Economics

Economics
Max and Stacy give you all the financial news you need as the Global Insurrection Against Banker Occupation gathers pace. Occupy Wall Street, Crash JP Morgan, Buy Silver and DEFINITELY visit MaxKeiser.com!
Updated: 1 hour 4 min ago

Protest is Increasingly Becoming Criminalized in America

28-Feb-2017

We’re going to have to be increasingly creative in the way we protest “the system” in order for it to have real impact. I think economic boycotts need to be a key tactic in this battle, particularly since the paradigm we live under is so singularly focused on the accumulation of more and more wealth and power in the hands of the few. We will need to identify those corporations involved in the most egregious practices against our best interests, and refuse to engage with them in any sort of economic relationship whenever and wherever possible…

Read the rest here.

Those Systems That Aren’t Busy Being Born Are Busy Dying

27-Feb-2017

One way to understand the rising sense of disintegration and discord around the globe is to realize that those systems that aren’t busy being born are busy dying–and virtually none of our primary systems are busy being born.

The line is from Bob Dylan’s song It’s Alright, Ma (I’m Only Bleeding): “he not busy being born is busy dying.”

What does busy being born mean? For both individuals and systems, it means adapting by advancing understanding, flexibility and capabilities.

Systems that are dying are rigid, mal-adapted, resistant to change, obsessed with obscuring their failure and retaining their grip on cronyist privilege and power. Big Pharma: dying. Banking: dying. Governance, a.k.a. political processes: dying. Enforced consensus: dying.

Those slices of the economy that are exposed to competition and innovation have a choice: adapt or die. Everything that is protected by monopoly–private-sector cartels, government, government-managed sectors such as Big Ag, Big Pharma, Military-Industrial Complex, Higher Education and the entire intelligence agency alphabet soup–are focused on maintaining their grip on power.

“Adaptation” for those systems busy dying has been reduced to limiting transparency, PR campaigns aimed at diverting attention from their rackets, devoting resources to protecting their cronyist skims, desperately clinging to the status quo and fighting off innovation that threatens to disrupt their rackets.

What we have is a bunch of sclerotic, dying institutions and systems resisting anything and everything that threatens to disrupt the status quo, and a much smaller, agile ecosystem that is busy being born: crypto-currencies, peer-to-peer networks, automation, software that’s eating the world, decentralized governance processes, localized production and more.

Here’s what happens when the mode of production is dominated by static, self-serving cartels, monopolies and bureaucracies: productivity tanks as adaptation and innovation are limited to narrow bands that exclude the central institutions of governance and the economy.

And here’s how a dying status quo maintains the illusion of legitimacy and solvency: it borrows and blows trillions of dollars to prop up its dying institutions and systems.

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Check out both of my new books, Inequality and the Collapse of Privilege($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform($3.95 Kindle, $8.95 print). For more, please visit the OTM essentials website.

Oscars Debacle – Movies More Costly As Dollar Devalued

27-Feb-2017
  • Cost of Best Picture winners show very significant devaluation of the dollar
  • Average cost to make an Oscar winning film is over $43 million – in gold terms, this is over 106,000 ounces
  • Four $15 million films show nearly 100% difference when priced in gold ounces
  • Oscar fiasco was courtesy of error by accountants PWC
  • Whilst the price of the films remained the same, the cost in gold ounces fell from 11.53% of the cost to make the Departed, in 2009 to just 6.4% in 2012
  • In an error prone, irrational and volatile world, gold retains value over time …

The Oscars – the drama of the dollar

Oscars night seemingly sent Warren Beatty and Faye Dunaway a bit La La as they declared the wrong film the winner of the Best Picture Award at the Oscars, last night.

Instead of announcing ‘Moonlight’ as the winner of the industry’s highest accolade, they read out ‘La La Land’. Cue a few awkward moments, no doubt some heads rolling behind the scenes of the Dolby Theatre and a Daily Mail headline of ‘FAKE OSCARS FIASCO.’

Which it wasn’t really, just a bit odd after a very slick night.

Moonlight was the story of a man who grows up unsure and occasionally uncomfortable about who he is. La La Land is a musical love story about a couple trying to make it in LA – a city known for destroying hopes and throwing many hopefuls to the wayside. Both narratives are not unfamiliar to the world in which we find ourselves. Unfortunately our world is not a fantasy and will certainly not be done with our attentions in just over two hours.

When we wrote about the Oscars last week, we asked if they were Worth Their Weight in Gold and concluded that whilst we might dream in gold just like the glitterati, perhaps gold bullion would be a better investment for most of us. We showed that the price of gold has climbed 60 times ever since the first ceremony in 1929, a sobering example of the devaluation of fiat currencies in the last 88 years.

