Friday 13th LOLs of the day

From The Peoples Cube:

Notes From Steve Keen on "Lending Reserves" and "Debt Jubilees"; Mish Proposed Starting Point For Real Solution to Debt Crisis

From Mish's Global Economic Trend Analysis 
By Mike Mish Shedlock

In response to Can Bernanke Force Banks to Lend by Halting Interest on Excess Reserves?, Australian economist Steve Keen pinged me with the following ...  

Cheers Mate

That "increase reserves to increase lending" argument is so hard to shake, but reserves can't be lent from simply from a double-entry bookkeeping point of view.

The way that accountants keep track of the "assets equals liabilities plus equity" rule is to record an increase in assets as a positive and an increase in liabilities as a negative (your liabilities rise, so a negative gets bigger). Reserves are an asset, as are loans, and shown as a positive. Deposits--which are created by a loan--are a liability and shown as a negative

So to lend to a customer, a bank has to show a negative on that customer's accounts. This can be matched by a positive on the loans entry--because the loan has increased in size. No problem.

But if banks were to lend from reserves, they would need to record a minus there--reserves have fallen. And on the liabilities side, they want to ... also show a negative. Whoops! No can do.

The end result of this logic is that reserves are there for settlement of accounts between banks, and for the government's interface with the private banking sector, but not for lending from.

Banks themselves may (if they are allowed--I simply don't know the rules here) swap those assets for other forms of assets that are income-yielding, but they are not able to lend from them.

Cheers, Steve

P.S. On my debt jubilee idea, I'd welcome a debate with you over it. There is an issue, whether you support a "strong money" gold-backed currency system or a reformed credit system, of dealing with the mess left by this one we currently have. My idea is a way to cancel the impact of debt that should never have been lent in the first place (and to prevent speculation taking off again on the other side by reforms to asset markets that make debt much less attractive).

It would be good to have a back-and-forth with you on the dilemma we're in and the alternative ways out of it, whatever our desired end-system might be.

Debt Jubilee Revisited

Steve Keen is looking to discuss what to do about excess debt.

I knocked his "debt jubilee" idea in Steve Keen Goes Off the Deep End With a "Debt Jubilee" (Free Money to Consumers) Proposal.

It's easy enough to tear down ideas without presenting an alternative. So let's take a look at issues that I think need to be addressed.

Structural Issues

Giving money away will not cure any structural issues such as the high cost of education, pension underfunding, medical costs, prevailing wages, student loans, etc., etc.

Indeed, I think it would compound those problems.

Likewise, I think the second part of Keen's idea about controlling debt in the future tied to GDP growth (or anything else for that matter) would fail miserably.

A free market, not government mandated fiat money is the solution. We certainly do not have a free market now. Instead, we have fiat mandate, compounded by fraudulent fractional reserve banking.

It is the fractional reserve banking system that is the very root of the credit expansion problem.

Fractional Reserve Lending Is Fraud

By lending out more money or gold than exists, asset prices reach unsustainably high levels before they crash. Sound familiar?

Greenspan compounded the problem in 1994 by allowing banks to "sweep" checking accounts (unknown to customers) into savings accounts (via accounting entry).

Savings accounts have no reserve requirements. Effectively, money that people think is in their checking accounts is not really there at all. In fact, it has been lent out multiple times over.

This fact exacerbated the run-on-the-bank problems we saw in 2008. As a side note, FDIC insurance is another form of fraud.

Housing Bubble Lending

In the housing bubble, banks lent because they thought they had credit-worthy customers and/or because they thought asset price appreciation would have them covered in case of losses. Banks did not lend because they had excess reserves to lend from.

It turns out that banks did not have credit-worthy customers. It also turns out that asset prices did not cover losses when the housing bubble burst.

Not Just A Duration Mismatch Problem 

On March 24, 2011 I wrote a detailed rebuttal to FRL: Central Bank Authorized Fraud; Fractional Reserve Lending Problems Go Far Beyond "Duration Mismatch" 

Reflections on "Legitimate" Right-To-Use

Some argue that as long as customers agree to these various banking schemes it is OK. That line of thinking says as long as it's in the agreement for banks to sweep money from checking accounts to savings accounts and lend it out, then it's OK for banks to do so.

However, it's not OK because such lending is nothing more than a gigantic kiting scheme. Moreover, it affects others by cheapening the value of money, pushing up asset prices for the benefit of those with first access to money, the banks and the wealthy.

Logically, two people cannot have the right to use the same money at the same time, whether they agree to such a scheme or not!

Please read that above article if you have not done so. It will open your eyes as to what is happening and why.

Rothbard Chimes In

For more on the case against Fractional Reserve Lending please see

• Fractional Reserve Banking by Murray Rothbard.
• Case Against The Fed by Murray Rothbard

On page 46 of the book Case Against The Fed Rothbard says "By the very nature of fractional Reserve Lending, banks cannot honor all its contracts".

Since that is known upfront, in advance, how is that not fraud?

Solutions 

Before we can address solutions to the debt problem, we have to understand what caused the debt problem in the first place. In this case, FRL is at the heart of it.

Since FRL is at the heart of it, any permanent solution must address that problem.

I welcome further discussion from Steve Keen on these ideas, and I have a follow-up post in mind on student loans, showing just how distorted the system is when government gets in the way of the free market.

