First and foremost you’re in a Debt-Based Economy system.
If you don’t know what that means…Google it.
If you know, then you ought to know you’re a borrower if you’ve ever
used (paper) money sometime in your life, even if you have none right
now in your wallets or pockets, or have never made any personal loans
from the bank.
“But, but… I work and I’m earning my money?”
Secundo:
Haven’t you heard of Fractional Reserve Banking?
So-called money in circulation is created by debt and is an IOU.
If you don’t know that…Google it.
You work to pay your own debts including all those created in the system, or by your government.
This’ no rocket 🚀 science. Its plain, simple and clear.
All it takes to gulp this down your throat and digest it, is a simple act of research and observation.
One borrows (thus a borrower) because one have none.
Contrary to popular beLIEfs, your pockets are empty, actually.
You don’t need a slide rule, a set of log tables or a high frequency trading algorithm to see the light. Everyone on Main Street now knows that the Western banking cartel’s fixation with debt colonisation is a busted flush. Debt does not work as the basis of a global financial system.
Behind the scenes, all the indications are that universal debt forgiveness is set to be announced. A global debt jubilee is waiting in the wings. The Doctrine of Odious Debts has been spectacularly revisited. The default position of the global financial system is to be permanently reset. The vaults are stocked. The precious metals are audited. The new gold-backed regional currencies are printed, minted and ready.
The most recent catalyst for change has been Iraq. Before the Western cabal’s US-UK war of occupation and plunder began in Iraq in March 2003, Iraqi exiles expressed the hope that in a post-Saddam democratic Iraq, there would be a fair and equitable disposition of Saddam’s debts.
These Iraqis wanted the future administration of Iraq and the international community to review the debts accumulated under Saddam’s régime. Those loans which had been used for benign purposes should be restructured and paid back by Iraq over a prudent time period. Those loans which were used for objectionable purposes and which did nothing to enhance the well-being or prosperity of the Iraqi population at large, should be struck off the record immediately and completely.
This illustrates one of the core principles of debt forgiveness. Why should Iraqis be forced to repay the US, the British, the French, the Germans, the Russians, and all the others who had financially supported Saddam’s oppression of them?
The Iraqi argument for debt forgiveness had a sound basis in law. It reflects the century-old legal principle of the Doctrine of Odious Debts.
The Doctrine of Odious Debts was created to further international finance by limiting the ability of governments to repudiate debts. Three conditions had to apply before a sovereign state could repudiate a debt:
(1) The debt must have been incurred without the informed consent of the citizenry of the state.
(2) The debt must not have benefitted the citizenry of the state.
(3) The lender must have been aware of conditions (1) and (2) at the time that the loan papers were signed.
The United States employed these principles after the Spanish-American War to repudiate the Cuban debts.
If a despotic power incurs a debt which is manifestly not for the needs of the State, or not in the plain interest of the State, but is a debt incurred solely to strengthen the position of the despotic cabal as a self-serving faction within that State, the debt is odious. The debt is not an obligation for the nation; it is a cabal debt, a personal debt of the cabal which incurred it. And the debt falls with the fall of the cabal.
The Doctrine of Odious Debts not only promotes accountability, it promotes democracy in the debtor state as, one by one, the nature of the inherited debts are articulated in a public legislature.
The Doctrine of Odious Debts also promotes democracy in creditor states. In Canada and most European nations, the lending of state enterprises is generally hidden from taxpayers. Canada’s export credit agency, Export Development Canada, for example, is exempt from Canada’s Access to Information law.
In the case of Iraq, state agencies from France, Germany and Russia may have made questionable loans. Under an odious debt process, they would need to establish that they acted with due diligence to be entitled to repayment. Knowing this, they would be less likely to make questionable loans in the future.
Debt forgiveness and the Doctrine of Odious Debts also applies to individuals. The same principles have legal traction on loans or structured financial inducements made by financial institutions such as banks, mortgage lenders, insurance companies, stock-trading entities, energy conglomerates and pharmaceutical firms.
If the intention of the financial transaction tied to the loan, or tied to the financial inducement, is extortion, if it is, in effect, an élite scheme to bamboozle the borrower with small print or to blind him with science, that loan or inducement, should be struck off the record immediately and completely. The debt was not incurred with the informed consent of the borrower. The debt did not benefit the borrower. And the lender was well aware of these facts when the loan papers were signed.
More background about the concept of the Odious Debt can be found here (pdf – 11 pages – Jayachandran and Kremer) and, in the specific context of Greece in 2011, here. Murray Rothbard’s original 2004 piece on Repudiating the US National Debt can be found here. And The Center for Global Development’s 2010 review entitled: “Whatever Happened to the Jubilee? A 10th Anniversary Assessment of the Debt Relief Movement” is linked here.
Citing both Keen and Hudson, Yiamouyiannis is persuasive. When debt is fraudulent, debt forgiveness is both the logical and the only remedy for the situation. Whatever the name you give to the process – erasure, repudiation, abolishment, cancellation, jubilee – debt forgiveness will eventually have to emerge at the forefront of global efforts to solve the ongoing systemic financial crisis.
The only way to erase counterfeit money and counterfeit assets amounting to hundreds of trillions of dollars is to erase the debts associated with these fake assets. They are not toxic assets. They are fake assets.
Debt forgiveness accomplishes two important things. First, it eliminates the increasing and outsized portion of productive enterprise which is being employed to pay off unproductive obligations. Second, it clears the ground for new opportunities, new thinking, creative invention and positive entrepreneurialism.
Stentorian calls for austerity are nothing more than the delusional efforts of a fraudulent bankster status quo to avoid the consequences of its own error and fraud. The élite demands for austerity are a self-serving effort to kick the profit-can down the road in perpetuity. So bedazzled by the false wealth created by debt multiplication and its concomitant fantasy of ever-higher returns, the fraudulent bankster status quo continues to be stupidly amazed that ordinary people in the street are not spending money, and that the national economy is not picking up.
Productive human wealth has been trapped by establishment banksters in a web of parasitic theft, counterfeiting, liability evasion, non-regulation, and prosecutorial non-accountability. All the fundamental attributes of a functioning exchange economy have been warped to reward creative criminals.
Fabricated or parasitic so-called “wealth” destroys value by diluting the value of real productive wealth. Debt or credit which cannot be paid back is never an asset; it is always a liability. That some people in the market can be fooled into buying such liabilities and thus generate sale profits and transaction fees is risible.
The operating models upon which the modern debt nexus is historically based have no organic contact with reality. They assume unlimited growth and an unlimited ability to pay. When matched against the reality of real people paying ten times their salary for mortgages, which actually add more money owed to their principal (with negative amortization), require no money down, and set up balloon payments – large step-ups in payments after a few years – there is no possible way such people could not default within a predictable timespan.
Systemically, all debt which charges a percentage originates in delusion. Debt grows exponentially indefinitely; income and other growth cannot do this. This leads to a widening condition where the fruits of productive growth devoted to interest payments increase until those fruits are entirely consumed. Once this happens, stores of wealth (hard assets) begin to be cannibalised to make up the difference. You can see this now in Middle America where, absurdly, people are having to liquidate their retirement accounts to pay for their current cost of living.
The problem is compounded by a privately owned Federal Reserve syndicate which lends money into circulation at interest, and then allows the multiplication of this consumer debt-money liability through fractional reserve banking.
The total amount of money in circulation today can pay for only a tiny fraction of the total private and public debt. This fact alone is evidence of a kind of systemic fraud. This is why debt forgiveness makes not only moral, but also rational and mathematical sense. Finances require balancing to be coherent. There has to be some way to redress the systemic imbalance in Western macrofinance. There has to be some way to zero the scales in order to get an accurate weight of value, and to re-establish healthy value creation.
The problem with debt is that it creates scarcity. Scarcity stimulates fear. Fear drives manic competition. And manic competition favors opportunism, collusion, and concentrations of power. These élite concentrations of power translate into establishment abuse. The inevitable result is a visible collapse of legitimacy within the economic system. This is what is being seen now, all over the Western World, by Joe Public and his missus.
Debt forgiveness recognises the inherent, systemic, mathematical inability to make good on debts, and (or) the naked fact that the debt itself was manufactured through fraudulent means.
The foregoing twelve paragraphs précis some of the ideas which Zeus Yiamouyiannis has suggested in his writing on debt forgiveness. The best brief summary of his thoughts is probably here (01.09.11).
The situation is plain. You cannot solve the debt problem by issuing more debt. You solve the debt problem by cancelling, completely, all national, corporate and personal debt. You do this simultaneously across the planet, and you do it permanently. And then you recapitalise the whole bangshoot using an established resource base such as The World Global Settlement Funds and the associated US Dollar Refunding Project.
This next bit sounds exotic. But in future years it may well sound like a blinding glimpse of the obvious. You don’t establish the value of something by sticking it in a market. You establish the value of something by giving it away free and seeing what social value accrues as that something is used locally to energise cooperative livelihoods and free barter.
Interestingly, the core idea of global debt forgiveness is not restricted to the benevolent ivory towers of economic utopians. It is beginning to be talked about, in public, by national parliamentarians.
At the end of August 2011, in Ireland, the Irish Finance Minister, Michael Noonan, had to respond to organised calls for debt forgiveness in connection with his EuroZone nation’s struggling mortgage borrowers. The story was run prominently in the Business section of the Irish Times on Friday 2nd September 2011. Its headline was: “Minister rules out ‘free-for-all’ debt forgiveness. Noonan insists there is no magic bullet.” The article, by Simon Carswell and Colm Keena, can be found here.
What you may not know is that debt arose recently on the human stage. Throughout more than 99% of our history we have not even had a concept for debt. (The interested reader can pick up David Graeber’s excellent book Debt: The First 5000 Years for full story.)
Anthropological studies of hunter-gatherer societies reveal that there were no barter systems, no currencies to use for money, and — in the absence of these cultural artifacts — there was no debt. With all the great variation cross cultures one might expect from ethnographic research, the anthropologists found that some tribal communities engaged in “gift economies” where status arises from how generous a person is who has acquired wealth, while others have remained egalitarian and non-hierarchical for thousands of years by sharing their food and materials based on the principles of “from each as they are able, to each as they need.”
This belies the great misunderstanding about communism that treats it as a state-centric governing system, when in truth it is the foundational sentiment of any community that builds upon the trust and good will of social relations between people who know and depend upon one another — a condition that has held for all hunter-gatherer societies throughout our long 200,000 year history as a species.
Pick up an economics textbook at random and you will find a classic (and false) “just so” story about the need for barter systems to have money. They all go something like this: Steve has potatoes and needs some shoes. Bob has shoes but does not need any potatoes. They are unable to directly exchange goods due to this mismatch of need, and so must introduce a money system to preserve the value of currency across multiple exchanges that enable Steve to sell his potatoes to Sue and acquire money that he can then use to pay Bob for a pair of shoes. What this simple narrative conceals is the broad evidence from ancient cultures studied by anthropologists that no such problem arises in this way.
What really happens is that a warring society has arisen somewhere (to get a sense of how this happens, read my article about psychopaths and agrarian city states) and is in a mode of conquest. When this burgeoning empire conquers new land, the ruler imposes a system of taxation on the local populace to pay for the costs of war. This imposition of scarcity, by extracting resources from the local population to be hoarded by the warrior chieftain, is what leads to the emergence of barter systems and — in some instances — the introduction of a money system by the ruler.
In the absence of war and conquest, hunter-gatherer societies do not spontaneously create barter systems. Instead they share more or less equally within their tribe and only trade with other tribes through highly ritualized and often conflict-ridden exchanges that take place when two tribes come together for a brief interaction. The pathway that does lead to the emergence of barter systems takes place in agrarian societies where some kind of accounting system has been created to track debts. And from these accounting systems we do find that debt is present.
So where does debt come from if it isn’t naturally a part of human societies? Again it is the imposition of scarcity by the ruling class — designed to extract and hoard wealth in the hands of a powerful elite — that creates the notion of debt. Does this sound familiar in today’s context? Many countries were “modernized” throughout the 20th Century by introducing market systems that structure debt into the economies of newly founded nations. These nations now must pay tributes — in the form of interest payments — to external banks that extract wealth from the poor countries and hoard it in the coffers of wealthy countries.
Stated plainly, debt is created when a powerful group of people impose scarcity upon another group of people who have been conquered. This is the root cause of poverty. It is the destabilizing force of unequal societies that breeds civil unrest and revolution. Thus the need for Hebrew kings to introduce Jubilee. They knew that a revolution might cause the people to rise up and clear their own debts, while also uprooting the monarchy from power. In order to preserve their power base, they would routinely erase the debt and start again.
A Note About Debt and Moral Accounting
The astute reader may already be asking, “What does this story about the creation of debt say about the religious use of moral accounting?” You may have noticed that all the world religions have at their core a transactional relationship between God and humans — where each person owes a debt to their creator and must pay it either by relinquishing sin from their lives or by returning to their maker upon death.
This economic transaction frame for moral accounting is not present in all human societies. Those hunter-gatherer tribes practicing the ethic of distribution based on need have no concept for trading an eye-for-an-eye. Nor do they see a gift as something to be repaid, expressing disgust at the insult of treating their generosity in such a transactional manner.
Instead what anthropologists have found is that debt-based morality is only present in societies that already have accounting systems and also engage routinely in barter and monetary exchange. In other words, this moral accounting system is a product of war and conquest and not a natural part of human society. So the next time you feel a debt to one of your friends, society, or your maker it may help to keep this in mind.
What Would It Mean to Erase All Debt?
We are living in a time when too many of our financial resources are allocated to non-productive activities — principally the accumulation of wealth by “making money with money” and a myopic focus on economic activities that service our massive debts. This is why people work at jobs they hate. It is why investments are not being made in renewable energy, public education, the arts, health care, or the eradication of poverty. We have built a massive financial house of cards on debt — with money itself coming into being when loans are taken out, a pool that grows exponentially due to the interest that accompanies it — and so we are not able to bring consumer culture to an end or focus our creative talents on planetary sustainability.
By the way, this is exactly what my friends at /The Rules are trying to address in their global mobilization effort.
So if we were to erase all debt, the 7 billion people alive today could focus on their passions. We could all come together to address global threats — be they resource-based like the scarcity of fresh water or peaking of global oil production; or cultural like the loss of spiritual meaning in the secularization of society or the soullessness of employment drudgery that comes from working long hours at a mind-numbing job.
What comes to my mind is the way cities try to implement broad solutions to address economic development, transportation, resource management, social justice, and environmental concerns. They must operate within constrained budgets that keep draining further without a clear end in sight. I imagine what would be possible if everyone was able to set out on their own intellectual and experiential journeys without the fear of a debt-collector coming to their door. How then would the peoples of this world choose to live out their lives?
Perhaps you have your own dreams of a better world for you and your loved ones. What comes to mind for you? This is not merely an academic question, by the way, because we each participate in the social realities that are lent our beliefs, our actions, and our obligations. If we were to collectively decide that our debts are no more, they would cease to exist.
This is because what we take to be real in many respects becomes so as a self-fulfilling prophesy. We each have the power to be accountants — defining “the real” by choosing what to measure and imbuing it with significance. In this way, the Gross Domestic Product was claimed as an economic alter for measuring the progress of civilization in the 20th Century. Perhaps in the 21st we will replace it with Gross National Happiness or some other novel metric for capturing the essence of our values and purpose as a civilization on this Earth.
Watch the video below:
Joe Brewer is co-founder and research director of Culture2 Inc., a culture design lab for social good. He is a former fellow of the Rockridge Institute, a think tank founded by George Lakoff to analyze political discourse for the progressive movement.
I am no economist, far from it and thank god for that, but I have always opined that the Gross Domestic Product (GDP) is nothing more than the bank$ter$’ device deployed by their hired economists to con nations into debt slavery and rosily termed as the National Debt. That’s my take.
The GDP machine isn’t a real machine. Its levers, pedals, knobs, and buttons are largely imaginary fancies of arrogant imaginations.
The following passage is from page 239 of my late colleague Jim Buchanan‘s 1985 article “Political Economy and Social Philosophy” as it is reprinted in Moral Science and Moral Order, Vol. 17 of The Collected Works of James M. Buchanan:
“I list the engineering urge as one of three related strands of intellectual motivation that must be eliminated if political economy, and the work of its disciplinary practitioners, can assume an appropriate role in social philosophy…. [T]he engineers find their raison d’être in solving problems or, at one stage removed, in suggesting solutions to decision-makers faced with problems. It is in this sense that modern economists have sought pervasively to assume roles as putative problem solvers, as policy advocates, as advisers to governments, directly and indirectly.”
If and to the extent that – and for as long as – economists think of themselves as expert advisers to those who are in control of what are imagined to be the levers, pedals, knobs, and buttons of a machine called “the economy” – or of what Arnold Kling calls “the GDP factory” – they will regard those (today relatively few) economists of a free-market bent as hopelessly naive, unsophisticated, and worse than useless. Pointing out, as many market-oriented economists do, that the GDP machine isn’t a real machine, and that its levers, pedals, knobs, and buttons are largely imaginary fancies of arrogant imaginations, market-oriented economists invite the scorn of Engineering economists, the self-ordained doers of scientifically objective good who look upon straightforward explanations based upon supply-and-demand analysis and other basic economic concepts as simplistic efforts to obstruct the social-engineers’ quests to make earthly existence more heavenly.
Donald Boudreaux is a senior fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University, a Mercatus Center Board Member, a professor of economics and former economics-department chair at George Mason University, and a former FEE president.