Whilst we think the devaluation of the dollar, and the maintained value of gold is the lesson to take away, there are a number of different lessons actors, directors and studios would like the critics and viewers to believe they can draw from their masterpieces. For some this is about the big bucks and box office numbers, and how they can make or break a film.

We agree, today there a few examples around that really show how little value the dollar carries.

Now that we are on the other side of the most 89th Academy Awards we take a look at what we can learn from last night’s behemoth that was the Oscars and the films that they work to honour.

Cost of making Best Picture

 In the last twenty years, the average cost to make an Oscar winning film is over $43 million. In gold terms it is over 106,000 ounces.

The above graph doesn’t mean very much though, just that the cost of films go up and down, no matter what currency you decide to price it in.

In the decade of the financial crisis, this has come down somewhat and the average is more like $27 million, or 29,600 ounces. This statistic alone shows you how the dollar is falling in real value. Whilst the average cost in US Dollars to make a winning film is 60% in the last decade, compared to the average in the last 20 years, it is just 27% of the 20 year average when priced in gold ounces.

When you rebase to 100, using 2007 as the base year, then you begin to see some interesting results. Conveniently, Martin Scorcese’s 2007 The Departed is the most expensive Best Picture film in the last decade, cost ing $90 million. This was equal to just over 150,000 ounces of gold. No film since then has cost as much. Lincoln was close, costing just 72% of the price of Scorcese’s epic gangster film, but interestingly when priced in gold it cost just 26% percent of the Departed’s gold budget, with 39,000 ounces needed to fund the biopic.

The $15 million question

Perhaps as a sign of the times, Best Picture winners have been getting cheaper in recent years. Moonlight cost just $5 million to make, the lowest price for a winning film in at least two decades. It was also the cheapest in terms of gold ounces, costing just 3,997 ounces.

Read full story here…

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The Cartel’s BIGGEST FEAR

26-Feb-2017

As Gold and Silver Burn Higher,
Fund Manager Dave Kranzler Reveals The Cartel’s BIGGEST FEAR: 

 


Click Here For Full Coverage:

It’s Bubble Time: Wisdom & discipline will separate winners from victims

26-Feb-2017

We are now living under the biggest financial asset bubble in history.

Make no mistake, though; when this bubble bursts, it is going to be unimaginably destructive. So it’s critically important at this time to be able to recognize the risks and position yourself and your wealth accordingly.

Click here to read the full article

[KR1037] Keiser Report: Greek Final Reckoning

25-Feb-2017

We discuss Greece hurtling towards a final reckoning. In the second half, Max interviews journalist and author, Tim Shorrock, about what exactly is happening in the Korean Peninsula as Kim Jong-un assassinates his half-brother while, in the US, Trump takes control of the global hegemonic power.

Trump’s Policies Are Authoritarian, Not Populist

24-Feb-2017

Trump and his spokespeople recently have made their opinions known on a variety of issues on which I hold strong beliefs. The three I will focus on today are: 1) Civil Asset Forfeiture. 2) Private Prisons. 3) Legalization of Recreational Marijuana. On all three of these issues, Trump has taken an authoritarian, unethical and quite unpopular position. Rather than challenge the oligarchs who’ve run this country into the ground, he’s appointed them to be his top advisors. Now he wants to make life increasingly unfree and miserable for average Americans. Not a very populist agenda.

Read the rest here.

How Do We Design a DeGrowth Economy?

24-Feb-2017

I’ve written about DeGrowth for many years, including Degrowth, Anti-Consumerism and Peak Consumption (May 9, 2013), Degrowth Solutions: Half-Farmer, Half-X (July 19, 2014) and And the Next Big Thing Is … Degrowth? (April 7, 2014)

These are the basic concepts of Degrowth:

1. Consumerism is psychological/ spiritual junk food (French: malbouffe) that actively reduces well-being (bien-etre) rather than increases it.

2. Better rather than more: well-being is increased by everything that cannot be commoditized by a market economy or financialized by a cartel-state financial machine– friendship, family, community, self-cultivation. The goal of economic and social growth should be better, not more. On a national scale, the cancerous-growth measured by gross domestic product (GDP) should be replaced with gross domestic happiness/ gross national happiness (GNH).

3. A recognition that resources are not infinite, despite claims to the contrary. For one example of many: China Is Plundering the Planet’s Seas (The Atlantic). Indeed, all the evidence suggests that access to cheap energy only speeds up the depletion and despoliation of every other resource.

4. The unsustainability of consumerist “growth” that’s dependent on resource depletion funded by financialization (i.e. the endless expansion of credit and phantom collateral). (This is covered in greater depth in my short book Why Our Status Quo Failed and Is Beyond Reform.)