Regardless of what the solutions are, the notion that $1.5 trillion in excess reserves is about to come pouring into the economy 10 times over in the form of $15 trillion in new credit is complete economic silliness, a point on which Steve Keen and I are in complete agreement.

Actually, Steve and I are in agreement on many things, just not solutions.

Final Comments

I appreciate these discussions with Steve Keen. He has taught me a lot. I welcome the opportunity to present views to the public about what needs to be done. It's easy enough to tear down ideas without presenting an alternative.

I propose we start by addressing the root cause of the debt problem which I state is fractional reserve lending.


Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Libor Rigging: The Tip of the Iceberg

From Goldseek, 13 July 2012
By Rob Kirby

GATA was born in the late 1990’s - primarily on the back of fundamental research by Frank Veneroso regarding Central Bank Gold Leasing.  Veneroso’s intellectual curiosity was aroused after being fed detailed data re: gold leasing by the Bank of England’s Terry Smeeton.  

The fact that gold prices and interest rates were so highly “inter-related” was first publicized in the alternative media by Reg Howe in 2001.  Howe alerted the world to academic accounts of the special relationship between gold and interest rates.  He highlighted the body of economic law and observation associated with “Gibson's Paradox” – something Lawrence Summers [later, U.S. Treasury Secretary and current senior economic advisor to Obama] wrote about with Robert Barsky while he was a professor at Harvard in the 1980’s.

The upshot of this Gibson’s Paradox economic theory goes something like this:  real interest rates and the gold price are causal and inter-related with each other.

This is why Professor Lawrence Summers was summoned to Washington as assistant Secretary of Treasury under Robert Rubin [Clinton Admin. / 1993].  It was to implement HIS THEORETICAL WORKunder the auspices of Treasury Secretary Robert Rubin’s mythical “Strong Dollar Policy”.

Conclusion:  since 1994, the mythical Strong Dollar Policy had necessitated a two prong strategy: that of keeping rates low because weak currencies are typified by high interest rates; and the price of gold must be suppressed as it stands as an historical alternative settlement currency – and they don’t want the alternative to appear “strong”. 

The interrelatedness of the gold price and interest rates helps to explain why – According to the Office of the Comptroller of the Currency - of the 302 Trillion in aggregate derivatives held by American Bank Holding Cos – 81 % of this is composed of interest rate products.  This is due to the symbiosis that exists between gold and interest rates.

Libor – or the London Inter-Bank Offered Rate - is one of the lynch pins in setting [rigging] global U.S. Dollar interest rates.  This is why a larger discussion needs to be had about the Libor rigging – it is not a London or Barclay’s centric story.  It has EVERYTHING to do with making the American Dollar look viable as the world’s reserve currency.

When The Libor Story First Broke

It was Q3 2007 – post [Mar. 2007] Bear Stearns collapse – when credit markets “seized up” in response to the [Aug. 2007] sub-prime crisis, where triple-A-rated mortgaged bonded failed – stories first began circulating the mainstream financial press that “Libor” was “broken”. 

The “tell-tale” that things were not right was A] the widening of the TED Spread [3 month Eurodollar future vs. 3 month U.S. T-Bill]  – expressed in basis points, and B] the growing spread between Libor and the Eurodollar future – again, expressed in basis points:

Historically, a widening TED Spread has been referred to in credit terms as a “flight to quality”.  It demonstrates how investors are more willing to buy sovereign 3 month government T-bills at ever decreasing yield relative to higher yielding products that do not carry sovereign guarantees.  It is reasoned in cases like this that return of capital becomes more important to investors than return on capital. 

But there are some problems with this conventional thinking.

With the U.S. Dollar Index collapsing, taking out major support levels and the dollar being abandoned – there was no “flight to quality”.

So what was really happening???

We get our clue from the widening disparity [in basis points] between the 3 month Eurodollar Futures contract and 3 month Libor.  These two measures are proxies for one another and typically they trade virtually tic-for-tic with each other in terms of yield.  Notice how the spread widened at the beginning of Q3/07 and then contracted at the conclusion of Q4/07:

  

The aberration first manifested itself as a Q3/07 trading phenomena.  We get a clue as to what the underlying is when we examine the composition of J.P. Morgan’s derivatives book from a control period – Q2/07 – through to Q4/07:

  

Here we see the less than 1 year Swap component of Morgan’s book grow from 25.2 Trillion in Q2/07 to 32.8 Trillion in Q3/07 before reverting back to 24.7 Trillion in Q4/07.  The 7.5 Trillion “bloat” in Morgan’s book – coupled with the plunge in rates and failing U.S. Dollar Index - in Q3/07 tells us the J.P. Morgan was a MASSIVE PLAYER in the very “short end” of the curve [centered on 3 month credit space].  We can discern that Morgan was an ENORMOUS purchaser of 3 month U.S. T-bills [likely as hedges for trades being conducted with the ESF brokered through the N.Y. Fed trading desk] – this is what caused the “blow-out” in the TED Spread as well as the Eurodollar Future/Libor spread and put the brakes on a major break down of the U.S. Dollar Index.  Their book “re-coiled” 3 months later when these positions matured. 

At the onset, commercial Banks – fearing a financial market meltdown – immediately became extremely risk averse and actually started to raise rates:

But the “Free Markets” were overwhelmed by J.P. Morgan’s rate rigging / defense of the dollar.