This is a continuation of last summer’s Jade Helm seven-state military exercise that many in the area saw as a prelude to military occupation. After Jade Helm came the US Army Special Operations Command’s Unconventional Warfare Exercise 16 (UWEX 16) that ran in Texas through June.
And now, after yet another police shooting in Charlotte, the city’s bus and light rail services ceased after midnight. New Yorkers would recognize this kind of action as they have been exposed to their own occupation following recent Manhattan bombings. Tanks, humvees and other kinds of military vehicles and equipment flooded the city, leaving behind shocking pictures of a city under siege..
Much was similar, though one difference between Manhattan and Charlotte was George Soros, who has made a habit of funding the provocations that the government then responds to. He obviously had a hand in the Charlotte riots that were precipitated by Soros-assisted Black Lives Matter.
Back in June, we covered Wikileaks exposure of the elite’s pre-planned “summer of chaos” when whistleblowers provided numerous documents illuminating Soros’ role with dedicated agitation from BLM.
Remember Deray Mckesson? He was the former BLM leader who had two of his email accounts hacked revealing that the Soros-backed social justice group was working with the Obama regime. The idea, he suggested, was to create so much chaos that martial law could be declared and elections canceled.
According to financial records and key players in the Ferguson Missouri protests, billionaire Soros donated $33 million to community organizers and organizations who helped turn the events there from a local protest into a politicized and televised race “crisis”.
Now there’s further evidence of George the puppet master along with his “open-borders” foundation, have been facilitating unrest.
Charlotte, North Carolina, is merely the latest riot-destination for his paid protesters, but one that comes with compelling evidence of his involvement.
About 70% of the rioters arrested had out of state IDs. No doubt they traveled to Charlotte in buses paid for by Soros.
In a CNN interview. Todd Walther, the spokesman for the Charlotte-Mecklenburg Fraternal Order of Police, told Erin Burnett, “This is not Charlotte that’s out here. These are outside entities that are coming in and causing these problems. These are not protestors, these are criminals.”
Yes, criminals – funded by a criminal. The most ridiculous aspect of these “peaceful protests” as CNN and MSNBC continue to call them, is that they are not protests. They are riots.
The rioting is obvious. “Protesters” broke into the Charlotte Hornets’ team store to steal basketball merchandise. “Protesters” looted the NASCAR Hall of Fame. “Protesters” vandalized and destroyed buses, stores and homes in poor black neighborhoods.
That’s probably how Soros lured them. He let it be known that looting would be the main “protest” in Charlotte.
When it comes to globalism and globalists, we don’t rule anything out. To the elites behind all of this – and Soros is just an employee – this is all a sick game. They actually enjoy controlling the sheeple and then laughing at their inability to recognize who’s manipulating them.
This is not going away with the end of the Jubilee Year in October or even with the end of 2016. It’s just getting started – and the false flags are growing more numerous. They feed the growing militarization around the country.
After the false flag shooting that occurred in Dallas, for instance, where the assailant was supposedly bombed by a drone before any information could be extracted from him, the NYPD was compelled to purchased $7.5 million worth of military grade protection equipment and weapons for themselves.
The NYPD officer from what Bloomberg called “the world’s 7th largest army,” even took pride in his force’s purchasing of these weapons and armor, saying, “There’s not a police department in America that is spending as much money or as much thought and interest on this issue of officer safety.”
Just what kinds of scenarios are these officers envisioning? If it weren’t for the camouflage it would be nearly impossible to differentiate between them and the actual military.
None of this seems to matter to Americans who don’t even bat an eye at these “troops” on their streets. Many, dumbed down by the fluoride in the water and in government schools, and propagandized by the mainstream media television programming, actually cheer when they see their very own forces of occupation.
Most of them are unaware of the existence of Posse Comitatus – the part of their constitution that used to prohibit troops on their streets in times of peace – let alone it’s nullification back in 2006, which made declaring martial law even easier in the event of a “terrorist attack” or “natural disaster”.
Americans are too busy watching sitcoms and fake news to figure out the disaster headed in their direction. And the ones that do figure it out are supposed to be discouraged by people like Soros.
That’s why there are so many news reports featuring Soros. And that’s why he’s never been arrested, by the way.
They want you to understand all the bad things he’s doing. And they want you to be clear on one thing: He can keep on doing it with impunity. No one is going to stop him. He’s going to continue his agitations until chaos rises up around the world.
The elites behind this world-shaping gambit want you to be thoroughly discouraged. They want to emotionally paralyze you.
There is violence and strife looming and it’s all being planned to control you. The elites intend to steal your wealth and livelihood by any means necessary. Stay one step ahead of them by getting your money out the financial system while you still can. To help your family and yourself survive and prosper through the collapse of the dollar, check out my book Shemitah Trends on Amazon or become a subscriber and receive the book free here.
We are now exactly one week from the end of the Jubilee year. Will something else happen before or on that date? Perhaps not. But, as we’ve described all year, all the pieces for continued chaos have been put in place.
And it won’t stop after October 2nd either. In fact, it looks like it is just getting started.
“Alarm bells have been ringing over the explosion of corporate debt levels in emerging economies, which now exceed $25 trillion … Damaging deflationary spirals cannot be ruled out”.
The writer’s name is Ambrose Evans-Pritchard and he’s one of Britain’s most prominent journalists, known for his hard-hitting reporting. He’s also the editor of the International Business section of the Daily Telegraph.
Here’s how it begins:
The third leg of the world’s intractable depression is yet to come. If trade economists at the United Nations are right, the next traumatic episode may entail the greatest debt jubilee in history. It may also prove to be the definitive crisis of globalized capitalism, the demise of the liberal free-market orthodoxies promoted for almost forty years by the Bretton Woods institutions, the OECD, and the Davos fraternity.
Alarm bells have been ringing over the explosion of corporate debt levels in emerging economies, which now exceed $25 trillion. “Damaging deflationary spirals cannot be ruled out,” said the annual report of the UN Conference on Trade and Development (UNCTAD).
Notice the phrase, “greatest debt jubilee in history.”
If you’ve been reading our blogs and publications, you know that for two years now , I’ve been writing about Shemitah Trends and the the Jubilee Year 2016. That’s no accident. I long ago discovered that the world’s elite organizers like to utilize both of these celebratory timelines to trigger catastrophic economic, sociopolitical and military events. Is it a game to them, or a kind of sly messaging? I don’t know, but we can see them doing it again in this article.
Right up front, Evans-Pritchard mentions a global “debt jubilee” and no one mentions that by accident. We’ve written in the past (see the article here in January) about how the BIS’s top economist William White used the phrase – and the writer who quoted him was none other than Ambrose Evans-Pritchard.
White claimed the world’s overall indebtedness was such that only a global forgiveness of debts would suffice to correct global finances. And here, once more, is Evans-Pritchard raising the decibel level to four or five alarms.
Maybe we should simply discount his reporting. But that’s probably not such a good idea. He’s a very important reporter whose father was an agent of British Intelligence. An article like this isn’t simply dashed off quickly. It has the ring of a declaration.
Here is the article’s summary sentence, toward the bottom:
What is clear is that world will soon need a massive and coordinated spending push by governments to create demand and bring the broken global system back into equilibrium. UNCTAD is entirely right about that.
What UNCTAD is calling for is the exact opposite of a free-market solution. We’re told that UNCTAD has stated what its execs believe to be obvious: Monetary policy is not working around the world. A “global new deal” is necessary, one to be directed by governments in concert probably with the UN itself.
Of course this program won’t work either, but it shoves the world a good ways toward global government, which is the desired goal.
This article may be bylined with Pritchard’s name but it is announcing the New World Order strategy going forward. Elites managing these programs intend to buy off the developing world with trillions of dollars of capital infusions. And they intend, it would seem, to alleviate the debt of the developed world via Jubilee.
This is how world government may be established, via directed bribery and money printing, not just intimidation and prison camps.
Pay attention to this article and to Evans-Pritchard. Writing this kind of article is his secret job. When there’s something especially important to be said, his pen is usually tapped.
We noticed this mouthpiece aspect recently when he wrote (here) what was for all intents and purposes a press release for a new central bank cryptocurrency, RSCoin, At the time, I wrote about Evans-Pritchard, saying, “The article is horrible central bank happy-talk that reads like the Bank of England wrote it for him.”
There’s no doubt this latest article is part of something bigger. “They” are preparing to move. Just last week, Barack Obama gave a speech at the UN where he said, “Sometimes I’m criticized in my own country for professing a belief in international norms and multilateral institutions. But I am convinced that in the long run,giving up some freedom of action — not giving up our ability to protect ourselves or pursue our core interests, but binding ourselves to international rules over the long term — enhances our security.”
In other words, he believes the US should give up freedom under the UN.
These statements are part of a long line of similar sentiments. George H.W. Bush, in 1991, was even more blatant, saying:
“We have before us the opportunity to forge for ourselves and for future generations aNew World Order, a world where the rule of law, not the rule of the jungle, governs the conduct of nations. When we are successful, and we Will be, we have a real chance at this New World Order, an order in which a credible United Nations can use its “peacekeeping” role to fulfill the promise and Vision of the U.N.’s founders.”
And, in 2003, David Rockefeller admitted full guilt in his role:
“Some even believe we arepart of a Secret Cabal working Against the best interests of the United States, characterizing my family and me as ‘internationalists’ and of conspiring with others around the world to build a more integrated Global political and economic structure – One World, if you will. If that is the charge, I stand guilty, and I am proud of it.”
And now Pritchard, the only “mainstream” reporter we know of who is mentioning the Jubilee, is warning of total collapse. This is the classic elite modus operandi.
Globalists love using mouthpieces like Pritchard to put the truth out in plain sight so after they have pull off their desired atrocities, they can point and laugh at the stupid plebs who had the truth right in front of their eyes all along. It also serves as a form of predictive programming, so when what they warn of what’s to come, people are more easily accepting of it.
The Elites increased transparency regarding their intentions is a clear sign to take action to conserve your wealth. Even a comprehensive reflation and jubilee won’t replenish your personal wealth. Chances are the handouts will be arbitrary and depend on your behavior and willingness to take orders.
Another article that demonstrates Pritchard’s association with the financial elites was published back on March 27th and was headlined, “Why America is Turning to an Englishman for Answers”.
Pritchard goes on to brag that he was the one who “”triggered a wave of disclosures” against former president Bill Clinton in addition to coordinating leaks and rumors that have thrown the financial markets into turmoil.
In fact, spies were and are regularly expelled from their host countries for doing the things Ambrose talked about, some even serve prison sentences. Nonetheless, Pritchard’s bosses at the Sunday Telegraph seem blissfully ignorant of these espionage laws.
This is no coincidence. A guy like this mentioning the Jubilee is a clear sign that he is simply a tool used to move markets and create chaos – just one of many puppets that has immunity.
The Elites increased transparency regarding their intentions is a clear sign to take action to conserve your wealth. This collapse is going to be so bad that those who lose the least will be the best off.
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As we near the end of the Jubilee year and all plans have now been put in place for the NWO and the destruction of the West, this book, I hope, will serve to show people how it has all been planned for decades.
That book is also free to subscribers with a subscription to The Dollar Vigilante newsletter subscribe here
We are now less than two weeks from the official end of the Jubilee Year on October 2nd. We discuss much further in depth what we think will happen over the next few weeks in the newsletter.
But, already, all of the pieces are now in place for the NWO and planned collapse. Now it is just a matter of time until they set off massive military, political, financial, monetary and economic chaos to usher it in.
China has failed to curb excesses in its credit system and faces mounting risks of a full-blown banking crisis, according to early warning indicators released by the world’s top financial watchdog.
A key gauge of credit vulnerability is now three times over the danger threshold and has continued to deteriorate, despite pledges by Chinese premier Li Keqiang to wean the economy off debt-driven growth before it is too late.
The Bank for International Settlements warned in its quarterly report that China’s “credit to GDP gap” has reached 30.1, the highest to date and in a different league altogether from any other major country tracked by the institution. It is also significantly higher than the scores in East Asia’s speculative boom on 1997 or in the US subprime bubble before the Lehman crisis.
Studies of earlier banking crises around the world over the last sixty years suggest that any score above ten requires careful monitoring. The credit to GDP gap measures deviations from normal patterns within any one country and therefore strips out cultural differences.
It is based on work the US economist Hyman Minsky and has proved to be the best single gauge of banking risk, although the final denouement can often take longer than assumed. Indicators for what would happen to debt service costs if interest rates rose 250 basis points are also well over the safety line.
China’s total credit reached 255pc of GDP at the end of last year, a jump of 107 percentage points over eight years. This is an extremely high level for a developing economy and is still rising fast .
Outstanding loans have reached $28 trillion, as much as the commercial banking systems of the US and Japan combined. The scale is enough to threaten a worldwide shock if China ever loses control. Corporate debt alone has reached 171pc of GDP, and it is this that is keeping global regulators awake at night.
The BIS said there are ample reasons to worry about the health of world’s financial system. Zero interest rates and bond purchases by central banks have left markets acutely sensitive to the slightest shift in monetary policy, or even a hint of a shift.
“There has been a distinctly mixed feel to the recent rally – more stick than carrot, more push than pull,” said Claudio Borio, the BIS’s chief economist. “This explains the nagging question of whether market prices fully reflect the risks ahead.”
Bond yields in the major economies normally track the growth rate of nominal GDP, but they are now far lower. Roughly $10 trillion is trading at negative rates, and this has spread into corporate debt. This historical anomaly is underpinning richly-valued stock markets at time when profit growth has collapsed.
The risk is a violent spike in yields if the pattern should revert to norm, setting off a flight from global bourses. We have had a foretaste of this over recent days. The other grim possibility is that ultra-low yields are instead pricing in a slump in nominal GDP for years to come – effectively a trade depression – and that would be even worse for equities.
“It is becoming increasingly evident that central banks have been overburdened for far too long,” said Mr Borio.
The BIS said one troubling development is a breakdown in the relationship between interest rates and currencies in global markets, what it describes as a violation of the iron law of “covered interest parity”.
The concern is that banks are displaying a highly defensive reflex, and could pull back abruptly as they did during the Lehman crisis once they smell fear. “The banking sector may become an amplifier of shocks rather than an absorber of shocks,” said Hyun Song Shin, the BIS’s research chief.
This conflicts with what the Bank of England has been saying and suggests that recent assurances by Governor Mark Carney should be treated with caution.
Yet it is China that is emerging as the epicentre of risk. The International Monetary Fund warned in June that debt levels were alarming and “must be addressed immediately”, though it is far from clear how the authorities can extract themselves so late in the day.
The risks are well understood in Beijing. The state-owned People’s Daily published a front-page interview earlier this year from a “very authoritative person” warning that debt had been “growing like a tree in the air” and threatened to engulf China in a systemic financial crisis.
The mysterious figure – possibly President Xi Jinping – called for an assault on “zombie companies” and a halt to reflexive stimulus to keep the boom going every time growth slows. The article said it is time to accept that China cannot continue to “force economic growth by levering up” and that the country must take its punishment.
One bright spot is a repayment of foreign debt denominated in dollars. Cross-border bank credit to China has fallen by a third to $698bn since peaking in late 2014 as companies scramble to slash their liabilities before the US Federal Reserve raises rates. The tally for emerging markets as a whole has fallen by $137bn to $3.2 trillion.
China’s problem is internal credit. The risk is that a fresh spate of capital outflows will force the central bank to sell foreign exchange reserves to defend the yuan, automatically tightening monetary policy. In extremis, this could feed a vicious circle as credit woes set off further outflows.
The Chinese banking system is an arm of the Communist Party so any denouement will probably take the form of perpetual roll-overs, sapping the vitality of economy gradually.
The country was able to weather a banking crisis in the late 1990s but the circumstances were different. China was still in the boom phase of catch-up industrialisation and enjoying a demographic dividend.
Today it is no longer hyper-competitive and its work-force is shrinking, and time the scale is vastly greater.
…and BOE is also worried?
Bank of England concerned over rapidly growing Chinese debt bubble
Britain’s central bank has warned that growing Chinese debt is a threat to global financial stability. Chinese firms are borrowing faster than the GDP is growing, according to the bank. ….read further
The International Monetary Fund (IMF) has warned at the G20 summit in Hangzhou, China, that in the face of crises, the refusal to reform how things are functioning will lead to economic weakness in the global economy. “The latest data show subdued activity, less growth in trade and a very low inflation, suggesting an even weaker global economic growth this year,” the IMF told G20 leaders.
Indeed, we are looking at 2016 coming in as the fifth consecutive year in which global growth will be below the average of 3.7% which prevailed between 1990 and 2007. The IMF said: “Without strong political countermeasures the world could suffer a disappointing growth” for several years to come. Christine Lagarde told world leaders: “Even in the longer term the outlook remains disappointing.”
A number of people are asking if we are advising the IMF both in front of the curtain or behind. I have meet with former IMF board members as well as people pulling triggers in some central banks. But we have no arrangement to advise the IMF. If their forecasts are starting to reflect ours, it is curious, I admit. They may be looking at things using our lenses. But I have never met Lagarde and I do not advise the IMF. True, they may be looking at the Economic Confidence Model. Many countries do. There is no formal arrangement whatsoever.
As demands rise concerning social inequalities in many countries, this tends historically to only lead toward more regulation and protectionism. In the end, this is the expected knee-jerk reaction from politicians and in the end it only created a negative downward spiral to the detriment of free trade. The hunt for taxes and the sharing of all information to beginning among G20 members January 1st, 2017, will also lead to less investment. The EU decision to retroactively change the tax code of Ireland and the Apple deal, is a death-blow to the global economy.