5. The diminishing returns on private consumption and “bridges to nowhere” (crony-capitalist public consumption).

6. The failure of neoliberal capitalism and communism alike in their pursuit of growth at any cost.

Degrowth is heresy in what John Michael Greer calls the religion of progress (i.e. growth).

The faith that growth equals progress is akin to the Cargo Cult of Keynesianism, the notion that expanding debt exponentially to drive diminishing returns of growth is not only necessary but a moral imperative.

Both the religion of growth and its Cargo Cult are narratives used to justify the expansion of global finance via financialization. Expanding capital, profits and power is the key driver, and the religion of growth is merely the public-relations narrative that mesmerizes the debt-serfs, political toadies and media sycophants.

Does this look like a world with plenty of room for everything to expand?

Does this look like a world ripe for limitless expansion of debt to fuel limitless growth of consumption?

This leads to a fundamental question: how do we design a system that enables us to do more with less of everything? How do we design a system that incentivizes doing more with less rather than squandering resources via optimizing human greed?

A DeGrowth economy must fulfill two requirements:

1. The DeGrowth economy must provide paid-work livelihoods and opportunities for everyone who wants them.

2. The DeGrowth economy must institutionalize a decentralized, democratic, self-organizing process to allocate human, social, resource and financial capital as an alternative to centralized states/banks and profit-maximizing corporations.

These arise from three key insights:

1. If we don’t change the way we create and distribute money, we change nothing.

2. Not everything that is valuable is profitable, and so maximizing profit is not the sole arbiter of “value,” nor is it a sound process for allocating labor and capital for everything that has value but isn’t profitable.

3. Centralization undermines democracy and generates privilege, inequality, insecurity, conflict and waste by its very nature. (I discuss this further in my short book Inequality and the Collapse of Privilege.)

DeGrowth requires two intertwined systems: a decentralized, localized, globally connected network of self-organizing productive “tribes” whose labor generates a global labor-backed crypto-currency.

I describe such a system in my book A Radically Beneficial World: Automation, Technology & Creating Jobs for All.

DeGrowth is coming whether we like it or not or plan for it or not. Our choice is to blind ourselves to the implosion of the “growth” status quo and squander the opportunity to create an economic system that thrives in DeGrowth, or accept the end-game of financialized “growth” and embrace the technological tools that enable decentralized, localized, globally connected networks funded by a labor-backed crypto-currency.

The conventional objections to DeGrowth boil down to: it isn’t the status quo, so it can’t possibly work. Actually, it’s the status quo that isn’t working, and DeGrowth is the result of that simple yet profound reality.

For more on these topics:

If We Don’t Change the Way Money Is Created and Distributed, Rising Inequality Will Trigger Social Disorder (November 13, 2015)

A Radically Beneficial World: Automation, Technology and Creating Jobs for All (free 35-page excerpt)

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Gold Up 9% YTD – 4th Higher Weekly Close and Breaks Resistance At $1,250/oz

24-Feb-2017
  • Gold up 1.5% in euros and dollars this week
  • Silver up 1.4% this week and now up 14.3% and is the best performing market YTD
  • Gold up 9% year to date – fourth consecutive higher weekly close and breaks resistance at $1,250/oz
  • Gold up 9.4% in euros year to date as Le Pen’s lead in polls widened
  • Gold up another 6.4% in sterling pounds year to date as ‘Hard Brexit’ looms
  • French and Dutch elections pose risks to Eurozone itself and the entire European Union project
  • Euro contagion risk on renewed concerns this week about new debt crisis due to extremely high public debt and very fragile banks in Greece, Italy and Portugal

Finviz.com

Gold pushed to near a four month high amid heightened political uncertainty in the U.S. and the EU this morning.

Gold rose another  $6.40, or 0.5%, to $1,258 an ounce and is currently set for a 1.5% gain this week. It is higher for a second day today and looks set for a fourth consecutive week of gains which is positive from a technical and momentum perspective.

All precious metals have made gains, gold, silver, platinum and palladium, as both the euro and the dollar weakened.

Silver jumped another 1% to $18.25 an ounce. Silver was set for a weekly gain of 1.3%, a ninth straight week of advances and is now 14.3% higher year to date. The best performing market in the world.

Geo-political worries and political concerns in the EU continue which is leading a flight to safety bid in gold futures market and gold exchange traded funds (ETFs) and demand for safe haven gold bullion.

The dollar looks vulnerable due to the uncertainty about US President Donald Trump and the new U.S. administration’s policies. Overnight Trump attacked China and accused the Chinese of being ‘grand champions’ of currency manipulation (see gold news below).

This alone is quite bullish for gold. It does not create confidence about trade relations between the world’s two biggest economies and it suggests that we may be about to embark on the next phase of the global currency wars.

Reduced expectations of a US rate hike in March following the release of the minutes from the US Federal Reserve’s last meeting are also helping gold.