Ladies and gentlemen, 7.5 Trillion dollar interventions into the 3 month credit markets are not and never will be the work of Commercial Banks or Bank Holding Companies.  Interventions of this kind are EXCLUSIVELY the work of National Treasuries / Central Banks.

The late 2007 dichotomy between Libor [Eurodollar Futures] and 3 month U.S. T-bills was brought on – not because Libor was “broken” – but by the U.S. Treasury’s Exchange Stabilization Fund [ESF] pursuing/inflicting Imperialist U.S. monetary policy – brokered through the N.Y. Federal Reserve - on the world through the trading desk of J.P. Morgan Chase.

Moving Forward to the Barclays Libor Rigging Scandal

Much of the recent guffaw about Libor fixing has centered on London based, Barclays Bank Plc.  The gist of the allegations against Barclays being – in the aftermath of Lehman Bros. collapse in the fall of 2008 – Barclays consistently posted higher Libor rates than competing banks who are also polled daily by the British Bankers Association [BBA] for their Libor rates.  It has been said by some, like Zerohedge, that Barclays was attempting to influence [rig] rates higher than they otherwise should have been:

Source: Zerohedge

Perhaps it is true that Barclays began setting their “Libor” rates higher in the aftermath of Lehman’s collapse – but that’s not the whole story – not by a long shot.

If you look closely at the Zerohedge chart above – you will notice that Barclays actually began posting higher Libor rates “BEFORE” the collapse at Lehman.

Reason:  Barclays was the last bank to see the books of Lehman as they were at one point – in the late stages of the 2008 financial crisis - figured to be a likely acquirer of Lehman.  When Barclays saw the state of Lehman’s books – they acted intuitively CORRECT – one might argue – and began raising rates, not wanting to lend, to preserve their capital.

Additionally, in the wake of the failed Barclays/Lehman arranged marriage – there was a “small issue” with a $138 Billion Post-Bankruptcy JP Morgan Advance to Lehman; At Least $87 B Repaid by Fed:

“Lehman Brothers Holdings Inc., the securities firm that filed the biggest bankruptcy in history yesterday, was advanced $138 billion this week by JPMorgan Chase & Co. to settle Lehman trades and keep financial markets stable, according to a court filing.

One advance of $87 billion was made on Sept. 15 after the pre-dawn filing, and another of $51 billion was made the following day, according to a bankruptcy court documents posted today. Both were made to settle securities transactions with customers of Lehman and its clearance parties, the filings said.

The advances were necessary “to avoid a disruption of the financial markets,” Lehman said in the filing.

The first advance was repaid by the Federal Reserve Bank of New York, Lehman said. The bank didn’t say if the second amount was repaid. Both advances were “guaranteed by Lehman” through collateral of the firm’s holding company, the filing said. The advances were made at the request of Lehman and the Federal Reserve, according to the filing.

Lehman disclosed the advances in a motion seeking court permission to give JPMorgan’s claims special status in its attempts to recover any advances. Lehman said that if that status isn’t granted, JPMorgan may not be able to make future advances needed to clear and settle trades.

“The granting of the relief requested is in the best interests of the estate and its stakeholders and the public markets,” Lehman said, adding the advances would be “essential to Lehman’s customers.”

JPMorgan may make future advances at its sole discretion, all of which would be guaranteed by Lehman under its agreement to pledge collateral, Lehman said.

JPMorgan said in a statement in court documents that it has had a clearing agreement with Lehman since June 2000, and had pledged its collateral under an Aug. 26 guarantee.”

While no in-depth reason has ever been offered to explain the “advance” outlined above, a degree in rocket science is not needed to figure out what trades were being done to “keep markets stable [err, rigged]”.  From the looks of J.P. Morgan’s derivatives book over the 2 quarters Q4/08 through Q1/09 we see ANOTHER 8 TRILLION dipsy-doodle in the less than 1 year swap constituent of J.P. Morgan’s derivatives book – this time in Q1/09, post Lehman collapse – where the inflated J.P. Morgan short term swap positions have since remained elevated.  It should be noted that the less than 1 yr. swaps component of J.P. Morgue grew from 23.9 Trillion to 32.0 Trillion [Q4/08-Q1/09] while their overall book contracted from 87.4 Trillion to 81.2 Trillion in the same time period:

source:  Office of the Comptroller of the Currency table 8 

source: Office of the Comptroller of the Currency table 8

So, while Lehman was in the death-throws of collapsing – after Barclays couldn’t be induced to touch them with a “barge pole” - J.P. Morgan “advanced” 138 billion [collateral perhaps?] to Lehman so they could “perform/settle trades” ––  mostly, if not all reimbursed/paid for by the Fed. While this “stabilizing trade” was being instituted – short term rates simultaneously careened down to zero from 200 basis points [2 %].  Then, in the immediate aftermath of the collapse – J.P. Morgan’s less than 1 yr. component of their swap book grows by 8 Trillion in one quarter while their overall book was contracting by more than 6 Trillion in notional???

I hope I haven’t lost anyone here because these facts are MUCH STRANGER AND HARDER TO BELIEVE THAN FICTION.