Structural reforms are vital at this point to prevent a real economic depression on a global scale. In countries with still weak demand, the IMF is advocating monetary and fiscal policy should intervene more to promote growth. But bureaucrats are far too disconnected from the economy to ever manage things correctly. They historically attempt to force their will upon the markets and that has always resulted in disaster.
In regions where the monetary policy has been exhausted with negative interest rates having only a negative impact economically, only changes to the fiscal policy are even remotely possible to soften the hard landing we are headed into. The formula of simply creating temporary jobs with additional public investment building roads and bridges, are never sustainable and have never reversed the economic decline. On April 8th, 1935, Congress voted to approve the Works Progress Administration (WPA), a central part of President Franklin D. Roosevelt’s “New Deal.” The US share market rebound, but this was due to the dollar devaluation in 1934 following the bank holiday in 1933. The WPA kept hiring people reaching its peak in 1938 of over 3 million. The primary restriction was one person per family. Despite the claims, the WPA was a failure for there was no evidence whatsoever that it ended the Great Depression. It did provide relief and helped families make the transition from agriculture to skilled labor. So from the standpoint of retraining people, it did provide a foundation to build upon. However, such programs that fail to help people make such a transition within the work force are worthless in reversing an economic downtrend. In fact, if taxation is raised as a result, then it merely robs the right pocket to put some one in the left. That never provides economic growth no less stimulus.
The economic warning signs of a major slowdown in growth are appearing now on a global perspective from China and Japan to North American and Europe. The sharp decline in trade was reflected in the world’s seventh largest container shipping company Hanjin which declared bankruptcy in South Korea. Hanjin is the first prominent victim of the downturn in international maritime trade. There is little doubt that this is the canary in the coal mine providing a clear visible sign of a new economic Depression is looming on the horizon.
The sun is settling. It may appear to be rather beautiful. It is always the prettiest before nightfall.
…this of course is not only peculiar to the US, but across the entire world where the central banks are printing useless paper, or fiat money if you prefer.
Destroying our ability to discover the real cost of assets, credit and risk has not just crippled the markets–it’s crippled the entire economy.
Is anyone else fed up with the Federal Reserve? To paraphrase Irving Fisher’s famous quote about the stock market just before it crashed in 1929, we’ve reached a permanently high plateau of Fed mismanagement, Fed worship and Fed failure.
The only legitimate role for a central bank is to provide emergency liquidity in financial panics to creditworthy borrowers. Once the bad debt (credit extended to failed enterprises and uncreditworthy borrowers) is written off, the system resets as asset valuations adjust to reality–how ever unpleasant that might be for the credulous participants who believed the ever-present permanently high plateau shuck and jive.
Just to state the obvious: Fed policies are not just insane, they’re destructive:
— Bringing future sales/demand forward by lowering interest rates to zero just digs a gigantic hole in future sales/demand. Funny thing, the future eventually becomes the present, and instead of a brief recession of low demand we get an extended recession of weak demand and over-indebted households and enterprises.
— Enabling massive systemic speculation by those closest to the Fed’s money spigot is insane and destructive, as capital is no longer allocated on productive returns and risk but on the speculative gains to be reaped with the Fed’s free money for financiers
— Buying assets to artificially prop up markets completely distorts the markets’ ability to price assets based on real returns and real risk.
Manipulating interest rates creates a hall of mirrors economy in which nobody can possibly discover the real price and risk of borrowing money. What would mortgage rates be without the Fed and the federal housing agencies (Freddie and Fannie Mac and the FHA) pumping trillions of dollars of federally backed mortgages into the housing market?
Nobody knows, because the mortgage market in America has been effectively taken over by the central bank and state.
The Fed’s entire policy boils down to obscuring the real price of assets, credit and risk with a tsunami of debt. The Fed’s “solution” to the economy’s structural ills is: don’t worry about risk, valuation or costs–just borrow more money for whatever you want: new houses, vehicles, stock buy-backs, Brazilian bonds, worthless college degrees, it doesn’t matter: there’s plenty of credit for everything.
The only thing that matters is your proximity to the Fed money spigot. If you’re a poor student, you get a high-cost student loan from the Fed’s flood of credit. If you’re a corporation or fiancier, well, the sky’s the limit: how many billions do you want to borrow or skim for stock buybacks or speculative carry trades?
The Fed’s control of the machinery of obfuscating price and risk has made us all members of the Keynesian Cargo Cult. Now we all dance around the Fed’s idols, beseeching the Fed the save us from our financial sins. We study the tea leaves of the Fed’s announcements, and hold our breath lest the worst happen–gasp–the Fed might push interest rates up a quarter of a percent.
This is of course totally insane.
Destroying our ability to discover the real cost of assets, credit and risk has not just crippled the markets–it’s crippled the entire economy. Wake up, America, and stop worshipping the false gods of the Fed. The sooner we smash the Fed’s idols and strip away their power to enrich the few at the expense of the many, the better off we’ll be.
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Global corruption costs trillions in bribes, lost growth … Public sector corruption siphons $1.5 trillion to $2 trillion annually from the global economy in bribes and costs far more in stunted economic growth, lost tax revenues and sustained poverty, the International Monetary Fund said on Wednesday. – Reuters
The IMF has just announced that doing away with corruption worldwide is “critical for the achievement of macroeconomic stability.”
The Reuters article informs us that this is “one of the institution’s core mandates.”
Our perspective is far different.
From what we can tell, the IMF and the World Bank act as a kind of macroeconomic tag team, enticing third world countries with massive loans and then ripping apart whole economies when the loans aren’t paid back on time.
We arrived at these insights in part due to John Perkins’ famous book, Confessions of an Economic Hit Man.
Here’s how TruthOut described the book during a 2014 interview with Perkins:
John Perkins is no stranger to making confessions. His well-known book, Confessions of an Economic Hit Man, revealed how international organizations such as the International Monetary Fund (IMF) and the World Bank, while publicly professing to “save” suffering countries and economies, instead pull a bait-and-switch on their governments: promising startling growth, gleaming new infrastructure projects and a future of economic prosperity – all of which would occur if those countries borrow huge loans from those organizations.
Far from achieving runaway economic growth and success, however, these countries instead fall victim to a crippling and unsustainable debt burden.
Reuters is reporting on a different and much more positive and responsible IMF. It’s portraying an IMF that is devoted to fighting corruption in order to benefit citizens around the world.
According to Reuters, “The Fund argues that strategies to fight corruption require transparency, a clear legal framework, a credible threat of prosecution and a strong drive to deregulate economies.”
But here, from The Daily Mail, posted in early April:
The IMF officials said a threat of an imminent financial catastrophe was needed to help reach a ‘decision point’, convincing German chancellor Angela Merkel on debt relief and Greece into accepting IMF “measures” against pensions and working conditions, said the transcript.
In other words, only a month or so ago, IMF officials were discussing a way to fake “financial catastrophe” to move Greek negotiations along.
Is that part of the “transparency” that the IMF seeks? Here’s what Perkins told TruthOut about Greece:
I want to draw upon Greece’s history. You’re a proud, strong country, a country of warriors … I would encourage the people of Greece to stand up: Don’t pay off those debts; have your own referendums; refuse to pay them off; go to the streets and strike. And so, I would encourage the Greek people to continue to do this.
… Don’t accept this criticism that it’s your fault, you’re to blame, you’ve got to suffer austerity, austerity, austerity. That only works for the rich people; it does not work for the average person or the middle class.
Build up that middle class; bring employment back; bring disposable income back to the average citizen of Greece. Fight for that; make it happen; stand up for your rights; respect your history as fighters and leaders in democracy, and show the world!
Perkins is exhorting Greeks to confront the IMF and the EU when it comes to the “austerity” that has been inflicted on the country.
Seen from Perkins’s standpoint, the problems affecting Greece are predictable enough. The country couldn’t pay back its sovereign debt in a timely manner and now Greeks have lost savings, pensions and whole bank accounts.
But Reuters is not writing about the IMF that Perkins is portraying.
The IMF paper – as Reuters reports it – doesn’t deal with any of these troubling issues. The crux graf of the Reuters’ article is this one:
[The IMF] said corruption’s indirect costs are substantially higher, reducing government revenues by encouraging tax evasion and reducing incentives to pay taxes, leaving less money available for public investments in infrastructure, health care and education.
We just wrote about this the other day. On what planet do international bureaucrats find that government revenues are in any sense appropriately or efficiently delivered?
Services provided by the -European Union are so lamentable that up to half of the countries now in the EU want to have referendums on leaving.
In the US huge amounts of tax revenue goes to the military-industrial complex, which in turn is fighting a “war” against terrorism. But if one uses available, public reports on the Internet, it soon becomes clear that war is a phony one and the terrorists have actually been put in place by US facilities.
Once more, the IMF seems to have a different grasp of reality regarding taxes and the way governments function.
More from Lagarde:
“Corruption also has a broader corrosive impact on society. It undermines trust in government and erodes the ethical standards of private citizens,”
And here is the real reason for this sudden attack on global corruption:
Lagarde is due to participate in a British government-sponsored anti-corruption summit in London on Thursday that will include U.S. Secretary of State John Kerry and other senior officials including the presidents of Nigeria and Afghanistan.
We can see that the global regime we’ve covered previously is being put into place. First came the Panama Papers and now a more general attack on “corruption.”
Conclusion: This is part of an international power grab. The IMF and other agencies controlled by the West, and by the US and Britain in particular, are being repositioned as more aggressive, international regulators. Will this fight against international corruption yield positive results? Not really. It will simply endow obviously corrupt entities like the IMF and World Bank with even more power … and thus enhance the misery they already inflict.
For years, those who face the costs of educating themselves or their children hear a nearly incessant drum beat of how expensive a college education is, and how much debt they’ll likely be taking on. On the other hand, we’re told repeatedly that a college education is absolutely essential because people with a college degree allegedly make a million dollars per year more than those who do not attend college.
Most everyone agrees that tuition and fees are certainly increasing in terms of the price tag. There is far less agreement, however, on why the price of a college education is going up so quickly.
The answer lies in a mixture of government policy and the fact that colleges and universities today spend vast amounts of money on amenities and staff that have little to do with classroom instruction. Moreover, the tastes of many consumers of education have changed toward the more opulent, and many aspects of the so-called “college experience” which were virtually non-existent 30 or 40 years ago, are today considered to be necessities for college students.
And finally, many students spend vast amounts of money on college degrees that will never contribute much to actually paying off loans or contributing much toward the graduates’ actually earning a living.
Government Subsidies Enable Price Increases
One of the more basic observations of economists of all types is the fact that less of a good or service is demanded the higher the price goes. This is why the demand curve is downward sloping, and why fewer people will want ten-dollar hot dogs than will want two-dollar hot dogs, all else remaining equal.
On the other hand, if the government gives out grants and loans for buying hot dogs, or if people are hoodwinked into believing they’ll make a lot more money if they only eat more hot dogs, the price will rise quickly.
There is no doubt that overall demand for a college education has increased based on the idea that a college education is the key to wealth. The broad conclusion that a college education greatly increases one’s earning potential greatly over one’s lifetime ignores the fact that not all college degrees are created equal.
As this data shows, only certain college degrees are likely to bring back a good return on the investment. While economics and engineering majors are likely to pay off loans quickly and maintain employment over the long haul, people who spent six figures at a fancy university to get a degree in sociology of Latino studies are likely to struggle to pay off their debts.
Moreover, if you’re one of those people with a humanities degree, your electrician and your mechanic are often likely to make more money than you. And, they gained that higher earning capability after spending far, far less in terms of time and money on their education. Once we begin to look at things on a case-by-case basis, the advantages of a college degree can melt away.
So, much of the increase in demand for a college education is based on a false premise: the idea that any college degree with get you a living wage. What you study remains very important.
Nevertheless, going to college has for centuries been seen as a way to gain or maintain financial success, and the idea did not just enter the minds of the general population in the last thirty years, when tuition prices began to skyrocket.
What changed was the increased presence of student loans, and especially loans at low interest rates, thanks to government guarantees and loose monetary policy.
Last year, University of Colorado law professor Paul Campos, who is hardly an advocate of laissez-faire, attacked the claim that direct government funding of colleges is being cut, while also noting the role of student loans in increasing costs of college:
The conventional wisdom was reflected in a recent National Public Radio series on the cost of college. “So it’s not that colleges are spending more money to educate students,” Sandy Baum of the Urban Institute told NPR. “It’s that they have to get that money from someplace to replace their lost state funding — and that’s from tuition and fees from students and families.”
In fact, public investment in higher education in America is vastly larger today, in inflation-adjusted dollars, than it was during the supposed golden age of public funding in the 1960s. Such spending has increased at a much faster rate than government spending in general. For example, the military’s budget is about 1.8 times higher today than it was in 1960, while legislative appropriations to higher education are more than 10 times higher.
In other words, far from being caused by funding cuts, the astonishing rise in college tuition correlates closely with a huge increase in public subsidies for higher education. If over the past three decades car prices had gone up as fast as tuition, the average new car would cost more than $80,000.
The data can only show a correlation, but basic economic theory shows us the causation. The government subsidies to students have lowered the perceived cost of attending college. This, in turn, allows a larger number of students to pay the ever-increasing tuition bills. Put another way, the elasticity of demand for a college education has increased significantly thanks to the fact that students can now just go get a low-interest unsecured student loan rather than have to save the money to use a high-interest private-sector loan.
Without these loans, students would be far more sensitive to increases in the cost of education, and colleges would have to find ways to cut costs in order to remain competitive in terms of pricing. With a nearly endless stream of government loans, however, colleges need never have to worry about cutting costs. Government subsidies will simply make up the difference, and price-sensitive students will go to college anyway. The downside comes later when students must then pay off large loans.
Increases in Cost Don’t Go to Classroom Instruction
Campos also points to the fact that we can’t blame the price increases on the cost of instruction going up. The amount of resources being devoted to actual classroom instruction, Compos notes, has changed little in terms of real dollars. What has changed is the cost of administration at colleges, where
a major factor driving increasing costs is the constant expansion of university administration. According to the Department of Education data, administrative positions at colleges and universities grew by 60 percent between 1993 and 2009, which Bloomberg reported was 10 times the rate of growth of tenured faculty positions.
Even more strikingly, an analysis by a professor at California Polytechnic University, Pomona, found that, while the total number of full-time faculty members in the C.S.U. system grew from 11,614 to 12,019 between 1975 and 2008, the total number of administrators grew from 3,800 to 12,183 — a 221 percent increase.
And administration isn’t the only place in which colleges are pouring money. Students are also paying for lavish amenities such as recreation centers and luxurious dorms where each room has its own bathroom, and much more.
In their defense, college administrators have trotted out the usual old saw that “budget cuts,” and not a country-club living standard on campus, is to blame for increasing tuition and fees for college students, but the immense increases in college fees that are necessary to support these new amenities would never be economically viable if it weren’t for easy access to cheap student loans.
Many People Make Purchases Based on Branding, Not Education Quality
Another factor behind rising costs for some students is the fact that students purchase costly programs not necessarily for the education they provide, but for the status of having attended a prestigious name-brand college. Just as people will spend hundreds or thousands more on a handbag or automobile for the purposes of conspicuous consumption, many students will do the same with their college educations, believing it will raise their social status.
Yet again, we find that what you study matters more than where you do it. So, it is entirely plausible that the student who studies accounting at the thoroughly unglamorous public university known as IUPUI in Indianapolis is likely to earn more than a psychology major at some elite East Coast university.
And, of course, one makes a logical error by assuming that successful Harvard graduates were successful because of their attendance at an elite university. People who get into Harvard are already highly driven over-achievers. Harvard students aren’t slackers who are molded into elite intellectuals and workers due to the amazing quality of instruction at Harvard. That’s not how it works.
This isn’t to say there’s something “wrong” with choosing to attend an elite college if the opportunity presents itself. Consumers make decisions based on a variety of subjective criteria, and it may be that for some of them, consuming the product known as “Ivy League college” is very important and well-worth the additional cost.
However, these people tell us little about the true cost of obtaining an education. Those who choose to attend costly elite colleges — when opportunities exist for attending more modestly priced programs — should be excluded from analyses that claim to tell us how expensive education has become for the average person.
Many People Are Willing to Pay Extra for the “College Experience”
Finally, it’s important to note that much of what drives demand for colleges, especially among the middle and upper classes, is a desire to get the so-called “college experience” which has nothing to do with the quality of instruction or one’s future earning potential.
In truth, living on campus as a college freshman, and taking advantage of all the entertainment, lifestyle, and social amenities offered to live-in students, is a luxury that is not essential to obtaining an education. Students who live off campus, of course, often report feeling “left out” or at a disadvantage in terms of finding the right social events.
These things are not without value, and many students may conclude for themselves that the “college experience” is worth the extra cost, but let’s not pretend that such experiences are essential to obtaining a college education.
Moreover, simply attending a costly four-year college in one’s freshman year is an unnecessary luxury overall, regardless of where one lives. As billionaire Mark Cuban — an Indiana-University grad — correctly notes in this video, from a financial point of view, it makes far more sense to attend one’s freshman and sophomore years at the least expensive college one can find where college credits will transfer up to more costly four-year schools.
These economic facts won’t stop many students, however, from insisting that they absolutely must attend an expensive liberal arts college in order to get the full college experience. (This woman just had to go to NYU and took out $100,000 in loans to get a degree in religious and women’s studies.)
The Cost of Education vs. the Cost of “College”
As with any consumer’s preference for attending an elite school, we cannot say that any particular student is wrong for attending a school that costs $25,000 in tuition per semester. It may be perfectly rational, from the student’s point of view, to attend a college because it has pretty buildings or the students are good-looking.