Read full story here…

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Trump’s Controversy Could Unleash Uncertainties of Epic Proportions on the Global Economy

24-Feb-2017

President Donald Trump’s words, actions, and inactions can move the market – the Trump effect already moves stocks, commodities, forex, and the general economy. The Trump effect is understandable based on the fact that Trump wields huge power as the President of the United States. However, the Trump effect is being amplified in the socio-political, economic, and financial landscapes because Trump seems to thrive on controversy.

In the buildup to the 2016 elections, Trump was a constant feature in news headlines for the most controversial statements. During the campaigns, Trump made some ‘unconventional’ promises that the mass media, his critics, and political elites often dismissed as the ramblings of someone that doesn’t understand the workings of government. However, since taking the Oath of Office on January 20, Trump has set in motion the mechanisms to actualize many of his campaign promises.

Now, economists are scared that Trump could usher in a wave of uncertainty of epic proportions in the global economic and geopolitical landscapes. This post provides insights into some of the reasons economist are worried about how the global economy might fare under Trump.

Economists at Fitch Ratings are worried about what the future holds

Economists at the international rating agency, Fitch Ratings have submitted that Trump posses significant risks to the global economy going forward. Fitch is one of the three main rating firms that provide insights into the creditworthiness of countries, states, and firms that issue debt.

The economists note that the Trump administration is pushing unconventional and borderline controversial foreign and economic policies. They observed that “US policy predictability has diminished, with established international communication channels and relationship norms being set aside and raising the prospect of sudden, unanticipated changes in US policies with potential global implications. ” The sudden change and unpredictability in U.S. foreign policy in turn makes it harder for other countries to know what to expect in terms of trade with the U.S. going forward.

More so, the analysts noted that Trumps vocal stance on renegotiating trade deals could cause massive ripples through the global forex markets. In their words, the air of uncertainty in global trade could lead cause “disruptive changes to trade relations, diminished international capital flows, limits on migration that affect remittances and confrontational exchanges between policymakers that contribute to heightened or prolonged currency and other financial market volatility.”

Goldman Sachs is worried that Trump a trigger a war with China

Economists at Goldman Sachs are also worried about what the implications of Trump’s economic policies on the global economic landscape. The analysts are especially worried that some policies of the Trump administration could trigger a trade war with China. To start with, Trump has accused China of unfair forex practices as well as ‘theft’ of American jobs. In addition, Trump’s trade adviser, Peter Navarro has asked for a 45% tariff on goods made in China.

The analysts specifically observed that the presidency “is likely to make an announcement on China’s currency policy and impose unilateral tariffs on a number of products.” The analysts also observed that “China would definitely retaliate and would likely go above and beyond the US measures, potentially imposing tariffs as high as 80, 90% on imports from the US.”

Conclusion

Economists however believe that Trump administration will eventually find middle ground and drop some of its most polarizing foreign policies. Victor Alagbe, an analyst at 24option submits that “the air of uncertainty trailing Trump’s administration won’t continue indefinitely  because the U.S. government will eventually embrace a consistent business- and trade-friendly framework that combines the best of existing foreign policies with new ideas from a career businessman.” 

Nonetheless, the global economists could also enjoy some positives from the policy stance of Trump’s administration. For instance, Trump’s plan to boost spending on infrastructure could boost the construction sector and boost the ease of doing business in the U.S. More so, his plan to push major tax cuts and tax reforms as well as reducing regulatory requirement on banks could also boost the economic prospects of the world.

Could Rising Interest Rates Be Good for U.S. Treasury ETFs?

24-Feb-2017

A rising interest rate environment could be difficult for some bond investors. Assuming everything else remains stagnant, when interest rates rise, bond prices tend to fall, and the opposite is true. Consequently, a bond exchange-traded fund (ETF) or bond portfolios could experience volatility when interest rates are moving. On February 14, 2017, U.S. Treasury ETFs, such as the iShares 20+ Year Treasury Bond ETF (TLT) fell due to Federal Reserve Chair Janet Yellen’s comments in her speech, indicating that the Federal Open Market Committee (FOMC) was open to interest rate hikes.

According to Fed Chair Yellen, “At our upcoming meetings, the Committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.”

According to the CME Group FedWatch Tool, Yellen pushed up the probability of a Fed rate hike. Based on the CME Group 30-Day Fed Fund futures prices, the current probability of a 25 BPs rise in the FOMC meeting in March jumped to 26.6%, from 17.7%.

Trader Jason Bond said, “Although there is an increased probability of the Fed raising interest rates in its March meeting, the probability of a rate hike is still relatively low. Despite U.S. Treasury securities and U.S. Treasury yields having an inverse relationship, U.S. Treasury ETFs could rise over the long term if interest rates rise. It may sound counterintuitive, but fund managers are able to reinvest the cash flows received at a higher interest rate, which would increase income.”