What appears to have happened here:  J.P. Morgan did not want to be identifiable as the originator of 8 Trillion worth of less than 1 yr. Swap instruments – so they pre-funded Lehman to strap these positions on - positions they KNEW IN ADVANCE they would inherit once Lehman’s collapse was official.  This way – no more unwanted attention would be drawn to J.P. Morgan [the Fed / U.S. Treasury in drag]. 

Barclays clearly knew how bad the whole situation was – being the last ones to see the horror that was Lehman’s books - and were likely the only counterparty in the proceedings who acted in an informed, financially responsible manner.

Subscribe here.

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Related:

LIBOR scandal brings gold price manipulation once more to the fore

The Fed Manipulates Rates All the Time: James Grant

So How Much Did the Banksters Make on Libor-Related Ill-Gotten Gains?

FED KNEW ABOUT LIBOR FIXING & DID NOTHING

People Are Already Calling The LIBOR Investigation A 'Total Whitewash'

How Your Bank Account Could Disappear

Note From Europe: Spain Has Its 'Let Them Eat Cake" Moment

From Jesse's, 13 JULY 2012:

Here is a note from a friend about a news item that seems to have not penetrated the Anglo-American news media yet.

When the Prime Minister said that they must cut benefits to Spain's unemployed, Miss Fabra was apparently caught on video shouting, "Screw them all."

It appears that the damage control groups are now trying to spin this to say that Miss Fabra was not saying 'screw them' to the unemployed, which is who the Prime Minister was talking about, but rather the Socialists, who favor things like benefits for the unemployed.

This is sparking quite a bit of anger in Spain, as you might imagine, which is suffering under very high levels of unemployment and facing further austerity cuts.

Yesterday, after PM Rajoy announced that the government was going to cut the benefits the unemployed receive, a PP congresswoman, Andrea Fabra, daughter of Carlos Fabra, was caught on camera applauding and shouting "Que se jodan" - which translates roughly to "screw them all."


Miss Fabra was appointed Parliamentary Advisor at the age of 24, straight out of university. Her father has "won" the lottery at least 7 times, and is under multiple investigations for corruption.


"Qu’ils mangent de la brioche." France, late 18th century


"Que se jodan!" Spain, early 21st century


At least, back then, they had better manners.

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Related:

F*ck the unemployed!

Spain unveils new raft of brutal austerity measures

EU Welcomes Spain’s New Austerity Measures

Petition To Put Bankers In Jail Passes 350,000 Signatures In Two Days

Syria: Insurgents Claim Another UN Meeting "Massacre"

From Moon of Alabama, July 13, 2012:

Today:
Massacre Reported in Syria as Security Council Meets

Syrian opposition activists said more than 200 people were killed in a Sunni village on Thursday by government forces using tanks and helicopters, which, if confirmed, would be the worst in a series of massacres that have convulsed Syria’s increasingly sectarian uprising against President Bashar al-Assad.
...
Initial reports of an atrocity in Tremseh came as Security Council diplomats were meeting in a closed session at the United Nations to work on drafting a new resolution to force Mr. Assad’s government and its armed antagonists to honor a cease-fire, allow the monitors to resume their work, and carry out a peace plan by the special envoy Kofi Annan.

A UN meeting and a "massacre"? Haven't we seen that before?
January 27, 2012
Violence surges in Syria as U.N. Security Council meets

BEIRUT — Violence surged in Syria on Friday, with government forces using heavy artillery to bombard several towns, while the United Nations debated a resolution on ways to end the bloodshed, intensifying the diplomatic pressure on Damascus.
...
“In some areas, the shelling has not stopped for three days in a row,” said an activist in the central city of Homs who uses the name Hadi al-Homsi. “The regime is now waging full-scale war against the people.” He described what he called a “massacre” in the district of Karm al-Zeitoun, a focal point of government military operations in the city.

February 3, 2012
U.N. Security Council to meet on Syria as deaths mount

More than 200 people were reported killed in Syria, hours before the U.N. Security Council was scheduled to meet and likely vote on a draft resolution intended to pressure the government there to end its months-long crackdown on demonstrators, diplomats said.
...
The opposition Syrian Observatory for Human Rights said early Saturday that 217 people, including women and children, had been killed in Homs in what the group characterized as a"massacre."

June 1, 2012
12 Syria workers 'executed' on eve of UN watchdog meet

Syrian government forces summarily executed 12 civilians on their way home from work in a fertiliser factory in Qusayr, activists in the central town told AFP by telephone on Friday.The reported killings late on Thursday afternoon came on the eve of a special session of the UN Human Rights Council called to discuss the conflict.

June 6, 2012
Syria accused of new massacre as U.N. meets

BEIRUT (Reuters) - Syrian troops and militiamen loyal to President Bashar al-Assad stood accused by opponents on Thursday of a new massacre of scores of villagers hours before a divided U.N. Security Council convenes to review the crisis.If confirmed, the killings of at least 78 people at Mazraat al-Qabeer, near Hama, will pile on pressure for world powers to act, but there is little sign they can overcome a paralysis born of sharp divisions between Western and Arab states on the one hand and Assad's defenders in Russia, China and Iran.

There was and is clearly a pattern recognizable here. Before any big UN event on Syria the opposition sets out to balme the government of committing a "massacre".
The Syrian government denies to have perpetrated the current "massacre" as it did in the other cases. It asserts that there was a big fight in Tremseh with "many" terrorists killed.

