Tuesday, November 2, 2010

Don't Piss On My Leg And Tell Me It's Raining

When reality doesn't coincide with what we hear, it's time to question the narrative that permeates the public discourse because so much of what we think we know is fed to us without an intent to educate. Rather we are treated as though it is preferred to keep us in a state of child like ignorance. It takes more effort to gather dislocated data and reach an independent conclusion than it does to accept prepackaged material. More often than not we accept the story we want to hear. It is a surrendering of one's own perceptions for the words of another person, whose motives may not always be noble. If not sinister, they may be deluded. If they have something to gain from your ignorance then distrust is advisable. It's easier to trust. It feels good. Believing in yourself is gospel but even that is suspect as our own perceptions are occasionally, if not frequently flawed. There is no divine quality within us that can discern the truth unquestionably. The mechanics of money are intentionally clouded to keep us from learning the truth about it's origins and manipulations. We trust that it works in a fair way. The economic news that we receive however is most certainly suspect when the financial system repeatedly lurches from crisis to crisis. One has to consider that just maybe the system itself is a flawed design. Dig a little deeper and also consider that the financial system may not be flawed at all. Perhaps it is operating exactly as it was designed to. That is to tap the resourcefulness of labourers to enrich those who pull the financial levers. Forget everything you think you know. Look at what is unfolding before your eyes. See it without the filter of a nattering all knowing economist, reporter, or politician

Our money is debt based. All money has been borrowed into existence. Paradoxically the more money that is sloshing around in the economy, the more indebted we become in aggregate. There is a good reason that bankers encourage inflation, which is simply an increase in the debt supply. They profit from it. In fact most of our money is bank created credit. The amount of actual physical money is surprisingly small. Basically, they take a depositor's money, keep a tiny portion of it to satisfy the depositor that there is actually money in his account, and then they lend out the rest to a borrower. That person then spends this money which finds it's way into the account of another person, who now believes that it is his money sitting there, except the original depositor is still in under the belief that it's his money. Now there are two people with claims on the same money. Following the money trail further, that original deposit is magnified many times over before the lending tree is extinguished. Thus money is magically born. This exchange of money back and forth throughout the economy amplifies the money supply exponentially and bankers have developed even more sophisticated ways to leverage obscene riches from the humble beginnings of honest folks working and expecting something in return. Problem is there isn't enough money in the bank to satisfy all depositors. It's not even close. This is the wonder and horror of fractional reserve banking that is the basis of our financial system.

It is this leveraging of seed money and the magic of fractional reserve lending that has inflated the money supply and prices for practically everything. We all cheer when our homes and stocks go up in price but boo when the cost of living rises in tandem. Regardless, this is all debt. With debt comes the interest that is attached to it and the interest owing on the money supply compounds. Odd thing is that it's impossible to pay the interest on the principle because it hasn't been created yet. There is more money owing than currently exists by design. If it is starting to sound like a Ponzi scheme then the modern financial system is beginning to be understood. The only way it can function is if new debt is sold to service the existing debts and so on. This is unsustainable. The money supply will collapse as the compounding interest grows ever larger outstripping the ability of the economy to service it. This is the reason why all debt based monetary systems must inevitably fail. It's basic math. It will collapse by design.

For the first time in generations the total money supply is shrinking. This is what has generated so much angst in the financial world. The inflationary pressure of their money making machine has stopped. Customers are no longer walking out of the banks with new debt. The economy is saturated with it. The Ponzi scheme is faltering. Central banks and governments are trying to force debt into the economy to keep this thing stimulated, so they say. It is a false attempt. In desperation or by design, Central banks have become the lender of last resort while the governments have become the borrower of last resort. The real economy has been subjugated. Accounting rules are being rewritten. Stock markets are propped up by the Federal Reserve. Interest rates are approaching zero which means money is actually losing value against the inflating cost of living. It doesn't pay to save. The truth is that interest rates must stay low in order for governments to service existing debts. Rising interest rates would be devastating to the balance sheets. In spite of this chicanery, the death spiral of deleveraging debt continues. It must. The purpose of the stimulus and bailouts was not to revive an economy. It's purpose was to curb the rate of deflation by creating new debt to replace that which is being destroyed because in a debt saturated economy the existing debts must either be paid or defaulted upon. It is disingenuous of bankers and governments to expect that all debts be honoured when the system itself prevents it. There isn't enough money in the world to satisfy all debts. Let's be honest about it. Governments have demonstrated no willingness to pay back the debts as deficit spending persists in earnest. Our financial system relies on it or all that is levered to it will grind to a halt once money creation stops and debt destruction takes hold. Once debt is repudiated, the money disappears and the inflated values that are based upon it's existence must deflate as well. We are starting to see this play out in the real estate market. Deflation is the bogeyman of all economists and bankers. Mention the word and we are conditioned to think back to the depression era with fear. The strain is obvious. Ignoring the reality that our monetary system is designed for infinte growth while the real economy is confined by the limits of a finite resource base is not helpful. We are approaching the endpoint of a mature debt cycle with quantitative easing being the terminal strategy.

Stimulus is a word that economists use to camouflage a more sinister motive. It is a wealth transfer. The 'Too Big Too Fail' are getting bigger. Money is being concentrated and power is being consolidated into an elite group. The financial system is designed to squeeze every last dollar from the masses until the only assets left over are foreclosed upon. Our continued faith and ignorance of the financial system permits this government backed theft. We are captured by it. A child is born into debt. If they really wanted to stimulate consumption, as if that is really needed, they would have just handed out a cheque to all households which would have either been used to buy stuff, pay off personal debt, or deposited. This was not even considered because such an even handed approach doesn't transfer wealth. All it achieves is diluting the value of the existing dollars spurring the likelihood of a hyper-inflationary episode as money loses all value. Money should be a stable medium of exchange for traded goods and services. Diluting it's value through inflationary policies is theft. We don't need financial experts chastising us for not having enough retirement savings while at the same time supporting inflationary policies which reduces our disposable income. We don't need our governments encouraging retirement saving while it raises taxes to bail out the bond and stock holders of failed corporations. It is also disingenuous of them to promise pensions with money that hasn't even been created yet. Of course it's easier to promise money at the back end of a person's life than reward them up front.

There is a campaign to calm the sheep. We are getting nervous. The money managers will not inform us of the dire situation that is confronting us. They spin new debt as stimulus. They will continue to characterize the financial crisis as though it was an unpredictable natural occurrence that threatens to destabilize our fragile economy. They will say anything to deflect our attention away from those who manufactured the crisis while presenting themselves as guardians of our wealth. Maybe they actually believe that putting taxpayers on the hook for more debt will somehow make us richer. Maybe they believe that spending and consuming is more productive than conserving and saving. Maybe they believe that markets should not be free. Or just maybe it's all a lie to facilitate the transfer of wealth from the working class to the rich and well connected. No, we will not be encouraged to go beyond the soundbite understanding of our economy. Instead we are being placated with green shoots propaganda. We want to believe that there is a coordinated group of educated wise souls looking out for us. We want to believe that the interests of our elected leaders are aligned with ours. However when the truth is obfuscated, when corporate crime and corruption occur without any sanction, when our governments lie and mislead, when the will of the people is thwarted, lawlessness and moral hazard take root. Abandon your faith. What you believe to be true may not be true at all. Look at what is occurring around you with fresh eyes. Question the source of your knowledge, do your own research, draw your own conclusions and act accordingly.