Being surrounded by beautiful people and beautiful buildings really is something of value. However, let’s not pretend that those amenities are essential to the process of obtaining an education or increasing one’s earning potential.
In the background of every political discussion over higher education is the assumption that a college education is essential to combating poverty and other social ills. So, if we’re going to engage in an honest discussion of the true cost of an education, we have to differentiate between what is being paid toward financial betterment, and what is being paid by some people toward a four-to-six-year vacation.
What a Free Market in Colleges Might Look Like
Student loan subsidies have so distorted the market for higher education that we can’t even tell the difference anymore. In a world of more market-oriented colleges, we’d be seeing colleges that work strenuously to reduce costs while increasing the quality of faculty instruction. Instead, what we find is a race to produce ever more luxurious amenities or funnel more and more money to six-figure-salaried administrators and staff to run a high-end rec center for students.
Colleges would focus on providing easy-to-attend classes for part-time workers (many of whom are low-income) who must attend college at the lowest cost possible. Students would focus on fulfilling basic requirements at lower cost schools and community colleges while waiting to access more costly lab facilities and other resources in the junior and senior years. (Many low-income students already do these things, but in the absence of subsidized loans, the total numbers using these strategies would be far greater.)
Certainly, those with the means would still attend costly luxurious schools, but most would recognize that those students are paying for something other than education. Far larger numbers of students, though, would attend colleges that specialize in delivering an education in a timely and cost-effective manner with few frills. The number of students attending amenity-laden schools would fall considerably, and many small liberal arts colleges would go out of business. Urban and suburban campuses, while less “sexy,” would benefit instead as students turned toward more economical easy-to-access colleges that are more focused on job skills and integrating students into the larger community that includes employers and industries that need employees.
As long as government student loans remain a dominant factor in the pricing of higher education, though, we’ll continue to see more and more growth in the cost of higher education which will continue to be a boon for the colleges themselves, while placing a heavy burden on students who don’t understand how little of what they pay actually goes to education.
I think the Boomland scenario is in most cities of the world and especially so here in Kuala Lumpur. Construction is everywhere and these so called “developments” have become a hazard for the city folks. Don’t they know what’s going on in the decrepit financial system? Yes and no. But, ‘the show must go on’ ….as they say. I guess we’ll just wait for the bubble to burst.
We want this time to be different so badly, we can almost taste it.
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If you visit San Francisco, you will find it difficult to walk more than a few blocks in central S.F. without encountering a major construction project. It seems that every decrepit low-rise building in the city has been razed and is being replaced with a gleaming new residential tower.
Parking lots have been ripped up and are now sprouting condos and luxury rental flats.
The influx of mobile/software tech into the S.F. Bay Area has triggered not just a boom in tech but in all the service sectors that cater to well-paid techies. This mass of new people has created traffic jams that last virtually all day and evening, and overloaded the area’s BART transit rail system such that trains at 11 pm are as jammed as any during rush hour.
This phenomenal building boom is truly something to behold, as it has spread from S.F. to the East Bay as workers priced out of S.F. move east across the Bay, driving up rents to near-S.F. levels.
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This is of course a modern analog of the Gold Rush in the 1850s, and the previous tech/building boom in the late 1990s: an enormous influx of income drives a building boom and a mass influx of treasure-seekers, entrepreneurs, dreamers and those hoping to land a good-paying job in Boomland.
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The same phenomenon has been visible in the Oil Patch states every time oil/gas skyrocket in price.
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We know how every boom ends–in an equally violent bust. Yet in the euphoria of the boom, it’s easy to think this one will last longer than the others.
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I distinctly recall the mass excitement of COMDEX in 1999, the big computer-tech trade show in Las Vegas. The city was packed, the convention centers were packed, and an enormous banner announcing the then revolutionary slogan “the network is the computer–Sun Microsystems” welcomed the faithful.
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I saw Bluetooth demonstrated for the first time in that show (at a Motorola booth), and dozens of other consumer technologies that never quite caught on–kits to turn your PC into a TV, etc.
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A year later the bubble had burst, and a decade later Sun Micro had lost its edge and would end its glorious run in the ignominy of being sold to Oracle for pennies on the dollar.
Across the Bay in Oakland, new relatively large 1-bedroom flats with Bay views are asking $3,300 a month. The same flat in S.F. would fetch $4,000 or more per month. Techies working for free on a buddy’s start-up have famously rented the space beside the washing machine in a laundry room for $400 a month.
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How many average workers can afford to pay $40,000 a year in rent? After taxes, even techies earning $80,000/year would have little to show for their labor once they paid $40K after $20K in taxes and deductions have been subtracted from their annual wage.
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The current Gold Rush will collapse, and as the newly fired marginalized workers pack up and leave, nobody will be renting the flats for $4,000/month. The owners will try reducing the rents to $3,000/month, and with no takers, they will go bust and the gleaming towers will be auctioned off. Eventually rents will decline to what people can actually afford.
This process will take a few years, as owners are reluctant to accept secular declines in rent and the resulting insolvency. Restaurants and other secondary businesses that arose to serve the techies will hang on, paying insane rents, for a few months and then give up losing money and close.
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We naturally cling to the euphoria and glory of a boom; they generate such hope and positive emotions. The bust is no fun at all, a slow cascade of layoffs, insolvencies, moves to cheaper and far less exciting locales, busted dreams and all the mourning that accompanies the shattering of dreams and hopes.
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Knowing all this doesn’t prepare us for the bust, any more than the initial signs of a boom prepared us for the bubble. We want this time to be different so badly, we can almost taste it. But this time is only different on the margins; the flavor of the bust remains the taste of ashes.
Russian “Weaponized Default” Law Threatens Collapse Of Entire Western World
By: Sorcha Faal, and as reported to her Western Subscribers
A new report issued today by the Security Council (SC) states that President Putin has just forwarded to the Duma (legislator/parliament) one of the most feared set of laws ever seen in modern Russian history that once enacted would create the worst “economic cyclone” the Western world has ever seen and plunge both the United States and European Union into immediate depression, if not outright total economic collapse.
Adding to the growing pushback against the United States petrodollar system and its allies continuing to advocate for global war, this report continues, is China—who this past week ordered all of its banks to cease purchasing US Dollars in its bid to protect its nation and economic interests from these warmongers too.
Though the American “presstitute” mainstream media has failed to allow their citizens to know the full and dreadful impact that President Putin’s new “Weaponized Default” laws will have upon them, this report further states, the same cannot be said of that nations oligarchs—who in the past fortnight alone have caused their stock markets to lose over $1 trillion—and to put that stunning figure in context, it’s like wiping out the combined value of the following tech giants: Google (GOOGL, Tech30) ($508 billion), Facebook (FB, Tech30) ($281 billion), Intel (INTC, Tech30) ($154 billion), Netflix (NFLX, Tech30) ($50 billion) and Yahoo (YHOO, Tech30) ($29 billion).
Even more astounding than this massive loss of wealth to the American people holding their retirement and saving monies in stocks and bonds, this report grimly says, was President Obama telling his nations citizens last night that their US was economy was doing fine and that his critics were “peddling fiction”—like legendary American stock market guru Art Cashin who yesterday warned that panic in this market “will shock the world” and the Royal Bank of Scotland (RBS) warning all of its elite clients yesterday to “Sell Everything!” and stating: “This is about return of capital, not return on capital. In a crowded hall, exit doors are small.”
With Russia being the world’s largest oil producer, this report continues, fully 75% of its oil can be exported which President Putin’s new “Weaponized Default” laws will protect no matter how low the price of oil goes—but the same cannot be said of the Obama regime backed barbaric Middle Eastern ally Saudi Arabia whose despotic de facto leader, Deputy Crown Prince Mohammed bin Salman, has not only brought his nation to brink of ruin—its soon collapsing will, undoubtedly, cause the Western nations to unleash a new set of oil wars too.
But before the West embarks upon these new oil wars, this report concludes, they should first re-familiarize themselves with their own history—and as recently detailed by the American foreign policy writer Michael Peck who in his article 5 Oil Wars that Ended in Disaster succinctly warned:
“For the last hundred years, oil has been a frequent reason for war. Nations have fought wars, or shaped their military strategy during a war, to conquer oil fields or prevent rivals from controlling the commodity that is the lifeblood of industrial economies and modern militaries.
But what good is capturing an oil field when you wreck your country in the process? Several nations have learned the hard way that the price for capturing oil can be much greater than its value.
For the American leaders, and plenty of others throughout history, the price of oil indeed proved to be higher than any could imagine.”
This week I am addressing themes I see playing out in 2016.
A number of systemic, structural forces are intersecting in 2016. One is the end-game of debt-fueled “growth.”
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We can summarize the official “solution” to the Global Financial Meltdown of 2008 in one line: borrow and blow trillions–of yen, yuan, dollars, euros, reals, you name it.
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The goal of borrowing and blowing trillions was to re-invigorate “growth”— any kind of “growth,” no matter how wasteful, unproductive or even counter-productive it might be: wars, nation-building, ghost cities, needless MRIs, useless college diplomas, bridge to nowhere–anything the borrowed money was squandered on counts as “growth” in the Keynesian status quo.
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Unsurprisingly, this strategy yields diminishing returns as the negative returns on all this debt-fueled spending piles up. While the yield on the “investment” is either negative or only fleetingly positive, the interest due on the debt is forever. That’s the source of diminishing returns in a nutshell.
The diminishing returns on additional debt is clearly visible in these charts.
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Global debt has soared but this massive stimulus has yielded subpar “growth” (and the final costs of all the astounding mal-investment have yet to be totaled):
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Has borrowing and blowing $9 trillion solved any structural problem in the U.S. economy? No.
While total credit in the U.S. has exploded, GDP (a measure of actual output) has under-performed for years. The tiny decline of credit in the 2008-09 financial meltdown almost collapsed the global economy. The strategy of borrowing and blowing trillions has backed the global economy into a corner: expand debt or die.
While U.S. bank credit has expanded by 40%, GDP has risen 21.7%–roughly half the rate of credit expansion. This is diminishing returns on a vast scale.
It’s requiring more borrowed yen/yuan/dollars/euros just to keep the global economy from collapsing in a heap of impaired debt. The costs of waste, fraud and mal-investment are finally coming home to roost, and while near-zero interest rates serve to mask the future costs, near-zero rates cannot stem the rising tide of mal-investment.
Rather, near-zero rates have fueled mal-investment, waste and unproductive spending. The diminishing returns on that strategy of “growth” are inescapable.
The game of enabling more debt by lowering interest rates and loosening lending standards is coming to an end.
If we define Christmas as consumer spending going up while earnings are going down, 2015 will be the last Christmas in America for a long time to come. In broad brush, Christmas (along with all other consumer spending) has been funded by financialization, i.e. debt and leverage, not by increased earnings.
The primary financial trick that’s propped up the “recovery” for seven years is piling more debt on stagnating incomes. How does this magic work? Lower interest rates.
In a healthy economy, households earn more money (after adjusting for inflation, a.k.a. loss of purchasing power), and the increased earnings enable households to save, spend and borrow more.
In an unhealthy, doomed-to-implode economy, earnings are declining, and central banks enable more borrowing by lowering interest rates to zero and loosening lending standards so anyone who can fog a mirror can buy a new pickup truck with a subprime auto loan.
The problem with financialization is that it eventually runs out of oxygen. As earnings decline, eventually there’s no more income to support more debt. And once debt stops expanding, the economy doesn’t just stagnate, it implodes, because the entire ramshackle con game of financialization requires a steady increase in debt and leverage to keep from crashing.
The trickery of substituting financialization for earned income–the trickery that fueled the last seven years of “recovery”–is exhausted.
The incomes of even the most educated workers are going nowhere, while the earnings of the bottom 90% are sliding:
Wages as a percentage of gross domestic product (GDP) have been declining for decades. Note the diminishing returns on financialization and asset bubbles that always bust: wages blip up in the bubble and then crash to new lows when the bubble bursts:
Look at how debt has soared while GDP has essentially flatlined. This is diminishing returns writ large: we have to pile on ever-increasing mountains of debt just to keep GDP from going negative.
This dependence on debt for “growth” leaves the economy exquisitely sensitive to any decline in debt growth. The slightest drop in debt growth in the Global Financial Meltdown almost collapsed the entire global economy:
The essential fuel of “growth”–credit expansion–is rolling over:
Even the vaunted prop under a soaring stock market, corporate profits, are rolling over as the stronger dollar and stagnating sales pressure profits:
The game of enabling more debt by lowering interest rates and loosening lending standards is coming to an end. Debt is not a sustainable substitute for income, and households are increasingly finding themselves in two camps: those who can no longer afford to borrow and spend, and those who recognize that going in to debt to support spending is a fool’s path to poverty and insolvency.
Say good-bye to Christmas, America, and debt-based spending in general–except, of course, for the federal government, which can always borrow another couple trillion dollars on the backs of our grandchildren.
What do you mean “I am a slave?” The usual reaction of a slave. Isn’t that pathetic?
If you dissolve the universal contract between the Creator and the created, and declare man the master of the universe, you open the door to all manner of corruption and imbalance. Man’s inner being and his higher nature are then denied any reality, and will in any case be smothered in the scramble to get what you can, fueled by the underlying anxiety out there, get a job, make some money. BE somebody. (USURY The Instrument Of World Enslavement – The End Of Economics – 1989)
I’m prompted to write this essay after reading this in the local paper:
UPSR 7As scorer aims for a good life for mum
KLANG: Kirthana Logarajah may only be 12 but she clearly understands the role she has to play to provide her single parent mother a good life in future.
“I have to do well in my studies and be in a good profession to give my mother all the things she does not have now,” said Kirthana who scored 7 As for the UPSR examination. – The Malay Mail
I feel for Kirthana, a filial piety and her dreams. What’s so sad and bad about that? Its all good and beautiful actually. What’s sad is to see her entrapped in a slavery system. And what’s more sad is she doesn’t know. Its not her fault. Its the family curse.
Define, don’t be defined
Before tackling the topic of usury, i.e. interest debt and zero worth money, we must put it in context. Most importantly, we want to place it in a context that is of our own defining. This is of fundamental importance, because the dominant place of the usurers has enabled them – through their high-tech network of money, markets and media – to impose their definitions upon the rest of humankind. We think of the problem, and the solution in predefined terms that are not of our own choosing. If we continue to remain within their sphere of meaning we will be trapped, unable to make any changes. The first steps that must be taken towards change and freedom are steps of defining. (USURY The Instrument Of World Enslavement – The End Of Economics – 1989)
For the beautiful Kirthana, life has been defined for her. Brought up by her loving single-parent mother who slogged and toiled to bring her up, and to make sure as best she could that little Kirthana would have a better and more prosperous life than she ever had.
What is prosperity? Everyone should know that you’d say. Yeah, I’m sure. The defined version, from the word ‘prosper‘ :
As defined, we all build our lives around achieving ‘prosperity‘. Go to school, get a degree, get a good paying job and you’re all set to prosper.
I grew in the 50’s and went through the same routine. In some form and manner I’ve achieved ‘prosperity‘, but that era is gone for the present young ones. The (financial) system is dwindling and its foreclosing. Call it cyclic if you wish as its been presented as cycles of ups and downs. Know that the cycles have stopped. There is no upturn this time. I hate doing this showing of financial graphs and economic figures, but it does shows the realities of the current world economy. If good economy offers prosperity for the people, then what’s going on out there simply means that ‘prosperity’ is not in the offing anymore.
The word ‘economy‘ means different things to different people. Forget the formal academic Adam Smith mambo-jumbo, let’s just stick to the layman’s general version which is simply about improving the living conditions of people in their everyday life. For the man-in-the-street, economics even includes and/or inter-twined with finances, banks, businesses and employments.
For most people life revolves around the economics as they understand it. Life is good when the economy is good and vice versa.
In that order people believe that they must work hard and excel for their dreams to come true. Not knowing any better and without looking any deeper they proceed on the stage-of-life which they’re on and which it has been for their parents and grand-parents. Neither do they know, nor bothered to know how ‘the system‘ works. If it worked for their parents and grand-parents it would surely work for them. So they think. This belief is also perpetuated by the given thoughts that there is no other way and that ‘the system‘ with its ‘natural‘ cycles of ups-and-downs is everlasting.
What’s really sad is that they do not know that the whole system is a Ponzi scheme where the rich gets richer and the poor gets poorer, on a very uneven playing field. The casino was created by the banksters and left no chance for gamers to win at all. The trick is the illusion of chance. So people like little Kirthana and her mother work hard to get the chance. Little do they know its all a trick and that nothing is what they think is.
The only business of the casino is churning out a product called ‘debt‘. The whole machinery is being worked and lubricated by slaves (in debts).
Here are some data which should give even the sleepy heads a clear picture of debt being a BIG business and the ONLY business on Earth.
All countries are in big debts, which is translated as everyone in every country is in debt. Its the people who pay the National Debt, not the so called governments.
This is everyone’s hiddenprimary debt which everyone pays through income tax, goods and services tax, import taxes, other taxes, licenses, stamp fees and permits. In your ‘prosperity‘ you’d pay more as you earn and spend, and that’s why you’re encouraged to ‘prosper’.
The other BIG business ofdebts:
Junk bonds – What Is a Junk Bond?
From a technical viewpoint, a junk bond is exactly the same as a regular bond. Junk bonds are an IOU from a corporation or organization that states the amount it will pay you back (principal), the date it will pay you back (maturity date) and the interest (coupon) it will pay you on the borrowed money.