Tens of terrorists overrun the village of al-Trimsa in Hama Countryside yesterday, killing or wounding tens of Syrian civilians.
...
The competent security units, in response to al-Trimsa inhabitants' pleads, clashed with the terrorists, inflicting huge losses upon them, capturing scores of them, confiscating their weapons, among which Israeli-made machineguns.3 security personnel were martyred during the clashes, according to SANA reporter in Hama.

A first graphic video of the aftermath of the "massacre" uploaded by the opposition shows 14 dead man of fighting age with seemingly typical battle wounds.
The Syrian government certainly has no advantage by committing any mass atrocity before important UN meetings while the insurgency and its western sponsors are clearly using them for their propaganda purpose.
But this UN meeting "massacre" scheme is getting stall as even some journalists finally recognize this scam for what it is.
Liz Sly, the Washington Post Foreign Correspondent on Syria, remarked today:

The pattern of massacres on the eve of UNSC meetings on Syria is starting to look very real. Reports of 200 dead near Hama; UN meets tmrw.

And Paul Danahar, the BBC Middle East Bureau Chief tweeted:

'Massacre in ‪#Syria‬ as UN meets' is headline everywhere....again. This is either an increasingly odd coincidence or it isn't one at all

That was, I believe, a rather rhetorical question.
The Wall Street Journal has some anonymous "U.S. officials" claiming that Syria is moving nerve gas it is alleged to have out of storage. Is such an unverifiable claim a preparation for another "massacre"? One perpetrated with whoever's nerve gas?
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Related:

Syrian Opposition’s Amazing CIA Credentials

Obama’s order on controlling communications illegal: Gordon Duff

From PressTV:

Click image for video

A political analyst says US President Barack Obama’s executive order on controlling communications in critical situations is unconstitutional, Press TV reports.

“The issue here, of course, is that all of these laws that are being passed, all of these presidential fiats that are being passed deny the issues of due process and equal protection within the Constitution,” Gordon Duff, senior editor at Veteran’s Today, said in an interview with Press TV.
Last Friday, Obama issued an executive order enabling federal agencies to take control of wired and wireless communications during situations they consider critical in order to reach anyone in the country.
Obama claimed that the move will enable the executive branch to “ensure national security, effectively manage emergencies and improve national resilience.”

Duff stressed that the recent acts “are outside of the laws of the United States and all of the individuals who are involved in passing these laws that the American people seem to accept rather quietly are available for criminal prosecution. Passing an illegal law is a crime.”

Responding to the question why the US government is focusing on the domestic threat, Duff said that the primary concern was the anti-capitalist Occupy movement sparking a wave of protests against corruption, poverty and social inequality across the country.
“Within the United States we believe there is a domestic threat. The US government, I think, has some bizarre ideas of what the domestic threat might be that it’s the Occupy people — who I believe and support entirely,” he added.

Same rights, different color

This is what you might be allowed to do in the so-called land of the free, if you happen to be pink:

... and this is the result of the same behavior if you are of a different color:

US police thugs electrocute man for not showing his ID

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Related:

'Jews Don't have To Go Through TSA': Homeland Security's Janet Napolitano - YouTube
“Obedience training” is part of TSA's Code Bravo security drill

The World as a Business

From ICH:

"There are no nations. There are no peoples. There are no Russians. There are no Arabs. There are no Third Worlds. There is no West. There is only one holistic system of systems."

Clip from the movie "Network"

Re-Posted July 13, 2012

 

Transcript

You have meddled with the primary forces of nature, Mr Beale, and I won't have it! Is that clear?

You think you merely stopped a business deal. That is not the case. The Arabs have taken billions of dollars out of this country, and now they must put it back! It is ebb and flow, tide and gravity. It is ecological balance.

You are an old man who thinks in terms of nations and peoples. There are no nations. There are no peoples. There are no Russians. There are no Arabs. There are no Third Worlds. There is no West. There is only one holistic system of systems. One vast and immane, interwoven, interacting, multi-varied, multi-national dominion of dollars. Petro-dollars, electro-dollars, multi-dollars, reichmarks, rands, rubles, pounds and shekels.

It is the international system of currency which determines the totality of life on this planet. That is the natural order of things today. That is the atomic, and sub-atomic and galactic structure of things today.

And YOU have meddled with the primal forces of nature. And you will atone.

Am I getting through to you, Mr Beale?

You get up on your little twenty-one inch screen and howl about America and democracy. There is no America. There is no democracy. There is only IBM and ITT and AT&T, and DuPont, Dow, Union Carbide and Exxon. Those are the nations of the world today.

What do you think the Russians talk about in their Councils of State? Karl Marx? They get out their linear programming charts, statistical decision theories, mini-max solutions, and compute the price-cost probabilities of their transactions and investments, just like we do.

We no longer live in a world of nations and ideologies, Mr Beale. The world is a college of corporations, inexorably determined by the immutable bye-laws of of business. The world is a business, Mr Beale. It has been since man crawled out of the slime.

And our children will live, Mr Beale, to see that ... perfect ... world in which there is no war nor famine, oppression or brutality. One vast and ecumenical holding company for whom all men will work to serve a common profit. In which all men will hold a share of stock.

All necessities provided. All anxieties tranquilized. All boredom amused.