Federal Reserve Could Raise Rates in March

Yellen stated, “Waiting too long to remove accommodation would be unwise,” when speaking to the Senate Banking Committee on February 14, 2017. The increasing economic growth and the market’s expectations of a potential increase in inflation has caused the Fed to leave the possibility of a rate hike on the table at its next meeting.

Now, in January 2017, U.S. Consumer Price Index was released, and U.S. consumer prices rose in December 2016, which was the largest YoY rise in two-and-a-half years. Moreover, on February 15, 2017, the U.S. Consumer Price Index increase by 0.6% in January, the largest increase in close to four years. This signaled that inflation pressures may be building.

Rate Hike Could Be Good For Treasury Funds

With strong economic data, and data suggesting inflation could be picking up, the Fed will not be able to ignore the strength in the U.S. economy and inflationary pressures. The Fed has an inflation target of 2%, and the current inflation rate is at 1.7%. If the Fed is proactive, it would not wait too long to raise rates, as Yellen stated in her speech.

That being said, some traders still believe that bond and U.S. Treasury funds could still rise over the long term, despite the potential rise in interest rates.

According to Director of Income Planning at the Schwab Center for Financial Research, “… a fund manager can react to rising rates by buying and selling bonds to try to maximize coupon income. For instance, a manager may sell lower-coupon bonds and use the proceeds to buy bonds with higher coupons, or may reinvest the income payments from individual bonds in higher-yielding bonds. Over time, that can actually boost the income you earn from a bond fund, meaning you can potentially recover from losses through increased returns.”

The Bottom Line

Federal Reserve Chair Yellen made some hawkish comments in her speech, on February 14, 2017, and it sent U.S. Treasury yields higher, and in turn, U.S. Treasury securities and Treasury ETFs fell. However, rate hikes could actually be good for Treasury funds because fund managers would be able to reinvest cash flows in bonds with higher yields.

[KR1036] Keiser Report: China-US Trade War

23-Feb-2017

We discuss the ‘bad news’ and ‘grave concerns’ in the eurozone leading to big gold buying. In the second half, Max interviews Dan Collins of TheChinaMoneyReport.com about the trade war with China that America has already lost. They also discuss North Korea and what the assassination of Kim Jong-nam means for the region.

CRASH COMING, BRACE FOR IMPACT! – David Morgan

23-Feb-2017

BRACE FOR IMPACT – As the DOW Sets Record High After Record High,
Market Expert David Morgan Warns A Market Crash Is Coming…

 

Silver expert David Morgan warns of a future stock market crash. As the stock market keeps hitting all-time highs, “the strong hands are selling to the weak hands.”
At some point, the insiders will go short, Morgan says, and the weak hands will be left holding the bag.

Morgan is bullish on both silver and gold. In the short term, Morgan is more bullish on gold.
But in the long term, Morgan sees silver bullion outperforming gold three or four to one.

The bond market has peaked, Morgan says, and the Federal Reserve is “frightened.”

The Problem with Gold-Backed Currencies

23-Feb-2017

There is something intuitively appealing about the idea of a gold-backed currency –money backed by the tangible value of gold, i.e. “the gold standard.”

Instead of intrinsically worthless paper money (fiat currency), gold-backed money would have real, enduring value–it would be “hard currency”, i.e. sound money, because it would be convertible to gold itself.

Many proponents of sound money identify President Nixon’s ending of the U.S. dollar’s gold standard in 1971 as the cause of the nation’s financial decline. If our currency was still convertible to gold, the thinking goes, the system would never have allowed the vast pile of debt to accumulate.

The problem with this line of thinking is that it is disconnected from the real-world mechanisms of capital flows and the way money is created in our financial system.

This article explains why Nixon took the USD off the gold standard: since the U.S. was running trade deficits, all of America’s gold would have been transferred to the exporting nations. America’s gold reserves would have disappeared, leaving nothing to back the dollar. The U.S. Empire Would Have Collapsed Decades Ago If It Didn’t Abandon The Gold Standard.

The problem to sound-money proponents is trade deficits: if the U.S. only had trade surpluses, then the gold would not drain away.

But Triffin’s Paradox explains why this doesn’t work for a reserve currency: a reserve currency has two distinct sets of users: domestic users and global users. Each has different needs, so there is a built-in conflict between the two sets of users.

Global users of the USD need enormous quantities of dollars to use as reserves, to pay debts denominated in USD and to facilitate international trade.

The only way the issuing nation can provide enough currency to meet this global demand is to run large, permanent trade deficits–in effect, “exporting” dollars in exchange for goods and services.