By way of contrast, the bond bubble is now well over $199 trillion in size. And if we were to include credit instruments that trade based on bonds, we’re well north of $600 trillion.
Not only is this exponentially larger than global GDP (~$80 trillion), but because of the structure of the banking system the implications of this bubble are truly systemic in nature…
Globally, the sovereign bond market is $58 trillion in size.
The investment grade sovereign bond market (meaning sovereign bonds for countries with credit ratings above BBB) is around $53 trillion. And if you’re talking about countries with credit ratings of A or higher, it’s only $43 trillion.
This is the ultimate backstop for over $700 trillion in derivatives.
So you see, all the other businesses in the real economy like manufacturing, tradings, transportation, etc., are simply consciously/unconsciously creating debts for the banksters. Most if not all businesses are into borrowings for whatever reasons to operate or expand. It cascades down to people like you and I (looking for the elusive prosperity) being enslaved by employments, earn, spend and borrow to keep the system running. Then there is the Military Industrial Complex and the war business, but that’s another story for another time.
The system is collapsing and its designed that way taking on the debt route. You can read about the imminent collapse of the financial system by the financial experts on the Internet.
It saddens me to see a highly intelligent being like little Kirthana working so hard to excel with a great (personal) purpose and dreams to end up serving the cabal financial elitists.
There is another way for the bright little Kirthana, she needs to know the truth and shown the big picture so that she could define her life herself, her way, dream and prosper her way.
We are the slaves that we are…but she need not be one.
KUALA LUMPUR: Malaysia has a stark choice of either increasing government revenue via the goods and services tax (GST) or burdening the country by borrowing more money.
Prime Minister Datuk Seri Najib Tun Razak said the implementation of GST was necessary as the country risked becoming bankrupt like Greece if it resorted to borrowing.
“We have to find additional sources of income and that’s why we have to implement the GST,” he said at a seminar on Strengthening the National Economy.
He said rating agency Moody’s Investors Service changed their outlook on Malaysia from neutral to positive just weeks after the GST was announced.
“This is because they know Malaysia was taking fiscal consolidation steps which are unpopular but necessary for the good of the country,” he said.
Najib lashed out at the Opposition for their mixed comments about whether they supported the GST and for clouding the issue with unfair arguments, including the high electricity bill of his official residence,
He pointed out Seri Perdana belonged to the people of Malaysia and he was occupying it temporarily just like his two predecessors.
“It has a function room. If a head of state comes, are we expected to dine in the dark?
“If the Chinese premier comes, should we use candlelight and say this is more romantic?” he quipped.
Najib said out of an entire workforce of 14 million, only 1.34 million paid income tax.
“That is just 10% who pay, and there are others who should pay but don’t,” he said.
He pointed out the definition of patriotism is fulfilling one’s responsibility to the country and this included paying taxes.
He added that the public’s expectations on the Government was always increasing, and more revenue is needed to meet these demands.
He said Malaysians cannot always depend on revenue from petroleum which will eventually run out.
Najib said the public’s fear that the GST would cause staggering price increases was unfounded.
He said 160 other countries have implemented the GST and from their experience there is only a slight increase in prices in the year of implementation.
“It is unlikely all these countries made a mistake by implementing the GST,” he said.
From politics to finance Britain’s old order has lost its way
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There are still corners where the ancient regime thrives. For all the well-publicised troubles of some of her immediate family, the steadying figure of Queen Elizabeth has kept the affection of her people and sustained the monarchy as the guardian of national unity. To adapt the 19th century essayist Walter Bagehot, she has not allowed the daylight to tarnish the magic.
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…The rise of nationalism in Scotland and Ukip’s success in promoting English identity politics speak to a union of nations that is losing the glue of Britishness. Some, such as the historian Linda Colley, suggest that this was always going to be so. Britain, after all, is an invented state, forged since the 18th century through imperial adventures, shared Protestantism and common enemies. Mr Bogdanor’s answer is a new constitutional settlement — a redistribution of power between, and within, the four nations of the union to match the social, economic and cultural realities of the times.
Huge increases in private sector credit preceded many financial crises
In an update of work on debt and deleveraging, McKinsey notes that between 2000 and 2007, household debt rose as a proportion of income by one-third or more in the US, the UK, Spain, Ireland and Portugal. All of these countries subsequently experienced financial crises. Indeed, huge increases in private sector credit preceded many other crises: Chile in 1982 was an important example of this connection…
The world desperately needs new ways to manage its economy, ones that support demand without creating unmanageable rises in indebtedness. If the affliction is now affecting China, then it will have befallen all the large economies. With debt continuing to rise, it is likely to spread further. In the absence of radical reforms, the world economy depends on generating fragile balance sheets. Better alternatives are imaginable. But they are not being chosen. In their absence, expect crises.
The ringgit dropped 0.6% to 3.6435 a dollar today after news that strategic investor 1Malaysia Development Bhd may require a RM3 billion cash injection from the government. – The Malaysian Insider file pic, February 23, 2015.
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The ringgit is under pressure today on concerns that strategic investor 1MDB will need a bailout to service its RM42 billion debt.
1Malaysia Development Bhd may require a RM3 billion cash injection as income from its power assets is insufficient to service borrowings, according to a report today in The Edge Financial Daily.
1MDB said last week it will break up its assets and refrain from taking on new investments.
“Sentiment towards the ringgit is unlikely to change until we get clarity over the financial position of 1MDB,” Bloomberg quoted Khoon Goh, a strategist at Australia & New Zealand Banking Group in Singapore, as saying.
“There is concern that a government bailout would be required.”
The ringgit dropped 0.6% to 3.6435 a dollar as of 9.32am in Kuala Lumpur and earlier fell to 3.6460, the lowest level since April 2009, according to prices from local banks compiled by Bloomberg.
The local financial markets were shut on February 19 and 20 for the Lunar New Year break.
1MDB’s financial position has become “a source of uncertainty” and the company’s borrowings were weighing on Malaysia’s sovereign rating outlook, Fitch Ratings said in a January 21 statement.
Fitch rates Malaysia A-, the fourth-lowest investment grade.
Government bonds have also retreated. The yield on 10-year notes climbed one basis point, or 0.01 percentage point, to 3.89%, Bloomberg data show. – The Edge Financial Daily, February 23, 2015.
Related:
BAILOUT
Malaysia’s 1MDB says to rely on finance ministry for debt refinancing if needed
KUALA LUMPUR (Feb 23): Malaysian state fund 1MDB said on Monday that the refinancing of its debt will involve the finance ministry “as relevant and as required” after media reported that the government may inject up to 3 billion ringgit ($823 million) into the fund.
The Edge Financial Daily said that the finance ministry – which owns 1MDB – may have to inject cash as the fund’s income from its power assets is insufficient to service its debt .
This, according to veteran journalist Datuk A Kadir Jasin, is because the sovereign wealth fund is a “government-owned company that is answerable to the people”.
Hence, the former New Straits Times (NST) group editor-in-chief says the beleaguered 1MDB cannot “hide behind a technicality to justify its secret business dealings”.
Writing in his blog The Scribe, Kadir, who is seen to be aligned to former PM Tun Dr Mahathir Mohamad, said that “briefings and press conferences held by 1MBD’s top brass, including its chairman (Tan Sri) Lodin Wok Kamaruddin, left (sic)with more questions than answers”.
Kadir had been highly critical of the sovereign wealth fund in the past and many analysts see the ringgit’s falling value and Malaysia’s sovereign credit rating dive as a result of the vague transactions by 1MDB.
Some analysts are predicting a calamitous financial year of the Goat as the 1MDB debacle gets out of control.
Arul Kanda, 1MDB’s president, said it will take measures to ensure it is positioned to service debt
1MDB, the Malaysian development fund, has pledged to make no more investments or start new projects and will limit future borrowing as it seeks to draw a line under months of controversy over its more than $11.6bn debt pile.
The fund, established in 2009 with the political backing of Malaysia’s prime minister Najib Razak, has been undergoing a “strategic review” since December after facing a barrage of criticism from Malaysian opposition politicians over a slew of questionable projects funded through multiple loans.
… “We recognise that our debt financed capital structure is no longer appropriate for the company, and intend to take measures to ensure that 1MDB and the standalone entities are well positioned to service debt and infrastructure obligations,” said Arul Kanda, 1MDB’s president, as the fund announced the outcome of a “strategic review” that was launched three months ago. Continue reading…
Concerned staff at 1MDB have confided that all computers and records at the troubled fund were recently called in and wiped. They say this includes not only personal computers belonging to staff, but also the mainframe servers as well!
The order came as a surprise move by management, according to sources and it happened just before Christmas. Staff were contacted directly by phone or in person and told to take their computers immediately to the IT section in order to be wiped.
None of the instructions were delivered by text or email, leaving little record of the blitz, which took place in the space of just a few hours.
The result is that there are few records left available to show what has been going on at the beleaguered fund and this is widely believed amongst staff to be the reason.
The excuse was they had ‘been hacked’
The excuse given to bewildered staff members was that there had been a systems hack.
One of them sent out this message on the day it happened, which was Friday 19th of December, a fortnight before the departure of the previous CEO Mohd Hazem Abdul Rahman:
“1MDB has been collecting employee laptops and company-issued handphones today. Staff were contacted in person or by phone call and informed to hand them in to IT. No emails or text messages were sent. On asking the reason for the hand-in staff were advised that there has been a hacking attempt and that therefore the company is collecting all laptops and handphones in order to wipe them (wipe the discs clean) before they are returned. Parallel to that the main servers are being wiped. If you try to email a 1MDB employee now the email will bounce back as undeliverable. Obviously the reason given is incredulous to say the least”
Experts have told Sarawak report that the excuse of a hacking attempt is indeed rarely a credible reason for wiping information from servers:
It makes absolutely no sense to wipe servers to protect against hacking or online attacks. Instead you would either take these severs offline altogether until the issue was resolved or step up security. When Sony was hacked recently they didn’t wipe all their servers.
This snap decision to expunge all past records and emails from all staff computers and handheld devices as well as the organisations mainframe computers will inevitably raise questions about whether management were trying to conceal potentially embarrassing information before the handover.
Numerous questions have been asked for several months from all quarters about the hundreds of missing millions from the fund, which were raised from public borrowing.
Everything Wiped – what are they trying to hide?
There have been few proper answers forth-coming from 1MDB and now it appears there may be no evidence to be had either!
Were outgoing team deliberately covering up evidence and if so what, people are inevitably left wondering?
Just in September, Sarawak Report, for example, had disclosed that it has been given access to emails, which indicated the extent of the involvement of tycoon Jho Low in 1MDB’s decision-making processes. Was this the reason for the attempt to wipe anything that could corroborate such information from 1MDB?
An emailed directive was later sent out to all staff confirming the situation that all data pre-19DEC2014 is no longer retrievable. “It is an internal email” one staff member told Sarawak Report. “It says that as part of the wipe all 1MDB HQ emails have been re-configured. All emails prior to 19DEC14 are permanently wiped”.
It is generally acknowledged that 1MDB has become the single biggest threat facing the Malaysian economy, according to observers with borrowings now standing at over $USD40billion and a number of assets widely believed to have been highly inflated in value.
There is also a mysterious black hole at the centre of the fund, which its managers have found impossible to account for. This is an alleged billion dollars, which it is claimed is resting in a redeemable Cayman Islands account, having been allegedly repaid to the fund by the company PetroSaudi, which originally received the loan.
The former CEO of 1MDB had claimed at the end of last year that this money was being ‘repatriated’ to help fund pressing debt repayments to Malaysian banks on the billions borrowed. When he took over the job in January the new CEO was first quoted as saying that all the money had indeed been returned.
However, it is now admitted that this is not the case and the current excuse is that the low level of the dollar makes it a bad time to try and return the money.
Instead, business tycoon Ananda Krishnan is being pressured to stump up RM2billion to prevent 1MDB defaulting on its loans on Feb 18th next week, which would plunge the Malaysian economy into crisis.
Krishnan has been resisting extradition to India in connection with a corruption case and it is understood that Malaysia may stop protecting the businessman unless he cooperates.
It is an ugly stand off. And the escalating crisis has led to an increasingly poisonous atmosphere politically. The man with full responsibility for the fund is its Chairman, who is also the Finance Minister and Prime Minister, Najib Razak.
Both opposition politicians and increasingly leaders from Najib’s own UMNO party are demanding accountability and an explanation as to how such a vast debt could have accumulated out of borrowings in just five years?
1Malaysia Development Berhad (1MDB) is a strategic development company, wholly owned by the Government of Malaysia.[1] 1MDB was established to drive strategic initiatives for long-term economic development for the country by forging global partnerships and promoting foreign direct investment.[2] 1MDB is currently involved several high-profile projects such as the Tun Razak Exchange, Tun Razak Exchange’s sister project Bandar Malaysia and the acquisition of three Independent Power Producers. – Wiki
“Be bold and daring…and break new ground to do things differently”… so their website say.
…I don’t get it. A too big to fall (TBTF) corporation owned by corporate Malaysia is unable or simply refuse to pay its debt? Now its being ‘bailed-out‘ by a an individual, a multi-billionaire Ananda Krishnan… and that makes the owner (government), is now indebted to a private citizen? What would be the “terms and conditions”? Hello Malaysians…do you get it? Ask 1MDB to reveal it!
The order came as a surprise move by management, according to sources and it happened just before Christmas. Staff were contacted directly by phone or in person and told to take their computers immediately to the IT section in order to be wiped. Read more
1MDB repays RM2 billion loan after Ananda Krishnan bailout, say sources
Malaysia’s debt-heavy strategic investor 1Malaysia Development Bhd (1MDB) settled a RM2 billion loan yesterday with money from billionaire T. Ananda Krishnan, six days before bankers triggered a default, say sources.
The Malaysian Insider understands from bankers familiar with the matter that the banks involved received the money yesterday evening, hours after Ananda was said to have agreed to the bailout.
The payment is a last-minute reprieve for 1MDB – a cross between a sovereign fund and a private investment firm wholly owned by the Ministry of Finance. Its debt woes were seen as pressuring the ringgit and Malaysia’s sovereign credit rating.
“The money has come in. It was an Ananda bailout,” said a source familiar with the matter.
Other sources confirmed the repayment of the RM2 billion for tranche 2 of the RM5.5 billion bridging loan to the relevant banks.
The 1MDB subsidiary, Powertek Investment Holdings Sdn Bhd, took the loan last May to refinance a RM6.17 billion bridging loan taken in 2012 to part finance the purchase of power assets.
1MDB restructured the RM5.5 billion bridging loan into two tranches: a RM3.5 billion loan due by August 2024 and a RM2 billion loan due last November, according to data from LPC, a Thomson Reuters unit specialising in loans.
The RM2 billion loan was guaranteed by Ananda’s company Usaha Tegas, said people with knowledge of the talks between Ananda and 1MDB.
Malaysia’s Maybank has 58.99% of the RM2 billion loan while RHB has 32.41%. The other lenders are Alliance Investment Bank Bhd (4.06%), Malaysia Building Society Bhd (3.24%) and Hwang DBS Investment Bhd (1.29%).
The development fund, which owns a large portfolio of power plants, has missed payments on the bridge loan that was due end-December and its lenders were keen to see it paid before they had to write it down in first-quarter earnings, bankers said.
The Malaysian Insider had reported that the final deadline for the loan repayment was February 18.
Ananda, who sold his collection of power plants to 1MDB, has been in talks with 1MDB to become a cornerstone investor in the long-delayed US$3 billion listing of its power assets.
1MDB, whose advisory board is chaired by Prime Minister and Finance Minister Datuk Seri Najib Razak, has some RM42 billion in total debt. It has been heavily criticised for taking on the debt and the difficulty in repaying its loans.
Among its harshest critics are former prime minister Tun Dr Mahathir Mohamad and former finance minister Tun Daim Zainuddin, apart from opposition lawmakers who say its debts are a risk to the country’s financial system.
The opposition had queried 1MDB’s financial health after 1MDB president and group executive director Arul Kanda Kandasamy told Singapore’s Business Times over the weekend that the remaining US$1.103 billion (RM3.91 billion) Cayman Islands funds will not be repatriated back to Malaysia. – February 13, 2015.
“Where is the money? They haven’t told us where it is. And if they do have it, why didn’t they use it to pay off their debts? They wouldn’t need to borrow from Ananda to do it.”
We say kudos to Dr Mahathir and Daim for being willing to speak out about 1MDB as their voice will carry the necessary weight for action to be taken to prevent 1MDB from becoming one major disaster for Malaysia. – The Malaysian Insider
Having recently exposed the mainstream media’s lack of objectivity in “slanted and distorted” interviews, Rand Paul has turned his focus to another staple of the status quo – his father’s arch-nemesis, The Fed. As WSJ reports, Sen. Rand Paul unleashed a blistering attack on the Federal Reserve in Iowa on Fridasy evening, calling for an audit of the institution’s books and blaming it for fueling income inequality. “Once upon a time, your dollar was as good as gold,” he explained, adding “then for many decades, they said your dollar was backed by the full faith and credit of government.” Do you know what it’s backed by now? “Used car loans, bad home loans, distressed assets and derivatives.”
Speaking to an enthusiastic crowd of Iowa activists, Sen. Rand Paul on Friday evening delivered a blistering attack on the Federal Reserve, calling for an audit of the institution’s books and blaming it for fueling income inequality.
Mr. Paul, a Kentucky Republican and likely 2016 presidential candidate, said the central bank’s monetary policies had contributed to a weakening of the U.S. currency and represented a threat to the stability of the economy.