Europe Is Sliding Back Into Its Own Past

From The Automatic Earth, FRIDAY, JULY 13, 2012: 

Adolphe-Alexandre Dillens - Capture of Joan of Arc

The yields on Spanish and Italian 10 year bonds have been falling lately, though not by much (Update: they're rising again already, even with a "good“ Italian auction). Why? Mainly because the Eurozone promised to ship €30 billion to Spain's banks. And partly because Spain got another year's time to comply with EU budget demands. And also partly because Spain announced its (hard to keep count) fourth - restructured - austerity package in a year (?!). There is a problem with all this. A big problem.

One thing is for sure: the ongoing and ever stricter austerity measures guarantee 100% that the economies of the austerity-hit countries will deteriorate. It might be possible to cut some costs here and there in a still relatively healthy economy without causing too much pain, but when you take a nation that already has 25% unemployment, with youth unemployment over twice that, measures such as raising sales taxes and cutting government jobs can only possibly lead to further trouble.

And that means Spain (and Greece, Portugal) will need to ask for more aid down the line. The financial markets don't care about that, at least not today. They were fed another €30 billion, and that's what counts in the short term. They can - and will - put back on the pressure tomorrow or next week, and expect another €30 billion, rinse and repeat. The pattern has long been set: press on the sore spots and they will pay up.

More money from the Eurozone for Spain's decrepit banking sector will mean more austerity for its people. Because that's how it works, step by hurtful and unjust grinding step: that is, despite recent EU summit "deals", there are still no direct bank bail-outs (and probably never will be), and the €30 million is still added to Madrid's sovereign debt.

The people pay for the bailouts of their banks through increased taxes and lost jobs. The total €120 billion or so needed to save Spanish banks, which is good only until there's the next step down, likely to come sometime later this year, might be better invested in jobs for the unemployed, but that's not how it works. Not in Europe, no more than in the US.

The political/financial mantra remains unchanged and one-dimensional: restructure the bailouts, not restructure the banks. Which it should be, and eventually will, there can be no question about it.

The way things are going now will inevitably lead to two insurmountable problems. One at the bottom and one at the top.

First, entire societies are now being actively "restructured". That is, ever more privatization, lay-offs, pension cuts, wage cuts, in other words and down the line, total break-downs. There is no way that can end well. Health care services in Greece, Spain and Portugal are already under enormous pressure, with drug companies refusing to supply essential medications, hospital staff going on strike to protest wage cuts, you name it.

With four austerity restructurings in a year in Spain, it should be obvious that health care is but one of many fields that have no time to ease into new and different circumstances under which to work. It's shock doctrine and disaster capitalism in every sense of the word. Yesterday is was miners fighting in the streets of Madrid, tomorrow it will be the next angry destitute segment of society. And someday soon they'll be in one square or another together.

Second, in a potentially even harder issue to overcome for the political class in the shorter term, entire constitutions may need to be "restructured". The German Constitutional Court this week announced it will take its own sweet time deciding whether the ESM, without which all future bail-outs become awfully painfully shaky, is legal to begin with. Despite pleas by Angela Merkel and her finance minister Schäuble to speed it through.

It may take well into autumn just to make that decision. Angela Merkel always counted on this to happen, so it was easy for her to make promises she knew the court would not allow her to make good on.

Similar constitutional challenges may well pop up in a few more of the 17 Eurozone countries. Giving up sovereignty, be it political, fiscal or cultural, is not a popular thing these days. But a negative judgment by the German court might by itself be enough to derail the whole thing.

90% of the votes would normally be enough to start up the ESM, though constitutions can be legal bitches, pardon my French. However that may be, since Germany's share of the ESM is supposed to come to 27%, there's no deal without Berlin. And that's without considering that if Spain and/or Italy need bail-outs, and therefore can't pay their share, Germany's will rise significantly.

The present way of tackling the crisis does nothing to relieve the effects of the crisis for the people. Quite the contrary, the idea is solve the crisis over the backs of the people. The issue with that, apart from the obvious moral ones, is that the people simply can't bend over steeply enough to solve it; the debts are simply too high. But that will only become clear once we know exactly how large the debts and losses are in the banking and sovereign sectors.

And to find that out we need something that hasn't happened at all yet, opening the books. Again, quite the contrary: in fact, the deeper the crisis gets, the less transparency there is. Nobody has any idea how bad things really are, since almost nothing is marked to market. And there are no signs in political or financial circles that this will change for the better and the clearer anytime soon.

In that sense, German President Joachim Glauck telling PM Angela Merkel that she should explain better to her people what she does with regards to the crisis, could be a sliver of light. Then again, he's a purely ceremonial guy.

It is a strange thing to realize that even as Barclays, and soon a dozen other banks, admit to Libor manipulation, we still won't see their books opened. We will instead see more of our money transferred to them, be it directly or indirectly (where do you think the € 30 billion Spanish bank bail-out money will end up?).

Banks settle illegal slash immoral acts, mostly without admitting wrongdoing, for a fraction of illegal slash immoral ill-gotten gains. Barclays was fined half a billion for its Libor role, US banks paid $25 billion to get rid of an entire series of mortgage-related (semi-)criminal acts. The New York Fed knew by 2007 at the latest that there was a Barclays related Libor issue, it even had meetings on the topic in early 2008, but still a few moths later threw close to a trillion dollars in bail-out loans at the bank. Without any Libor related come clear conditions.