This is the paradox: to maintain the “exorbitant privilege” of a reserve currency, a nation must “export” its currency in size; a nation that runs trade surpluses cannot supply the world with enough of its currency to act as a reserve currency.

And any nation running large trade deficits will soon empty its gold reserves as international holders of the currency choose to convert their currency into gold, which is exactly what happened in the late 1960s in the U.S.

OK, so a nation can’t back a reserve currency with gold. How about backing a non-reserve currency with gold? There are still problems with backing currencies with gold.

Number 1 is convertibility–without it, you don’t have a gold standard, you have an illusion of a gold standard. If the gold-backed currency isn’t convertible to gold, it’s simply another form of fiat currency.

An example illustrates why. Let’s take the fictional nation of Slobovia, which has accumulated $10 billion of gold to back its currency, the quatloo.

To protect its reserves from being drained away, the quatloo isn’t convertible to gold; the Slobovian central bank simply declares the currency is “backed” by gold.

But consider what this entails. The price of gold globally is set by the market (setting aside manipulation by major players), not by the central bank of Slobovia. This means the value measured in gold of the quatloo is fluctuating as the value of gold fluctuates.

If the global value of gold plummets, so does the purchasing power of the quatloo. This peg to the price of gold becomes consequential if the quatloo loses purchasing power.

Problem 2: what happens to the purchasing power of the quatloo when the central bank issues more currency? If the central bank issues an additional $10 billion in currency, if it doesn’t add $10 billion in gold reserves, the purchasing power of the quatloo measured in gold declines by 50%.

So the quatloo is supposedly “backed” by gold, but its purchasing power can drop in half as the central bank issues more fiat currency? Then what value is the supposed “backed by gold” claim?

Problem 3: consider the case of well-connected investor Mr. PM. Mr. PM has friends in high places in the government and banking sector, and so he borrows $100 million to buy choice parcels of land that have government-approved development rights.

He develops the parcels with the $100 million, and some years later sells the properties for $1.1 billion to other investors. He pays off his $100 million loan and pockets $1 billion in cash.

Note that the bank created the $100 million out of thin air when it originated the loan to Mr. PM. Did the Slobovian central bank acquire an additional $100 million in gold to back this new money? No–because in a fractional reserve banking system, this new money is lent into existence for the term of the loan, and disappears when the loan is paid off.

You see the problem: the $100 million Mr. PM borrowed to develop the land has been paid back, i.e. gone to money Heaven, but the $1 billion in cash he now has is “real money.” It’s as real as if he saved $100 million a year for a decade or extracted $100 million in profits from a mine for 10 years.

This expansion of quatloos wasn’t the result of the central bank issuing more quatloos, or the central bank buying more gold reserves: it was created by the fractional reserve banking system.

Mr. PM transfers his $1 billion in quatloos overseas. If the quatloo is convertible to gold, Mr. PM demands the central bank of Slobovia trade his $1 billion in quatloos for $1 billion in gold. 10% of Slobovia’s gold reserves are transferred to Mr. PM, and the outstanding pool of quatloos instantly loses 10% of its value measured in gold.

If the quatloo isn’t convertible to gold, the existing pool of quatloos still loses 10% of its value because the pool of outstanding quatloos just expanded by 10%.

It doesn’t matter if the $1 billion in quatloos was borrowed into existence or issued by the central bank: it still dilutes the purchasing power of all quatloos by 10% unless the central bank adds $1 billion gold reserves to “back” the new money.

The way out of this is to revalue the quatloo’s value measured in gold. l Let’s say Slobovia initially issues its currency, the quatloo, at 100 to an ounce of gold. If gold is $1200/ounce, each quatloo is worth $12. So far so good.

But then the government encounters a spot of fiscal bother, and the central bank announces, without warning, that the exchange rate is now 1000 quatloos to an ounce of gold. Oops. Now the “gold-backed” quatloo is worth only $1.20. Holders of the “gold-backed” quatloo just took a 90% haircut on the purchasing power of their “gold-backed” currency.

So either a currency is convertible into gold, or it isn’t gold backed. If the conversion rate is set by the government, then it’s subject to sudden revaluations, just like any other fiat currency.

If the issuing nation maintains a fractional reserve banking system, then the quatloo is constantly devalued by the issuance of new quatloos in excess of the gold the central bank adds to its reserves.

When people talk about China backing its currency the yuan with gold, what does that mean given that China has issued $30 trillion in new credit-money in the past decade?

It doesn’t matter that the money is “borrowed into being”; as the example of Mr. PM illustrates, the money created is as real as money that was earned or saved or mined; the money created in China’s vast credit bubble is real enough to buy homes in North America for those lucky few who can get their yuan converted into dollars.