“Once upon a time, your dollar was as good as gold,” Mr. Paul said, speaking at an event organized by the libertarian-leaning group Liberty Iowa. “Then for many decades, they said your dollar was backed by the full faith and credit of government. Do you know what it’s backed by now? Used car loans, bad home loans, distressed assets and derivatives.”
…
In his appearance, Mr. Paul delivered a speech heavy on libertarian themes—calling on fellow members of Congress to support his proposal to audit the Fed before pivoting to other themes such as privacy, surveillance, marijuana and changes to criminal sentencing.
“I think there needs to be some sunshine. I’m going to fight ’em, and we’re going to get a vote on audit the Fed,” he said to applause from the crowd.
…
The younger Mr. Paul said in his speech that the Fed’s book-keeping and monetary policies could lead to serious economic troubles, alleging that the central bank was deeply leveraged and that only an audit could sort out its current state.
“They’re leveraged three times greater than Lehman Brothers was when Lehman Brothers went belly up,” Mr. Paul said, referring to the financial services firm that went bankrupt during the 2008 financial crisis.
…
He blamed the Fed’s interest-rate setting policies for making income inequality worse, saying that wealthy Americans could survive an era of low interest rates because they had a diversified portfolio of assets. Low-income Americans, Mr. Paul said, weren’t seeing their wealth kept in bank accounts grow because of low-interest rates set by the central bank.
Mr. Paul also said that income inequality “seems to be worse in cities run by Democrat mayors, states run by Democrat governors and countries run by Democratic presidents.”
In addition, Mr. Paul expressed support for the Fed’s eventual abolition, though he said that the current rate of borrowing by the United States government was the reason a central bank was needed now.
“People say, ’Well, just get rid of the Fed’—which would be great,” said Mr. Paul. “But the reason we have a Fed is because we have debt.”
…and Malaysia is in the same boat paying the “debt of independence” to the colonial ‘crown’/cabal masters since 1957… to infinity! This debt accounts for most of the so called ‘national debt‘ – http://www.nationaldebtclocks.org/debtclock/malaysia. At the rate of rising and accruing interests, Malaysia will f o r e v e r be indebted.
Bankocalypse drill: US and UK to run ‘too big to fail’ collapse simulation
Britain’s Chancellor of the Exchequer George Osborne (R) speaks to U.S. Treasury Secretary, Jack Lew.
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The US and UK will stage a comprehensive simulation next week check whether the countries’ financial and banking sectors are still vulnerable to the problem of the ‘too big to fail’ institutions and coordinate their actions in case of such collapse.
Government financial leaders from Britain and US will simulate a failure of a large banking institution on Monday in Washington, DC, to test the effectiveness of each county’s banking regulations.
They hope the simulation – which will not mimic the collapse of any particular ‘too big to fail’ institution – will demonstrate what the officials have learned from the financial crisis about their respective roles, and how new practices should shield taxpayers from further bailouts. The simulation will run through procedures if a large UK bank with US operations failed, and those for a US bank with a British presence.
“We are going to make sure we can handle an institution that was previously regarded as too big to fail,” said UK chancellor, John Osborne, speaking to journalists at an International Monetary Fund meeting in Washington on Friday. “This demonstrates the distance we have come over the last few years to build resilience and learn the lessons of the financial crisis.”
Participating in the “war game” along with Chancellor Osborne will be US Treasury secretary Jack Lew, head of the Federal Reserve, Janet Yellen, and the governor of the Bank of England, Mark Carney, with senior officials from both countries.
“The purpose of the simulation was to make sure every player, including politicians, knew their own responsibilities and who needed to act, which creditors would take a hit, and how to communicate the authorities’ actions to the public,” Osborne told the Financial Times.
the only winning move is not to play RT @vgmac On Monday, US and UK regulators will “war game” a big bank failure. http://t.co/b7RWCsngYU – Matthew Zeitlin (@MattZeitlin) October 10, 2014
It has been six years since the 2008 financial crisis when $700 billion in taxpayer dollars was used to shore up failing institutions, besides the cost of other bailout programs such as for Fannie Mae and Freddie Mac that totalled at least $135 billion more. The financial crisis lead to mass unemployment, drastic cuts to US government social programs, and contributed to the economic downfall of several European states.
Since then regulations have passed in the US – the Dodd Frank Act of 2010 that forced banks to have in place capital and to draw up plans of how they would go through an ordinary bankruptcy and which groups would be paid off first.
Next week’s simulation, the results of which are expected to be released to the public, is designed to reassure the taxpayers in both UK and the US that their money will not be misused next time when a large financial institution turns out to be not that big to fail.
Many people have sent me the following article related to a huge meeting next week with the heads of the US and UK financial regulators. The meeting has to do with the ability to wind down large “Too Big to Fail” banks. Here’s one of the articles:
U.S. and UK to test big bank collapse in joint model run
“Treasury Secretary Jack Lew and the UK’s Chancellor of the Exchequer, George Osborne, on Monday will run a joint exercise simulating how they would prop up a large bank with operations in both countries that has landed in trouble.”
“Also taking part are Federal Reserve Chair Janet Yellen and Bank of England Governor Mark Carney, and the heads of a large number of other regulators, in a meeting hosted by the U.S. Federal Deposit Insurance Corporation.”
END
On the face of it it doesn’t seem like such a big deal but how many times have we heard of “exercises” and “simulations” being scheduled and run the very same day as an actual false flag event happens??
By now it’s an article of faith within the sound money community that most major countries have borrowed so much that they’re left with only two options: default on their debt through mass-bankruptcy and a new Great Depression, or inflate it away through stepped-up currency creation.
This is an investment thesis, since a given country’s choice will determine which asset classes rise and fall.
But it’s also a criticism of the people and policies that put us in this box. The presidents, prime ministers, senators, central bank heads and investment bankers who presided over the global economy of the past 30 years screwed up monumentally, leaving today’s savers, entrepreneurs and workers to clean up their mess.
Because acknowledging this stark choice between inflation and Depression is such an admission of failure, it isn’t discussed in these terms on the official side of the debate. There, the tone is more measured and the promise is that the next tweak will more-or-less painlessly return the system to a stable equilibrium of steady growth, full employment and incumbent electoral success.
But at some point the fig leaf has to fall and the truth — that there are no painless solutions, only different types of pain — will have to be stated explicitly. Here’s a glimpse of that future in the form of an old (2010) column by New York Times columnist and Nobel Prize-winning economist Paul Krugman:
I think it’s fair to say that a majority of economists believe that excessive private debt played a key role in getting us into this economic mess, and is playing a key role in preventing us from getting out. So, how does it end?
A naive view says that what we need is a return to virtue: everyone needs to save more, pay down debt, and restore healthy balance sheets.
The problem with this view is the fallacy of composition: when everyone tries to pay down debt at the same time, the result is a depressed economy and falling inflation, which cause the ratio of debt to income to rise if anything. That is, we’re living in a world in which the twin paradoxes of thrift and deleveraging hold, and hence in which individual virtue ends up being collective vice.
So what will happen? In the end, I’d argue, what must happen is an effective default on a significant part of debt, one way or another. The default could be implicit, via a period of moderate inflation that reduces the real burden of debt; that’s how World War II cured the depression. Or, if not, we could see a gradual, painful process of individual defaults and bankruptcies, which ends up reducing overall debt.
And that’s what is happening now: as this story in today’s Times points out, the main force behind the gratifying decline in consumer debt appears to be default rather than thrift.
So basically, we can do this cleanly or we can do this ugly. And ugly is the way we’re going.
Some thoughts
Even now, four years after Krugman’s rhetorical trial balloon, policy makers and economists refuse to admit that inflation is a form of default. But things are going so badly for these guys pretty much everywhere that before long they’ll be forced, as Krugman briefly was, to start spinning default-through-devaluation as the smoother, less painful version of an act that in most walks of life is seen as shameful.
Of course, one person’s smooth transition is another’s swerve into a ditch. Savers now accepting 0.5% interest on bank CDs will be shocked to find out that the government is explicitly trying to devalue the currency by 5% a year, giving those CDs a -4.5% annual return and making saving for retirement — or even preserving capital — impossible.
But leaving aside the moral failings of inflation, Keynesian economic theory also has a glaring analytical flaw: a seeming inability to think through the secondary and tertiary effects of policy. To take one obvious example, if a country begins to explicitly default on its debts by lowering the value of its currency, then the rational response for people within that system is to borrow as much as possible at current low interest rates with the goal of paying back the loans in massively-cheaper money. So…the policy of shrinking current debt through inflation actually leads to a surge in new borrowing and (presumably) an even bigger debt problem in the future. But because it generates “growth” in the short run as the proceeds of all those new loans are spent, it appears to work for a while, which seems to be what matters in this theoretical framework.
Krugman’s admission is also a big step on the journey to the Austrian economics crack-up boom, which hits when a critical mass of people figure out that the government is going to make the currency worth less each year for a really long time. Individuals and businesses lose interest in holding the currency, instead spending it on real stuff as fast as it comes in, thus setting off an asset bubble/hyperinflation.
And about WWII fixing the Great Depression, sorry, but the US invasion of Europe followed a decade of private sector debt defaults which lowered total debt/GDP by more than half. By 1939 the US had already deleveraged and was ready to start growing again. The fact that Washington then increased spending and borrowing is almost irrelevant — or maybe actually negative because the bullets, tanks and planes the government bought were subsequently used or destroyed without adding to US real wealth. So a case could be made that the 1950s and 1960s would have been even better economically if WWII had never happened.
The current bubbles in financial assets – in equities and bonds of all grades and quality — raging in every major market across the globe are no accident.
They are a deliberate creation. The intentional results of policy.
Therefore, when they burst, we shouldn’t regard the resulting damage as some freak act of nature or other such outcome outside of our control. To reiterate, the carnage will be the very predictable result of some terribly shortsighted decision-making and defective logic.
The Root of Evil
Blame can and should be laid where it belongs: with the central banks.
They were the “experts” who decided to confront the excesses of decades past (which saw borrowing running at roughly 2x the rate of real economic growth) with even easier monetary policies designed to spur even more borrowing.
Rather than take stock of the simple fact that nobody can forever borrow at a faster rate than their income is growing (no matter how large that entity may be), the Fed, the ECB, the BoJ and the BoE have conveniently overlooked that simple fact and then boldly claimed that the cure is identical to the disease. If the problem is debt then the solution is even more debt.
If the Fed, et al. were doctors, they would prescribe alcohol to the alcoholic. They would administer more lead to the lead-poisoned patient. They would call for more water to put in the pool where a drowning individual is floundering.
The bottom line is that the Fed and its ilk made the disastrous decisions that gave us the first two burst bubbles of the new millennium. And the wonder of it all is that, instead of being met at the gates with torches and pitchforks and held to account for their errors, they have instead been granted even greater powers, less oversight, and practically zero blame.
And now they’ve given us a third and, I suspect, final bubble. By which I mean I think the effects of this bursting bubble will be so horrendous that a hundred years might pass before people will again be in the mood to speculate on fantasy wealth.
My hope is that, when this third bubble pops, the figurative (and, perhaps, literal?) torches and pitchforks come out. Finally forcing the central banks to answer to the public for their grievously poor decisions.
And yes, the investing public also bears a portion of the responsibility for playing along with the central banks. For years, some have consoled themselves with stories about how This Time Is Different, and many have ignored many obvious warning signs as they’ve enjoyed stock market and bond gains fueled by seemingly limitless liquidity.
But in the end, it’s the central banks that set the tempo and the melody at the dance hall. When they flood the world with liquidity and set interest rates to 0%, they enforce a Hobbesian choice: either play along in the risk markets, or sit in cash earning less than nothing as inflation eats away at your purchasing power.
The central banks are entirely to blame for mis-pricing money and that is the fundamental error that drives every bubble and betrays capital into hopeless investments.
So let’s all remember to place blame where it is due when the bubble bursts. We shouldn’t act surprised because there’s really no honor in being caught unawares by something so obvious.
The Biggest Bubble(s) Of All Time
We’ve covered the equity bubble in the past, but today we’re going to cover the bond bubbles (yes, plural) because the current excess in the bond market is the granddaddy of them all, and is far larger than anything ever recorded in history by a very wide margin.
But for the sake of completeness, regarding equities, if you ever wanted to get the willies about the stock market in a single chart, I think this one from Doug Short of Advisor Perspectives which plots the relationship between equity prices and margin debt is about as good as it gets:
Margin debt is simply money borrowed to buy equities. Typically speaking, an average investor with $100,000 in an account can buy up to $150,000 worth of stock. Margin debt is fuel to a rising market and a lead anchor for a falling market.
Yes, perhaps this time is different, or perhaps it’s exactly the same with speculators borrowing more and more as stock prices rise, sure in the knowledge that they will be smart enough to get out of the way of a falling market (this time).
When the bond bubble bursts, so much that people believe to be true will be revealed to be obvious and distressingly ordinary illusions.
When there’s simply too much debt, in the period leading up to a debt bubble’s bursting, everyone is counting on getting paid his or her money back, both the interest and the principal. After the bubble bursts, it’s plainly obvious that no such thing will be happening.
As is always the case with bubbles (of any sort), the only important question that needs to be answered is: Who will take the losses?
One simple answer to that question is: Whoever is holding the bonds when the bubble bursts.
Bubbles are structured like a game of hot potato. When the timer finally dings, the person holding the potato loses. It doesn’t matter one whit whether the ‘hot potato’ was a tulip bulb, swamp land, a house in Las Vegas, or a paper financial security.
The really striking part about the global bond markets today is that the potatoes have never been more numerous, or hotter.
I suppose this would be a good time to revisit how Einstein defined insanity: trying the same thing over and over again and expecting different results.
Unfortunately for those hoping for a different outcome, history is 100% consistent on the matter: Bubbles always burst. And when they do, what people thought was fabulous wealth is proven illusory, and it simply vanishes.
Not that this clear historical record is keeping humans from trying to cheat the odds.
Given that the Fed has engineered three increasingly larger bubbles within an unprecedentedly-short fifteen-year time span, perhaps we shouldn’t persecute them. After all, they may easily be able to plead ‘not guilty’ by reason of insanity.
$100 trillion – is that a lot?
We frequently throw around big numbers in our analysis. We even try to explain them in terms that help us mentally grasp an appreciation of their enormity (watch the video How Much Is A Trillion?, as an example). But the size of the bond market across the developed world defies even our best efforts.
After all, if $1 trillion dollars is a stack of $1,000 bills 68 miles high, then I guess $100 trillion would be a stack 6,800 miles high:
The amount of debt globally has soared more than 40 percentto $100 trillion since the first signs of the financial crisis as governments borrowed to pull their economies out of recession and companies took advantage of record low interest rates, according to the Bank for International Settlements.
The $30 trillion increase from $70 trillion between mid-2007 and mid-2013 compares with a $3.86 trillion decline in the value of equities to $53.8 trillion in the same period, according to data compiled by Bloomberg.
The jump in debt as measured by the Basel, Switzerland-based BIS in its quarterly review is almost twice the U.S.’s gross domestic product.
Note that global debt climbed by $30 trillion between 2007 and 2013, a 42% increase while global equities actually declined a few trillion (to $54 trillion), yielding a global debt-to-equity ratio of almost 2. [Note: Global equities are now valued at $66 trillion and are pouring on almost $1 trillion/week lately. Of course, they have a habit of going down, from time to time, even more quickly than they rise. Something that is easy to forget in today’s environment]
So, a 42% increase in just 6 years. Did global GDP advance by 42% during this same period? No. Not even close.
Did private companies borrow all that money planning to plow back into productive enterprises? Nope. Companies borrowed relatively little of $30 trillion, and even then, they mainly used that newly-borrowed money to buy back shares and/or stash it on their balance sheets.
Who did borrow all that money then?
Why, nations did. Sovereign entities that were desperate to keep things afloat and borrow heavily (because private concerns weren’t able to take on new debt fast enough).
Why? Because the world’s debt pile must keep expanding. That’s the world we live in today. If the pile should start to contract, the game of Who Will Take The Losses? begins. And governments know (sometimes consciously, sometimes subconsciously) that the debt bubble has become so monstrous, and so interconnected globally, that even a moderate correction will wipe out so many players that the world financial system will be brought to its knees. Or worse.
In Part 2: Something Very Wicked This Way Comes, we provide great detail into why sovereign and corporate (both high-grade and junk) debt markets simply and mathematically must contract. Current prices are so historically divorced from fundamentals at this stage that this ‘prediction’ is about as elementary as counting on gravity to bring a tossed stone back to earth.
Given the excesses of the stock and bond markets I am increasingly concerned that this next bubble burst will be far worse than any that has yet come since I’ve been alive. Countries will fail financially and economically, political upheaval will follow, fortunes and dreams will be shattered, and lots of people will lose their jobs.
In short, lots of things will break and cease to function as the greatest wealth transfer in all of history plays out.
“Banking was conceived in iniquity and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of a pen they will create enough deposits to buy it back again. However, take it away from them, and all the fortunes like mine will disappear, and they ought to disappear, for this world would be a happier and better world to live in. But if you wish to remain slaves of the Bankers and pay for the cost of your own slavery, let them continue to create deposits.” – Sir Josiah Stamp, President of the Bank of England in the 1920s, the second richest man in Britain
First let’s take a look at the world debt
Latest updated figures (September 30, 2014):
A record level of $158.8 trillion in global debt, together with low economic growth is creating a serious threat of a new financial crisis, says the sixteenth annual Geneva Report.