Europe is burning from both sides, either of which will be sufficient to burn it down to the ground in its present state. And Europe is rotting at the core, gutting its societies for the benefit of the stakeholders in its banking sector, the majority of whom are global financial institutions.

Europe, like America, is stuck on a one-dimensional dead end highway to nowhere at all. A handful of so-called systemically indispensable institutions and their wealthy all-powerful owners can incur unfathomable losses, hide these losses, and instruct their bought and paid-for political lackeys and henchmen to hand over whatever public funds they need to make good on them.

That's all that is happening out there; all those stories about trying to save some country or another, or even the entire union, is but a sideshow. They all know that is a lost cause. There's only one thing really going on: public money is being transferred to the private sector, tens of billions of euros and dollars at a time.

It hasn't just not helped us resolve the crisis, it has made it worse every single step of the way. Take a good look and you can't miss the fact that this is inevitable.

So where are we going to go from here? It should be just as inevitably obvious that the only place we have left to stop it, before it buries us all in debt and misery, is the streets. Our democratic voting rights have become meaningless, they have been usurped, bought, sold and squandered. There's nobody left elected to represent us who has our interests at heart. And when that happens, it's time to once more represent ourselves. Basically, that's why the US constitution includes the right to bear arms.

Europe doesn't just risk sliding back into its own past, it is sliding back there as we speak: sharp divisions along multiple and impossible to predict internal borders, just this time with a big bunch of additional baggage piled on top of what was already there prior to the time the European union was so tremendously botched. Throw in a whole lot more people, a substantial part of whom have non-European origins and skin colors, and boy, are we in for a party. Ripped apart by the logical culmination, bred in the distorted minds of the ultimate power- and money hungry among us, of the same greed that drives us all.

It's really simple, everyone can understand this, provided they're willing to think it over. We either start restructuring the banks, take the pain associated with that as real men, and regain control of our own lives, communities, politics, and ultimately our lives, or we withdraw in fear and prepare for bashing each other's skulls in once again.

Differences between Europe and the US, in case you're wondering, will be in details only. Because it’s the same one-dimensional road we're all on, and it's the same nowhere we’ll all end up in.

Maybe Europe will feel more like the Middle Ages when all’s said and done, with people fighting each other, and the US will feel more like 1984, with people fighting a large state apparatus, but the essence will be remarkably and entirely equal: people battling for dignity, equality, peace, and a bit of human kindness thrown in, all the things we have taken for granted to such an extent that we've ended up giving them up.

It only took a little over 50 years. Some things you need to fight for every single day.

The Brilliance and Bravery of Mises

From The Dollar Vigilante Blog:

[Editors Note: This article is by Daniel James Sanchez and originally appeared in the Free Market, June 2012]

One hundred years ago, Ludwig von Mises's The Theory of Money and Credit was published. Because this was Mises's first great contribution to human understanding, we should also celebrate this year as the centennial of the start of his career as a creative genius on the world stage.
Mises wrote his first treatise in the dark, foreboding days before World War I. This gave the project urgency and greatly affected its makeup. He would later write in his Notes and Recollections:

"If I could have worked quietly and taken my time, I would have begun with a theory of direct exchange in the first volume; and then I could proceed to the theory of indirect exchange. But I actually began with indirect exchange, because I believed that I did not have much time; I knew that we were on the eve of a great war and I wanted to complete my book before the war's outbreak. I thus decided that in a few points only I would go beyond the narrow field of strictly monetary theory, and would postpone my preparation of a more complete work."

The young economist had already mastered his science. He probably could have written something like his later magnum opus Human Action— a systematic exposition of economics and the case for classical liberalism — right then in the second decade of the 20th century.
But as fate would have it, Mises — whose ideas represented the apogee and fulfillment of the classical-liberal tradition — came on the scene at the precise moment when the Western world completely foreswore that tradition, embraced the total state, and hurled itself headlong toward self-destruction. Peace and the market were abandoned for war and planning. Mises was theultimate knight of liberalism in two senses: he was the greatest and the last.
The death knell of the age of liberalism could be heard in the cannonades of the First World War. And Mises had barely enough time to finish, publish, and defend his treatise on money before he himself was sent to the eastern front as an artillery officer.
Other scholars of comparable qualifications were given safe roles in war-planning offices. But Mises, whose liberal ideas were out of step with the establishment in Austria, was put directly in harm's way. One of history's greatest geniuses was a single air burst away from having his career nipped in the bud.
How tragic that would have been! Mises had not yet even written his great 1920 essay "Economic Calculation in the Socialist Commonwealth", which contained the single most powerful argument against central planning that had ever been formulated. Imagine the mind of the greatest critic of central planning being snuffed out by the war that represented central planning's apotheosis.
Put yourself in Mises's shoes on the front line. You, better than anyone else in history, understand the workings of the peaceful market society. You understand the fatal flaws of socialism and interventionism, and the futility of war. You have the answers! You know the societal code that would unlock and unleash humanity's potential.
But nobody will listen to you, and you are surrounded by destruction and madness. Moreover, you yourself may at any moment be devoured by this war that rages around you, and all these unwritten ideas that are bubbling over in your mind will be lost to humanity forever.
It would be enough to break almost any man. But, fortunately for us, Mises was not only a genius but also a paragon of moral courage. In this harrowing crisis, as in all his subsequent trials, Mises bolstered that courage with a scrap of Latin poetry he had learned as a schoolboy.
How one carries on in the face of unavoidable catastrophe is a matter of temperament. In high school, as was custom, I had chosen a verse by Virgil to be my motto: Tu ne cede malis sed contra audentior ito. Do not give in to evil, but proceed ever more boldly against it. I recalled these words during the darkest hours of the war. Again and again I had met with situations from which rational deliberation found no means of escape; but then the unexpected intervened, and with it came salvation. I would not lose courage even now. I wanted to do everything an economist could do. I would not tire in saying what I knew to be true.
And he was forever faithful to that resolution. Throughout his career Mises was ever the picture of principled intransigence. An intellectual Leonidas, surrounded by hordes of socialists, fascists, money cranks, and neoliberals, he stood his ground. Even as old allies — like those swept up in the Keynesian Revolution — fell away, still he stood his ground. Still he fought. And he fought not only for the sake of future generations, but for the sake of his own.