In a true gold-backed currency, every new $1 in currency must be backed by the addition of $1 of gold to reserves. If the gold supply remains constant but the supply of currency constantly expands, the value measured in gold of the outstanding currency declines accordingly.

Any currency is only truly “backed by gold” if it is convertible to gold. Why hold a “gold-backed” currency that can be diluted 10-fold overnight by the issuing government/bank?

Any nation issuing a gold-backed currency can’t control the global price of gold, and so that nation’s currency is hostage to fluctuations beyond its control. If the issuing nation sets a peg to gold, that peg is subject to the whims of the central bank and state–in other words, the peg is simply another flavor of fiat currency.

Simply put, there is no way to back a reserve currency or a fractional reserve banking system with gold. It’s easy to say that a world with very little credit would be a good world, but it would be a world with limited debt-based consumption, i.e. a world with little “growth.” And without “growth,” the system implodes.

This essay was drawn from Musings Report 6. The Musings are emailed weekly to subscribers, patrons and major contributors ($5/month or $50/year).

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print). For more, please visit the OTM essentials website.

The Oscars – Gold Plated and Debased Like Dollar

23-Feb-2017

The Oscars – Worth Their Weight in Gold?

  • 89th Oscars to air this weekend
  • Oscars have been dipped in 24 karat gold since 1929
  • If the Oscars were made of solid gold they would weigh 330 ounces
  • 330 ounces of gold is worth $408,210 at today’s prices (nearly €400k & £330k)
  • Oscars cannot be sold, making them a tricky investment piece
  • Steven Spielberg keeps his gold Oscar with the Academy for ‘safe-keeping’
  • Shows importance of owning gold in safest ways
  • Price of gold has climbed from $20.67 since the first Oscars ceremony to over $1,237 today

‘We All Dream In Gold’ read the strap line for last year’s Academy Awards. This is no doubt still the case for the nominees of the 24 awards set to be given out at this Sunday’s 89th Oscars.

Since the first awards in 1929 nearly 3,000 oscar statues have been awarded to the lucky darlings of the film industry. After the teary speeches, after-parties and press junkets following their win, what is left for those who have achieved the highest-level of recognition in the film industry?

Winning an Oscar is an expensive business, studios spend millions trying to get their hands on at least one, each year. But film and celebrity is a fickle trade and few people can remember who received Oscars last year, let alone when they were first launched in 1929.

How much value do they really bring?

Click here to continue reading…..

How the Corporate Media Continues to Use the Russia Scapegoat as a Distraction from Status Quo Failure

23-Feb-2017

Countless observers have noted the obvious fact that the corporate media’s all-encompassing obsession with anti-Russia hysteria is partly just a shameless campaign to prevent change within the Democratic Party by blaming its loss on an outside enemy as opposed to the oligarch-coddling, corrupt disaster it nominated. While true, the strategy is far bigger than that. So called Western elites have failed miserably across the globe, and the only way to retain their undeserved positions of power (many should be in jail), is to create and promote a mindless, highly emotional, non-domenstic distraction. Enter Russia.

Read the rest here.

Double Down: Narcissus peers into the swamp

22-Feb-2017

As markets in the US continue to hit new all-time highs, Donald Trump sees his own reflection in those ever-rising prices. Double Down talks to market analyst, Karl Denninger of Market-Ticker.org to discuss whether or not markets are euphoric simply because of Trump’s tax promises and whether or not Trump will see his own reflection when markets inevitably come crashing back down to earth. They also discuss the role of the ultimate form of corporate narcissism in the share buyback frenzy and any role this may be playing in the current rally.

Click this image to listen!

The Criminalization of Financial Independence

22-Feb-2017

Just as the “war on drugs” criminalized and destroyed large swaths of African-American and Latino communities, the “war on cash” will further criminalize the few remaining avenues to financial independence and freedom. The introduction of “entitlement” welfare in the 1960s generated a toxic dependency on the state that institutionalized worklessness, a one-two punch that undermined marriage and family in America’s working class of all ethnicities.

The “war on drugs” launched in the 1970s turned millions of American males into felons with severely restricted rights and opportunities in mainstream America.

Now we see the same destructive pattern repeating with “disability” being the new “welfare” and “legal” synthetic heroin (oxycotin etc.) being the new street-smack that lays waste to entire communities. Once you’re dependent on the state for disability and synthetic smack, you are owned by the government, lock, stock and barrel.

When the temptation to sell your $3 Medicaid prescription for synthetic smack for a quick $1000 becomes too much to resist, bang, you’ve got a one-way ticket into the Hell of America’s criminal “justice” system. Do you see the pattern? Offer the blandishments of “free money” and nearly free synthetic smack, and the vulnerable populace is quickly reduced to a dependent state of worklessness and addiction.