Total world debt, excluding the financial sector, has risen from 180 percent of global output in 2008 to 212 percent last year, according to the report written by a panel of senior economists including three former senior central bankers. – RT
Although only 49 countries (out of 193) are shown above, it suffices to give us a general picture of a world in debt. The creditors, as we are too well aware of are those of the banking families of the Rothschilds, The Federal Reserve Cartel: The Eight Families, the Warburgs and the Rockefellers to name name a few.
As all the central banks of the countries in the world, except China and Russia belong to the Rothschild, we can come to the conclusion that all the countries in the world are in debt. The main debt comes from the issuance of the national currency of the respective country by the central bank.
“From this point on the entire US money supply would be created out of debt by bankers buying US government bonds and issuing them from reserves for bank notes…In numerous years following the [Civil] war, the Federal Government ran a heavy surplus. It could not (however) pay off its debt, retire its securities, because to do so meant there would be no bonds to back the national bank notes. To pay off the debt was to destroy the money supply.”. – John Kenneth Galbraith
“There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.” — John Adams
“Loans alone cannot sustain the money supply because they zero out when they get paid back. In order to keep money in the system, some major player has to incur substantial debt that never gets paid back; and this role is played by the federal government.” – Ellen Brown (Web of Debt)
…virtually all money is actually created as debt. For example, in a hearing held on September 30, 1941 in the House Committee on Banking and Currency, the Chairman of the Federal Reserve (Mariner S. Eccles) said:That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.
…the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this (and the paper does admit, if you read it carefully, that the central bank does fund the government after all). So there’s no question of public spending “crowding out” private investment. It’s exactly the opposite. – Bank of England
Exponential growth is not sustainable, according to credible scientists. Mainstream economists ignore this fact in the hope that that somehow growth can outpace debt, one year a time.
But exponentially rising debt is not sustainable because the capacity to service the debt is finite. Without a means of extinguishing debt, servicing is merely borrowing new money to pay off old debts. This is the equivalent of taking out a home equity loan to get money to pay the mortgage.
What happens when a debt cannot be paid? This answer is very clear to all who has been in debt – you become bankrupt. The creditor/s comes and take everything from you.
An entity (person or institution) that extends credit by giving another entity permission to borrow money if it is paid back at a later date. Creditors can be classified as either “personal” or “real.” Those people who loan money to friends or family are personal creditors. Real creditors (i.e. a bank or finance company) have legal contracts with the borrower granting the lender the right to claim any of the debtor’s real assets (e.g. real estate or car) if he or she fails to pay back the loan.
Investopedia explains ‘Creditor’
When creditors are notified of bankruptcy proceedings, they have a couple of options with respect to their claim against the debtor:
1. They can share in any distribution from the bankruptcy estate according to the priority of their claim. Most unsecured, non-wage claims come low on the priority list.
2. They can take the debtor to court and challenge a debtor’s discharge (the right not to pay back) due to bankruptcy protection.
What is made certain by the banksters is that the debt of the world cannot be repaid. They keep on giving loans and in hard times like from 2008 to now they create what is called Quantitative Easing (QE) which simply means they print more money and dish it out to the defaulters – failing too-big-to-fall banks and corporations. The only thing that keeps a country going is to pay the interests, and when it cannot it goes into default and become bankrupt.
“Give me control over a nations currency, and I care not who makes its laws” – Baron M.A. Rothschild
The world is already bankrupt and it belongs to the banksters.
Can Asia overcome its addiction to debt? That is the question across the region as economies slow and borrowing costs rise. After more than a decade of often blistering growth, many fear that Asia’s golden era may be drawing to a close.- FT
“Given the significant expansion in government spending in recent years, governments (including central, state and local governments) have been the largest debt issuers,” according to Branimir Gruic, an analyst, and Andreas Schrimpf, an economist at the BIS. The organization is owned by 60 central banks and hosts the Basel Committee on Banking Supervision, a group of regulators and central bankers that sets global capital standards.- Bloomberg
Steve Jobs used to tell a very inspiring story about an article he read in Scientific American when he was a boy:
He said that the article measured the ‘efficiency of locomotion’ of various species– essentially how many calories different animals spend getting from Point A to Point B.
The most efficient of all? Not human beings. Not by a long shot. It was the condor. The condor expended the least amount of energy per meter or kilometer traveled. Human beings were pretty far down the list.
But as Jobs recounts, the authors had the foresight to also test the efficiency of a human being on a bicycle. And this absolutely blew all the other species away.
Jobs later said that this was incredibly influential on his thinking because he realized that human beings were fundamentally tool creators. We take our situation, however grim or rudimentary, and we make it better.
There’s undoubtedly a lot of bad news in the world these days. Some people realize it. Others refuse to believe it and stick their heads in the sand.
Our century-old monetary system is unraveling before our very eyes.
This absurd structure in which we award a tiny central banking elite with the dictatorial power to control the money supply in their sole discretion is now drowning the world in paper currency.
ALL financial markets are manipulated by central banks, predominantly the Federal Reserve. One woman– Janet Yellen– has the power to affect the prices of nearly everything on the planet, from the wholesale price of coffee in Colombia to the cost of a luxury flat in Hong Kong.
Moreover, politicians in some of the most ‘advanced’ economies in the world (Japan, the US, France, the UK, etc.) have accumulated so much debt that they have to borrow money just to pay interest on the money they have already borrowed.
They have indebted generations who will not even be born for decades.
They wage endless, costly wars. They spy on their citizens. They tell people what they can and cannot put in their bodies. They confiscate private property and wages at the point of a gun.
They abuse the population with legions of heavily armed government agents. They conjure so many codes, rules, regulations, laws, and executive orders that it becomes nearly impossible for an individual to exist without being guilty of some innocuous, victimless crime.
And they arrogantly masquerade the entire ruse as a free society.
This system is on the way out. It will reset.
Like feudalism before, our system will go the way of the historical dust bin. And future historians will look back (just as we view feudalism) and say “why did they put up with that nonsense…?
This reset is nothing to fear. Human beings are incredible creatures who have a long-term track record of growth. We rise. We progress.
Broad money is a measure of the total amount of money held by households and companies in the economy. Broad money is made up of bank deposits — which are essentially IOUs from commercial banks to households and companies — and currency — mostly IOUs from the central bank. Of the two types of broad money, bank deposits make up the vast majority — 97% of the amount currently in circulation. And in the modern economy, those bank deposits are mostly created by commercial banks themselves.
***
Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans.
This process is illustrated in Figure 1, which shows how new lending affects the balance sheets of different sectors of the economy (similar balance sheet diagrams are introduced in ‘Money in the modern economy: an introduction’). As shown in the third row of Figure 1, the new deposits increase the assets of the consumer (here taken to represent households and companies) — the extra red bars — and the new loan increases their liabilities — the extra white bars. New broad money has been created. Similarly, both sides of the commercial banking sector’s balance sheet increase as new money and loans are created.
***
Reserves are, in normal times, supplied ‘on demand’ by the Bank of England to commercial banks in exchange for other assets on their balance sheets. In no way does the aggregate quantity of reserves directly constrain the amount of bank lending or deposit creation.
This description of money creation contrasts with the notion that banks can only lend out pre-existing money, outlined in the previous section. Bank deposits are simply a record of how much the bank itself owes its customers. So they are a liability of the bank, not an asset that could be lent out. A related misconception is that banks can lend out their reserves. Reserves can only be lent between banks, since consumers do not have access to reserves accounts at the Bank of England.
(footnotes omitted.)
Banks DO, In Fact, Create Money Out of Thin Air
Not convinced? Think the Bank of England chaps misspoke, or that the British have a unique system?
In fact, other central banks also admit that commercial banks create money out of thin air … without regard to deposits on hand.
For example, Germany’s central bank – the Deutsche Bundesbank (German for German Federal Bank) – has admitted in writing that banks create credit out of thin air.
And the Fed has said the same thing. For example, a 1960s Chicago Federal Reserve Bank booklet entitled “Modern Money Mechanics” said:
[Banks] do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts.
William C. Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, said in a speech in July 2009:
Based on how monetary policy has been conducted for several decades, banks have always had the ability to expand credit whenever they like. They don’t need a pile of “dry tinder” in the form of excess reserves to do so. That is because the Federal Reserve has committed itself to supply sufficient reserves to keep the fed funds rate at its target. If banks want to expand credit and that drives up the demand for reserves, the Fed automatically meets that demand in its conduct of monetary policy. In terms of the ability to expand credit rapidly, it makes no difference.
And on February 10, 2010, Ben Bernanke proposed the elimination of all reserve requirements:
The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.
Under the current fractional reserve banking system, banks can loan out many times reserves. But even that system is being turned into a virtually infinite printing press for banks.
For example, 2 Nobel-prize winning economists have shown that the assumption that reserves are created from excess deposits is not true (via Steve Keen):
The model of money creation that Obama’s economic advisers have sold him was shown to be empirically false over three decades ago.
The first economist to establish this was the American Post Keynesian economist Basil Moore, but similar results were found by two of the staunchest neoclassical economists, Nobel Prize winners Kydland and Prescott in a 1990 paper Real Facts and a Monetary Myth.
Looking at the timing of economic variables, they found that credit money was created about 4 periods before government money. However, the “money multiplier” model argues that government money is created first to bolster bank reserves, and then credit money is created afterwards by the process of banks lending out their increased reserves.
Kydland and Prescott observed at the end of their paper that:
Introducing money and credit into growth theory in a way that accounts for the cyclical behavior of monetary as well as real aggregates is an important open problem in economics.
In other words, if the conventional view that excess reserves (stemming either from customer deposits or government infusions of money) lead to increased lending were correct, then Kydland and Prescott would have found that credit is extended by the banks (i.e. loaned out to customers) after the banks received infusions of money from the government. Instead, they found that the extension of credit preceded the receipt of government monies.
This angle of the banking system has actually been discussed for many years by leading experts:
“The process by which banks create money is so simple that the mind is repelled.”
– Economist John Kenneth Galbraith
“[W]hen a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposit; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.“
– Robert B. Anderson, Secretary of the Treasury under Eisenhower, in an interview reported in the August 31, 1959 issue of U.S. News and World Report
“Do private banks issue money today? Yes. Although banks no longer have the right to issue bank notes, they can create money in the form of bank deposits when they lend money to businesses, or buy securities. . . . The important thing to remember is that when banks lend money they don’t necessarily take it from anyone else to lend. Thus they ‘create’ it.”
-Congressman Wright Patman, Money Facts (House Committee on Banking and Currency, 1964)
“The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented.”
– Sir Josiah Stamp, president of the Bank of England and the second richest man in Britain in the 1920s.
“Banks create money. That is what they are for. . . . The manufacturing process to make money consists of making an entry in a book. That is all. . . . Each and every time a Bank makes a loan . . . new Bank credit is created — brand new money.”
– Graham Towers, Governor of the Bank of Canada from 1935 to 1955.
Moreover, in First National Bank v. Daly (often referred to as the “Credit River” case) the court found that the bank created money “out of thin air”:
[The president of the First National Bank of Montgomery] admitted that all of the money or credit which was used as a consideration [for the mortgage loan given to the defendant] was created upon their books, that this was standard banking practice exercised by their bank in combination with the Federal Reserve Bank of Minneaopolis, another private bank, further that he knew of no United States statute or law that gave the Plaintiff [bank] the authority to do this.
The court also held:
The money and credit first came into existence when they [the bank] created it.
Justice courts are just local courts, and not as powerful or prestigious as state supreme courts, for example. And it was not a judge, but a justice of the peace who made the decision.
But what is important is that the president of the First National Bank of Montgomery apparently admitted that his bank created money by simply making an entry in its book.
Moreover, although it is counter-intuitive, virtually all money is actually created as debt. For example, in a hearing held on September 30, 1941 in the House Committee on Banking and Currency, then-Chairman of the Federal Reserve (Mariner S. Eccles) said:
That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.
And Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta, said:
If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.
As economics professor Steve Keen documents in his must-read book, Debunking Economics: The Naked Emperor Dethroned, mainstream economists – from both the left and the right – don’t even take debt into consideration in their models of what makes for healthy economies.
The vast majority of economists were taken completely by surprise by this crisis—including not just … the ubiquitous “market economists” that pepper the evening news, but the big fish of academic, professional and regulatory economics as well.
***
Why did conventional economists not see this crisis coming, while I and a handful of non-orthodox economists did [?] Because we focus upon the role of private debt, while they, for three main reasons, ignore it:
***
They believed that the level of private debt—and therefore also its rate of change—had no major macroeconomic significance:
***
Finally, the most remarkable reason of all is that debt, money and the financial system itself play no role in conventional neoclassical economic models. Many non-economists expect economists to be experts on money, but the belief that money is merely a “veil over barter”—and that therefore the economy can be modeled without taking into account money and how it is created—is fundamental to neoclassical economics. Only economic dissidents from other schools of thought … take money seriously, and only a handful of them—including myself (Steve Keen, 2010; http://www.economics-ejournal.org/economics/journalarticles/2010-31)—formally model money creation in their macroeconomics.
Even the most “avant-garde” of neoclassical economists … have only just begun to consider the role that debt might play in the economy ….
In other words, most economists think that debt – and the real nature our money system – don’t matter.
For example, the economists who have had the most influence over government policy over the last decade – such as Ben Bernanke and Paul Krugman – think that the amount of private debt is totallyirrelevant to the health of the economy:
Fisher’s idea was less influential in academic circles, though, because of the counterargument that debt-deflation represented no more than a redistribution from one group (debtors) to another (creditors). Absent implausibly large differences in marginal spending propensities among the groups, it was suggested, pure redistributions should have no significant macro-economic effects… (Bernanke 2000, p. 24)
***
Ignoring the foreign component, or looking at the world as a whole, the overall level of debt makes no difference to aggregate net worth — one person’s liability is another person’s asset…
In what follows, we begin by setting out a flexible-price endowment model in which “impatient” agents borrow from “patient” agents, but are subject to a debt limit. If this debt limit is, for some reason, suddenly reduced, the impatient agents are forced to cut spending… (Krugman and Eggertsson 2010, p. 3)
***
People think of debt’s role in the economy as if it were the same as what debt means for an individual: there’s a lot of money you have to pay to someone else. But that’s all wrong; the debt we create is basically money we owe to ourselves, and the burden it imposes does not involve a real transfer of resources.
That’s not to say that high debt can’t cause problems — it certainly can. But these are problems of distribution and incentives, not the burden of debt as is commonly understood. (Krugman 2011)
Specifically, Bernanke and Krugman assume that huge levels of household debt don’t hurt the economy because more debt among households just means that savers have loaned them money … i.e. that it is a net wash to the economy.
To make this assumption, they rely on the myth that banks can only loan as much money out as they have in deposits. In other words, they assume that if bank customer John Doe has $100 in the bank, then the bank can loan that $100 to someone else.
But Keen points out – as the Bank of England is now finally doing as well – that banks actually loan out money whether or not they have enough in deposits … and then borrow the shortfall from the central bank.
Keen therefore says that it is not a wash … and that high levels of private debt are the cause of economic crises.
Washington’s Blog spoke with one of the country’s top experts on money creation, L. Randall Wray, to get his view on this issue. Wray is professor of economics and research director of the Center for Full Employment and Price Stability at the University of Missouri–Kansas City, and author of Money and Credit in Capitalist Economies, and Understanding Modern Money: The Key to Full Employment and Price Stability, and coeditor of and contributor to Money, Financial Instability, and Stabilization Policy, and Keynes for the 21st Century: The Continuing Relevance of The General Theory.
Here’s the important nugget from our conversation …
WASHINGTON’S BLOG: As you might have heard, Paul Krugman argues that banks only loan out based upon their deposits, while Steve Keen argues that loans are created through double entry bookkeeping, so that money is created endogenously [i.e. banks create their own money].
For example, there is Scott Fullwiler’s (Associate Professor of Economics and James A. Leach Chair in Banking and Monetary Economics at Wartburg College) take on the debate [see this or summary here].
As a leading expert on modern monetary theory, who do you think is right? Do banks need deposits before they can lend … or do they lend regardless of deposits, and only bounded by reserve and capital requirements (or access to Fed monies)?
PROFESSOR WRAY: Bank deposits are bank IOUs; an IOU can only come from the issuer. Where do your IOUs come from? Do you borrow them? NO. [Professor] Scott [Fullwiler] is right, Krugman does not know what he is talking about.
Indeed, economics professor and money expert Fullwiler says that Krugman should wear a flashing neon sign saying “I don’t know what I’m talking about”, and explains:
As is well known, and by the logic of double-entry accounting, the bank does make a loan out of thin air—no prior deposits or reserves necessary.
***
[Krugman writes:]
And currency is in limited supply — with the limit set by Fed decisions.
This statement is simply mindboggling. It’s so wrong I don’t know where to begin. The Fed NEVER limits the supply of currency. Never. Ever. To do otherwise would be to violate its mandate in the Federal Reserve Act to provide for an elastic currency and maintain stability of the payments system.
Economics professor Michael Hudson also slams Krugman for having a blind spot on debt:
Mr. Krugman’s failure to see today’s economic problem as one of debt deflation reflects his failure (suffered by most economists, to be sure) to recognize the need for debt writedowns, for restructuring the banking and financial system, and for shifting taxes off labor back onto property, economic rent and asset-price (“capital”) gains. The effect of his narrow set of recommendations is to defend the status quo – and for my money, despite his reputation as a liberal, that makes Mr. Krugman a conservative. I see little in his logic that would oppose Rubinomics, which has remained the Democratic Party’s program under the Obama administration.