For Mises, it was not enough to theoretically expose the folly of inflationism in The Theory of Money and Credit, a book for the ages. He also personally fought the inflationism present in interwar Austria, using his influence to save his homeland from the hyperinflation that would soon after befall Weimar Germany and contribute toward the rise of Nazism.
For Mises, it was not enough to theoretically prove the madness of socialism in Socialism: An Economic and Sociological Analysis, another book for the ages. He also personally dissuaded the most powerful man in Vienna from imposing on that city the Bolshevism that would soon after lead to famine in Russia.
Mises's efforts probably saved the lives of thousands — and the livelihoods of millions. And Mises's impact was not limited to Austria. He was even able to gain ground in Germany, which was previously intellectually dominated by the "Socialists of the Chair" (Kathedersozialisten). He managed to turn the brightest young German scholars working in the social sciences toward liberalism and the free market.
In his massive but thrilling biography Mises: The Last Knight of Liberalism, Jörg Guido Hülsmann tells us of the tragic turn that followed.
Just as Mises was finally beginning to stir the spirit of liberty among the young generation of German economists, the old Kathedersozialisten had a final and devastating triumph. On January 30, 1933, their intellectual scion, Adolf Hitler, was appointed chancellor of the German Reich.
As the Nazi threat grew, Mises as a Jewish liberal was impelled to leave his native Austria. Later the German police would break into Mises's Vienna apartment and confiscate his papers. The Nazis knew that an office full of the written ideas of Mises was more potentially dangerous to their kind than any Allied weapons cache.

In Switzerland, Mises finally found the repose necessary to write his systematic treatise: Nationaloekonomie, the German-language precursor to Human Action.
Here finally was the "more complete work" Mises envisioned in his 30s: a magisterial exposition of the social sciences, and an irrefutable case for the liberal society.
The book fell, as David Hume said of his own great treatise, "stillborn from the press." World War II was underway. The European mind was once again gripped with madness and bent on self-destruction. It had no time or attention to give to liberalism, even in such a refined and compelling form as this.
And once again, not only were Mises's ideas endangered but his own person as well. Mises came within a hair's breadth of being kidnapped by German agents. The Swiss Alps were no longer enough to keep Mises safe from Hitler's forces.
To escape the Continent, Mises and his new wife first had to travel by bus from Switzerland to Portugal, barely keeping one step ahead of the Nazis the whole way.
They finally found safe harbor in New York City. But financial security did not come with physical safety. Mises and his wife found themselves faced with austerity like they had never known before. Most of Mises's savings had been confiscated by the Nazis. And, as accomplished as he was, Mises could not find any faculty positions, because American universities had become almost as anti-capitalistic as European academia.
By selling out, as did so many of his colleagues, he might have easily secured a place in a prestigious university. But Mises was not about to back down now. As always, he found ways to get by without giving in. Tu ne cede.
In America, there was still a remnant of individualists. Many of these freedom lovers found Mises's ideas to be a revelation. From their ranks, several stepped forward to provide Mises with the financial and professional support he needed to stay productive in his later years.
With this support Mises was able to once again express, this time in English (which he had rapidly learned to write masterfully), his systematic social theory in his magnum opus, Human Action.
For a young economist named Murray Rothbard, reading Human Action was a life-changing event. He was instantly converted into a hardcore Misesian. Rothbard immediately started building on Mises's work to create the foundations of the Austro-libertarian movement that many reading this are part of today.
Mises fought for liberty until the very end, writing books into his 80s and giving speeches into his 90s. At one of his last speeches, in the year before he died, a young physician named Ron Paul was in attendance. Dr. Paul had driven 50 miles to see Mises, and would later recollect that the event was "an inspiration."
At the end of his life, Mises had only one regret: that his powers were then failing when he still had "so much to give to the people, to the world." Mises died as he had lived: brimming with goodwill toward his fellow human beings and animated by an unrelenting drive to improve their lot in the world.
The impacts of Mises's life and work have been resounding now for 100 years. Yet in the midst of the societal crises we now face, his writings and his example are as timely now as they ever were. His writings show us how we may one day remedy our greatest afflictions. And his example can inspire in us the courage needed for the trials we must unavoidably face in the meantime.

Daniel James Sanchez is editor of Mises.org and director of the Mises Academy.
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