Needless to say, an addicted, ill, workless populace that is herded into the grinder of the criminal justice system isn’t going to create any political resistance. They have their hands full just trying to stay alive and avoid being sucked into the voracious maw of the criminalization meat grinder.

This is the context for the upcoming “war on cash” and the criminalization of financial independence. Every conventional means of remaining financially independent of the state-cartel-banking system is being restricted and criminalized, the better to herd everyone into centrally controlled institutions.

Those attempting to escape the political-financial pen are threatened with the other pen–the penitentiary.

Any form of resistance draws punitive criminal sanctions. If you attempt to resist the unfettered search of your property, your resistance is instantly criminalized.

If you resist the seizure of your property on some trumped up charge, your resistance is instantly criminalized.

If you resist being hassled for “driving while black,” your resistance is instantly criminalized.

If you resist being shunted off public spaces while staging a political protest, your resistance is instantly criminalized.

Three charts help explain the criminalization of financial freedom. Wages as a percentage of economic activity (GDP) have been falling for decades. Wage earners are under pressure, and this generates dissatisfaction that eventually finds political expression. This is dangerous to the ruling elites, so criminalizing dissent, resistance and financial independence become essential tools to cow and control the masses.

Independent enterprises are a source of political and financial independence–and any independent class is dangerous to the ruling elites. The “solution” to the ruling elites is to crush independent enterprises with burdensome regulations that carry punitive penalties, raise junk fees (licensing fees, permits, etc.) to levels that make it difficult to remain compliant, and criminalize cash-only and home-based enterprises.

No wonder new business growth is a shadow of its former robustness. If you try to launch a legally compliant enterprise, the costs crush all but the most successful. Any less than fully compliant enterprise has been criminalized.

The upper 20% of wage earners are the tax donkeys that must be corralled so they can’t escape higher taxes. Whatever wealth they’ve accumulated must also be available for taxation, for this reason: as the super-wealthy sequester their immense wealth in legal tax dodges such as philanthro-capitalist foundations, this leaves the lion’s share of taxes to be paid by the upper-middle class / professional / technocrat / entrepreneur tax donkeys.

The coming War on Cash is also designed to bring in black-market cash from the bottom 40% who use cash businesses as a tax avoidance tactic. The state will leave no stone unturned in its campaign to close off any escape routes–except of course for those available to the super-wealthy and corporations which contribute the big bucks to the politicos’ re-election campaigns.

There won’t be any legal assets that will not be exposed to taxation. As for precious metals–imagine a “wealth tax” that is first imposed on millionaires. Who will say that “taxing the rich” is a bad idea?

Then the definition of “rich” will be adjusted downward. Anyone owning gold is “rich,” correct? So laws will be passed requiring all forms of wealth must be declared.

Anyone who fails to declare their wealth and pay a “wealth tax” on it will face punitive criminal charges.

The “wealth tax” will start small, and high up the food chain. Then it will quickly move down to include everyone with any assets of any kind. If you reckon this farfetched, check back in 2020, if not sooner.

The problem isn’t taxation per se–it’s preserving the freedom to become financially and politically independent that’s increasingly at risk. Once it becomes too complicated, costly and onerous for a working class household to start and operate an enterprise, small-scale capitalism is dead–strangled by the state at the behest of self-serving bureaucrats, elites and corporate cartels.

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print). For more, please visit the OTM essentials website.

Gold To Rise – Real Chinese Gold Demand Higher Than “Official” Demand

22-Feb-2017

Frank Holmes joins Lawrie Williams, Koos Jansen and many others in questioning the “official” Chinese gold demand numbers. Real gold demand is likely much higher than the official numbers

by Frank Holmes

Inflation just got another jolt, rising as much as 2.5 percent year-over-year in January, the highest such rate since March 2012. Led by higher gasoline, rent and health care costs, consumer prices have now advanced for the sixth straight month. In addition, January is the second straight month for rates to be above the Federal Reserve’s target of 2 percent.

Air fares are also climbing, and speaking of air fares, billionaire investor Warren Buffett added to his domestic airline holdings, we learned last week. Buffett’s holding company, Berkshire Hathaway, is now the second-largest holder of American Airlines, with an 8.79 percent share of the company. It also increased its holdings in Delta Air Lines by over 800 percent, to 60 million shares. The company now owns 43.2 million shares of Southwest Airlines, and it increased its stake in United Continental to about 28 million shares.

A March rate hike now looks all but imminent. Many economists—including the Goldman Sachs economists I had the pleasure to hear speak this week—expect to see at least three such hikes this year alone.

Gold responded accordingly, closing above $1,240 for the first time since soon after the November election. Below you can see the gold price charted against the inflation-adjusted 10-year Treasury yield, which is now in subzero territory.

Read full story here…

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