***
Mr. Krugman got lost in the black hole of banking, finance and international trade theory that has engulfed so many neoclassical and old-style Keynesian economists. Last month Mr. Krugman insisted that banks do not create credit, except by borrowing reserves that (in his view) merely shifts lending savings from wealthy people to those with a higher propensity to consume. Criticizing Steve Keen (who has just published a second edition of his excellent Debunking Economics to explain the dynamics of endogenous money creation), he wrote:
Keen then goes on to assert that lending is, by definition (at least as I understand it), an addition to aggregate demand. I guess I don’t get that at all. If I decide to cut back on my spending and stash the funds in a bank, which lends them out to someone else, this doesn’t have to represent a net increase in demand. Yes, in some (many) cases lending is associated with higher demand, because resources are being transferred to people with a higher propensity to spend; but Keen seems to be saying something else, and I’m not sure what. I think it has something to do with the notion that creating money = creating demand, but again that isn’t right in any model I understand. Keen says that it’s because once you include banks, lending increases the money supply. OK, but why does that matter? He seems to assume that aggregate demand can’t increase unless the money supply rises, but that’s only true if the velocity of money is fixed;
But “velocity” is just a dummy variable to “balance” any given equation – a tautology, not an analytic tool. As a neoclassical economist, Mr. Krugman is unwilling to acknowledge that banks not only create credit; in doing so, they create debt. That is the essence of balance sheet accounting. But … Krugman offers the mythology of banks that can only lend out money taken in from depositors (as though these banks were good old-fashioned savings banks or S&Ls, not what Mr. Keen calls “endogenous money creators”). Banks create deposits electronically in the process of making loans.
First of all, any individual bank does, in fact, have to lend out the money it receives in deposits. Bank loan officers can’t just issue checks out of thin air; like employees of any financial intermediary, they must buy assets with funds they have on hand.***
There are vehement denials of the proposition that banks’ lending is limited by their deposits, or that the monetary base plays any important role; banks, we’re told, hold hardly any reserves (which is true), so the Fed’s creation or destruction of reserves has no effect.***
The problem with Mr. Krugman’s analysis is that bank debt creation plays no analytic role in Mr. Krugman’s proposals to rescue the economy. It is as if the economy operates without wealth or debt, simply on the basis of spending power flowing into the economy from the government, and being spent on consumer goods, investment goods and taxes – not on debt service, pension fund set-asides or asset price inflation. If the government will spend enough – run up a large enough deficit to pump money into the spending stream, Keynesian-style – the economy can revive by enough to “earn its way out of debt.” The assumption is that the government will revive the economy on a broad enough scale to enable the individuals who owe the mortgages, student loans and other debts – and presumably even the states and localities that have fallen behind in their pension plan funding – to “catch up.”
Without recognizing the role of debt and taking into account the magnitude of negative equity and earnings shortfalls, one cannot see that what is preventing American industry from exporting more is the heavy debt overhead that diverts income to pay the Finance, Insurance and Real Estate (FIRE) sector. How can U.S. labor compete with foreign labor when employees and their employers are obliged to pay such high mortgage debt for its housing, such high student debt for its education, such high medical insurance and Social Security (FICA withholding), such high credit-card debt – all this even before spending on goods and services?
In fact, how can wage earners even afford to buy what they produce?
Why Is The Myth About Banks So Dangerous?
Even if banks don’t really loan based on their deposits and reserves, who cares? Why is this such a dangerous myth?
Because, if banks don’t make loans based on available deposits or reserves, that means:
(1) This was never a liquidity crisis, but rather a solvency crisis. In other words, it was not a lack of available liquid funds which got the banks in trouble, it was the fact that they speculated and committed fraud, so that their liabilities far exceeded their assets. The government has been fighting the wrong battle, and has made the economic situation worse.
What would happen to the U.S. economy if all its commercial banks suddenly closed their doors? Throughout most of American history, the answer would have been a disaster of epic proportions, akin to the Depression wrought by the chain-reaction bank failures in the early 1930s. But [today] the startling answer is that a shutdown by banks might be far from cataclysmic.
***
Who really needs banks these days? Hardly anyone, it turns out. While banks once dominated business lending, today nearly 80% of all such loans come from nonbank lenders like life insurers, brokerage firms and finance companies. Banks used to be the only source of money in town. Now businesses and individuals can write checks on their insurance companies, get a loan from a pension fund, and deposit paychecks in a money-market account with a brokerage firm. “It is possible for banks to die and still have a vibrant economy,” says Edward Furash, a Washington banks consultant.
Moreover, as discussed above, the fact that banks can create money means that the level of private debt does matter … and economists like Bernanke and Krugman who encourage massive levels of private debt are hurting the economy.
In a credit-based economy, aggregate demand is therefore the sum of income plus the change in debt, with the change in debt spending new money into existence in the economy. This is then spent not only goods and services, but on financial assets as well—shares and property. Changes in the level of debt therefore have direct and potentially enormous impacts on the macroeconomy and asset markets, as the GFC [global financial crisis] — which was predicted only by a handful of credit-aware economists (Bezemer 2009)—made abundantly clear.
If the change in debt is roughly equivalent to the growth in income—as applied in Australia from 1945 to 1965, when the private debt to GDP ratio fluctuated around 25 per cent (see Figure 1)—then nothing is amiss: the increase in debt mainly finances investment, investment causes incomes to grow, and the economy moves forward in a virtuous feedback cycle. But when debt rises faster than income, and finances not just investment but also speculation on asset prices, the virtuous cycle gives way to a vicious positive feedback process: asset prices rise when debt rises faster than income, and this encourages more borrowing still.
The result is a superficial economic boom driven by a debt-financed bubble in asset prices. To sustain a rise in asset prices relative to consumer prices, debt has to grow more rapidly than income—in other words, if asset prices are to rise faster than consumer prices, then rather than merely rising, debt has to accelerate. This in turn guarantees that the asset price bubble will burst at some point, because debt can’t accelerate forever. When debt growth slows, a boom can turn into a slump even if the rate of growth of GDP remains constant.
In 2008, the Bank for International Settlements (BIS) – often described as the central bank for central banks – said that failing to force companies to write off bad debts “will only make things worse”.
Indeed, mainstream economists from the left and the right who encourage more private debt are only creating a debt trap … where people take on new debt to try to pay for the old debt, and end up in a worse situation than they started.
In other words, virtually all money is actually created as debt. For example, in a hearing held on September 30, 1941 in the House Committee on Banking and Currency, the Chairman of the Federal Reserve (Mariner S. Eccles) said:
That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.
And Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta, said:
If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.
Debt (from the borrower’s perspective) owed to banks is profit and income from the bank’s perspective. In other words, banks are in the business of creating more debt … i.e. finding more people who want to borrow larger sums.
Debt is so central to our banking system. Indeed, Federal Reserve chairman Greenspan was so worried that the U.S. would pay off it’s debt, that he suggested tax cuts for the wealthy to increase the debt.
What does this have to do with war?
War is the most efficient debt-creation machine. For starters, wars are very expensive.
For example, Nobel prize winning economist Joseph Stiglitz estimated in 2008 that the Iraq war could cost America up to $5 trillion dollars. A study by Brown University’s Watson Institute for International Studies says the Iraq war costs could exceed $6 trillion, when interest payments to the banks are taken into account.
This is nothing new … but has been going on for thousands of years. As a Cambridge University Press treatise on ancient Athens notes:
Financing wars is expensive business, and the scope for initiative was regularly extended by borrowing.
So wars have been a huge – and regular – way for banks to create debt for kings and presidents who want to try to expand their empires.
Major General Smedley Butler – the most decorated Marine in American history – was right when he said:
Let us not forget the bankers who financed the great war. If anyone had the cream of the profits it was the bankers.
War is also good for banks because a lot of material, equipment, buildings and infrastructure get destroyed in war. So countries go into massive debt to finance war, and then borrow a ton more to rebuild.
The advent of central banks hasn’t changed this formula. Specifically, the big banks (“primary dealers”) loan money to the Fed, and charge interest for the loan.
So when a nation like the U.S. gets into a war, the Fed pumps out money for the war effort based upon loans from the primary dealers, who make a killing in interest payments from the Fed.
‘The central bank can print as much money as it wishes.’ Photograph: Alamy
Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn’t know how banking really works, because if they did, “there’d be a revolution before tomorrow morning”.
Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called “Money Creation in the Modern Economy“, co-authored by three economists from the Bank’s Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window.
To get a sense of how radical the Bank’s new position is, consider the conventional view, which continues to be the basis of all respectable debate on public policy. People put their money in banks. Banks then lend that money out at interest – either to consumers, or to entrepreneurs willing to invest it in some profitable enterprise. True, the fractional reserve system does allow banks to lend out considerably more than they hold in reserve, and true, if savings don’t suffice, private banks can seek to borrow more from the central bank.
The central bank can print as much money as it wishes. But it is also careful not to print too much. In fact, we are often told this is why independent central banks exist in the first place. If governments could print money themselves, they would surely put out too much of it, and the resulting inflation would throw the economy into chaos. Institutions such as the Bank of England or US Federal Reserve were created to carefully regulate the money supply to prevent inflation. This is why they are forbidden to directly fund the government, say, by buying treasury bonds, but instead fund private economic activity that the government merely taxes.
It’s this understanding that allows us to continue to talk about money as if it were a limited resource like bauxite or petroleum, to say “there’s just not enough money” to fund social programmes, to speak of the immorality of government debt or of public spending “crowding out” the private sector. What the Bank of England admitted this week is that none of this is really true. To quote from its own initial summary: “Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits” … “In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.”
In other words, everything we know is not just wrong – it’s backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes. There’s really no limit on how much banks could create, provided they can find someone willing to borrow it. They will never get caught short, for the simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. So for the banking system as a whole, every loan just becomes another deposit. What’s more, insofar as banks do need to acquire funds from the central bank, they can borrow as much as they like; all the latter really does is set the rate of interest, the cost of money, not its quantity. Since the beginning of the recession, the US and British central banks have reduced that cost to almost nothing. In fact, with “quantitative easing” they’ve been effectively pumping as much money as they can into the banks, without producing any inflationary effects.
What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this (and the paper does admit, if you read it carefully, that the central bank does fund the government after all). So there’s no question of public spending “crowding out” private investment. It’s exactly the opposite.
Why did the Bank of England suddenly admit all this? Well, one reason is because it’s obviously true. The Bank’s job is to actually run the system, and of late, the system has not been running especially well. It’s possible that it decided that maintaining the fantasy-land version of economics that has proved so convenient to the rich is simply a luxury it can no longer afford.
But politically, this is taking an enormous risk. Just consider what might happen if mortgage holders realised the money the bank lent them is not, really, the life savings of some thrifty pensioner, but something the bank just whisked into existence through its possession of a magic wand which we, the public, handed over to it.
Historically, the Bank of England has tended to be a bellwether, staking out seeming radical positions that ultimately become new orthodoxies. If that’s what’s happening here, we might soon be in a position to learn if Henry Ford was right.
I had a discussion with a friend the other day when I asked the question on Facebook, ”If you found out your mortgage, car loan, student loan, credit card was fraudulent debt, would you keep paying it?” I included a link to the post I put out about Key Bank waiving a $32K loan . This was his response:
“If I borrow money from someone, I’m going to repay it. I don’t care if it’s the mafia, some made-up big brother organization, or a bank. Stealing is stealing, regardless what you believe, two wrongs don’t make a right.”
The problem with this response is that it’s based on a backwards view of what money and credit REALLY is. What if everything we’ve ever been taught by the system to believe about money and credit is an illusion? Well, it is. Many of those who will read this article already know that. Yet even those who do know, still can’t quite wrap their heads around how the system works in actuality. Believe me, “they” do an extremely good job of keeping these Truths very well hidden. This article does a phenomenal job at breaking it down in very simple, easy to understand terms. All of the facts presented are supported by hard data. Also included is an example of a response letter from AT&T to a charge being disputed, whereas the disputing party requested funds be taken from their “Prepaid Treasury Account,” to settle the “alleged” debt. What is not shared by this blogger is the documentation submitted to AT&T, which I am working on trying to retrieve from him now.
Before I get to the meat and potatoes of this brilliant article, here are a few facts to consider in the response to my friend on Facebook:
“A deposit created through lending is a debt that has to be paid on demand of the depositor, just the same as the debt arising from a customer’s deposit of checks or currency in the bank. Of course they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts. – Federal Reserve Bank, Chicago, Modern Money Mechanics, p. 6
Banks are prohibited from lending their ‘own money’ from their own assets, or from other depositors. So from where did the $$ come? The contract we signed (our promissory note) was converted into a ‘negotiable instrument’ by the bank and became an asset on the bank’s accounting books. According to the UCC 1-201(24) and 3-104, it was our signature on the note which made it $$.
Our promissory note (‘money’) was taken, recorded as an asset of the bank, and sold by the bank for cash without ‘equal valuable consideration’ given to us for our note. The bank gave us a deposit slip as a receipt for the money we gave them, just as the bank would normally provide when we make a deposit to the bank. It then created an account at the bank which would contain this $$ which we just created. A check on this account was issued with our signature and this account is the source of funds behind the cheque which we received as a ‘loan’.
The bank risked none of its own assets in the so-called ‘loan’ to us; rather it used our note to pay the seller, in order to raise an asset for itself, and also used the face value of our note as ‘principal’ which it claims it ‘lent’ us and against which it charged interest. Consideration on the part of the bank is non-existent so the bank has nothing to lose. It can not possibly sustain a loss. Since consideration is essential to an enforceable contract and the note was obtained from us via fraud, the entire transaction/ contract is fraudulent.
Mortgage contracts are written in such a way to appear as if the bank lent us funds before they received our promissory note/ mortgage contract so that the bank can use it as a receipt which they can sell. The contract reads, “For a loan I have received…”, but, you haven’t received it yet. So in fact, we signed and gave the mortgage contract/note to the bank prior to their giving us the funds. So, the application for the loan created the funds (it has our signature on it) and the note (with our signature) covered the funds to ‘repay’ the loan. Again, constructive fraud.”
Here is the link to the original article . On this blog there are also many other great posts to research. One point I do want to make is that this gentleman on many occasions suggests filing a UCC-1 financing statement to reclaim rights to your Strawman account. However, the UCC filings submitted by The One People’s Public Trust have effectively taken care of this step for EVERYONE on the planet. Therefore, it is no longer necessary for individuals to file their own. ~ BK
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Right now even though they have no legal right or claim or lien, the bankers hold the “title” to YOU through your birth certificate. You can regain control by simply filing a notice of lien against the birth certificate. Filing notices of lien is done every day. Banks regularly file notices of liens with the Department of Commerce to prove and establish their interest in all kinds of property… homes, cars, tools, equipment. This is done very simply by contacting the Secretary of State or Department of Commerce and filing a UCC-1 financing statement and listing the property as collateral on the statement. The same can be done with your birth certificate, which is your property. You and only you can file this notice of lien… You and only you can determine the value of the property. Since you are priceless in God’s eyes the value of your UCC-1 should be UNLIMITED.
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In this case, the “company” is the government. Because you “agreed” to work for the government, the company, for the rest of your life, the government (company) agreed to “pay” all of the debt you incur in your lifetime. Is that a bit of a surprise to you? It should be. No one has told you or showed you how use this information. In exchange for your birth certificate and your application for Social Security, which they used as collateral to reduce their debt with the bankers, the government (company) promised to pay your debts. You work on behalf of the US government AS COLLATERAL ON THE NATIONAL DEBT owed to the bankers.
. Whatever your debt, it’s actually prepaid.
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That’s right, your debt is “prepaid” with what is known as “money of account.” There is no real substance or “money of exchange” such as gold or silver; only accounting adjustments and set offs. The US government agreed to do this for you with the passage of House Joint Resolution (HJR) 192 back in 1933 shortly after the National Emergency and Bank Holiday declared by President Roosevelt. You’re already signed up for this program from birth; it’s just that no one told you about it, UNTIL NOW!
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Like all good companies though, the US government offered to its “worker bees”, insurance benefits. They offered insurance to us if we would fill out an SS-5 form, also known as “Application for Social Security Benefits”. It’s also the hook they use to get us to sign up as their collateral on the national debt. This all originated from the “Shepard Towners Maternity Act” that was to help new mothers with the care of their children if the mother was unwed. (This is why they ask for the maiden name of the mother on the “application for live birth”. All of us are considered to be “bastard children” with the government (company) as our “daddy”)
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The SS-5 is really a Power Of Attorney (POA) for the company that issued the insurance benefit to You, the real man or woman. POA was assumed by the company, the government. When they established the new account they styled the name in ALL CAPS. Very few people normally sign their name in ALL CAPS. Your JOHN H. DOE is really a corporation. Print your name in ALL CAPS if you intend to express the name/ title of Your corporation. You’ll find it on “your” driver’s license, “your” social security card, “your” bank statement, “your” check blanks, “your” tax statements, etc. The Social Security number is evidence that there is an insurance policy. The benefit you are receiving is the privilege of an army, navy, police, fire protection, Medicaid, medicare, SSI, pension etc.
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So far it has worked quite well for the government (company)… they just didn’t tell you how to go about getting your debt set off and how to access and use the pre-paid account, all the more money for their pet projects…wars of pre-emption, international intrigue, control and domination of the global markets, etc. You/ve perhaps read about this in the news or seen it on the evening news. You’re letting them use your money for crimes against humanity.
However, it is now admitted that this is not the case and the current excuse is that the low level of the dollar makes it a bad time to try and return the money.
Satu Insan - Malaysia 
