I suspect some stand to make a killing from it.

  16. B.A.

    It is a pity, now that I think about it, that Spain does have any debt at all. We though having the lowest levels of indebtedness in the EU and near German levels of debt financing costs would protect us from the whims and wrath of the markets, but not so. Prosperity within a comprehensive welfare state and a sound, conservative banking system is a threat that requires a exemplary punishment.

  17. Ian

    B.A.

    Yes, the spreads on all Sovereign CDS’s are increasing – “someone’s” gaming the system for sure, trying to bring on a self-fulfilling prophecy.

    The VIX jumped on Friday, then popped back down after the central bankers got to the BBQ Down Under.

    Employment isn’t such an issue in Australia (official unemployment 5%, real 8-9%), as housing construction continues be pumped and there’s an awful lot of mines to keep people in a job if they want.

    We hear about municipal “shovel-ready” here as well – that’s why we have three new traffic roundabouts and four new speed bumps on the road to my Mum’s place this year. But the State Rail in New South Wales hasn’t received any funding to complete the Epping to Parramatta rail link, which has been promised for twenty years.

    Appearances are all, but the projects that needed to be funded decades ago still aren’t getting the money, as useful modern infrastructure will take income away from the entrenched franchise holders.

  18. if

    Am I Busted? (Not Really)
    So, I got to thinking about national security and wondered where my blog/rants fit into the picture? Hmmm, just what does the State think about yours truly? Am I a friend, a terrorist, a psychopath bent one destroying the world as we know it? While my intentions are nothing but good, I’m not all that sure how the cabal sees them.
    Have I been reported to narkonyourneighbor.gov? Where do my Constitutional rights begin and end with this blog thingy? Am I on some terrorist watch list? Really, what is gonna happen when I show up at an airport to try to fly on a domestic flight? How about you regular chat room perpetrators that leave a trail of comments a mile long every day (with some unsightly comments about our fearless leaders)? You may want to read on as well.

    http://tinyurl.com/yd7qdlg

    ΩΩΩΩΩΩΩΩΩ

    ELAINE: The government has spied on me most of my life. The main reason why I am not on TV is due to the fact that I have been eliminated from public view…deliberately. And so what? If anyone wants to know stuff, they can come here and see me yap.

    As for worrying about comments: um….if we say nothing and do nothing, we are nothing. Being a nothing forever has an upside but I can’t bear it. I would far rather suffer pain than be a nothing that has no say in anything at all due to fear.

  19. Duski

    Yes, same me. If you follow me from Ip-address, I was visiting my parents (so that and this one are the ones I post from, mostly).

    I’ll be moving 1.3 though. :)

  20. PLovering

    @if

    “Never take counsel of your fears.”

    General Stonewall Jackson, CSA

    Battle of Port Republic, 6/18/1862

    ΩΩΩΩΩΩΩΩ

    ELAINE: He was shot dead pretty soon after saying that.

  21. PLovering

    @B.A. “Spain has been a fiscally responsible country … that allowed Spain to join the Euro at the top of the class, with lower deficits and debts than proud Germany and France.”

    London Lizards have turned Spain into a basket case.

    Pravda say, “Built on a housing and construction bubble, the foundations for Spain’s economic success have collapsed.”

    Hopefully, both Spanish and London Lizards ride the Euro Express to final victory in the Imperial Happy Hunting Grounds.

  22. Colin

    HA! stay away from Gold. Gold is an even bigger trap. We fought for four hundred years to get away from gold. Anyone who tells you a gold standard will solve all your problems is a con-artist who is looking to take everything you have.

    Think, when a debt is created you must pay back the principle and the intreset. But in a gold system the amount of gold is fixed, therefor if you add up all the loans in the world the total amount of principle always remains fixed. But the intrest is always expanding. So there is no way to ever pay back the debts, because there is no sourse of new gold to supply the intrest. Which can only have two outcomes: eternal slavery or war (invade another country and take their gold). Those who already have large stockpiles of gold will rule the world as intrest payments on loaning principles from their stockpile will exponentially suck all the remaining gold towards them.

    If you think it’s hard paying back infintely expanding intrest with a infinitely expanding money supply, wait till you try paying back infinitely expanding intrest with a fixed money supply.

    There have been times in history where gold has been stable for long periods (like the medieval europe) but those times where also the same times where USURY was a mortal sin. Because charging intrest on a fixed money supply is the same as enslaving a whole nation.

    So when some one like Ron Paul tell’s you that it is good to go back to the gold standard; you MUST ask them are they also criminalise the charging of intrest? And if they are not going to criminalise the charging of intrest then he or she is a crook (as indeed Ron Paul is a crook) and you are a dam fool to believe in them, because then they will have played the oldest trick in the book on you.

  23. PLovering

    Enjoy debate between Bill Still and Ed Griffin
    on “fiat or gold money” posted today on following web site:

    http://www.secretofoz.com/

  24. Kartius

    Colin loves his debt that’s for sure.

  25. Elaine~

    Colin,
    That makes good sense. I’m not speculating on a return to the gold standard though. How about just investing in it as a commodity because the combination of fear and scarcity will bring up the price before either a bust of a confiscation? Moving in a market as it swings from greed to fear is part of this game, and taking an educated guess at the movement of the ‘group think’ seems to be better than reacting when the larger group does.

    What does you think about the newly mined gold? Wouldn’t that cover the interest?

  26. emsnews

    THERE IS NO SAFE SYSTEM. There are no absolutes nor systems that work with zero human input. All systems are ORGANIC and therefore must be cultivated, weeded, watered and harvested, each in turn. There is nothing in the universe that grows to infinity. Gold’s function is to be a capital base for transport between systems.

    Not to be used to buy a loaf of bread. But as a way of resolving relations with people that passes over time and space. With fast movement of systems via modern communications, the need for a gold basis is for a fleeting purpose, not for hoarding or for all money uses but to prevent degrading of value when closing a transaction.

    Of course, when we do business this way, for example, when I put down money on a property, it accrues interest during the period of negotiations over the final signing of the contract. This is an example. I don’t want my money parked where a bank can go under during this period of negotiations. The insurance system set up by the US is collapsing (it ran out of money two months ago, for example). So this is where gold comes in as a useful tool.

  27. nah

    Japan will eventually be forced to disgorge all of its FOREX holdings as well as its immense US debts it compiled during the trade surplus years.
    .
    in other words the US cant be ‘japan like’… cuz japan already did that and will have to clear something like 1.8% interest on a billion billion or sell dollars…. a Keynesian amongst 3 leaves no Keynesian at all
    .
    what we need are good investors in banking… no a bunch of bankrupt sell my risk to taxpayers and ‘dumb banks’ dumb banks
    .
    things may trade forever forced by inequal doctored credit
    .
    but just incase it cant someone should get the banks back in gear… like real partnership
    .

    .
    most dreams display women

  28. i just find this funny game to learn forex trading : forex trading online game

  29. I’m a stock trader too and I see very useful article here. Thanks for sharing

  30. I believe you actually, I think! Will that become plausible that will get your webblog translated in German? English is my 2nd language.

  31. Pingback: 2010-’11: From Austerity to Collapse? « Reflections on a Revolution

  32. true… you know what they say…People who own only nine shares of a company’s stock should not be allowed to make shareholder proxy proposals

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