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When Fake Money Becomes Scarce

Bamby

New member
The U.S. Treasury, if you didn’t know, will issue $1.3 trillion in new debt in 2018. This represents a 146 percent increase in new federal government debt issuance from 2017. By our rough estimation, this number will significantly increase in 2019 and again in 2020.

But who will buy this glut of Treasuries? Not the Fed. Remember, the Fed is currently reducing its balance sheet. Not China. Remember, China, facing a trade war, surely isn’t eager to buy U.S. debt.

Without the demand of these big debt buyers yields will rise at the worst possible time; when public and private debt are at record levels. As interest rates rise, credit becomes more and more expensive. So, too, servicing existing debt takes up a greater and greater percentage of the borrowers budget.

Rising borrowing costs will also have the effect of strangling inflated asset prices, including stocks and real estate. Yet as asset prices deflate consumer prices, thanks to trade tariff policies, will inflate. This scenario, in short, will be the exact opposite of the wealth effect. But there is more…

The unfavorable conditions facing the U.S. economy are the product of fake money. Over the past decade, an abundance of fake money has fashioned a world that is greatly at odds with itself. Take away the fake money and the whole giant edifice collapses.


When Fake Money Becomes Scarce

To clarify, honest money, the kind that cannot be created by making digital notations on a central bank’s balance sheet, is a scarce resource. It represents accumulated capital, including the time and sacrifices made to earn it. When spent, it is spent wisely.

Fake money, on the other hand, is squandered in the most incredible ways. Namely, fake money is squandered on fake businesses. By this, we mean businesses that provide products and services that wouldn’t otherwise exist without a seemingly endless supply of fake money.

Fake businesses, like Silicon Valley’s bizarre Ponzi balloon companies, are dependent on fake money for their existence. Similarly, the abundance of state sponsored credit has transformed University campuses into money sucking country clubs. Absent fake money, the customer base for colleges would dramatically shrink – along with the glut of fake majors and fake degrees.

The automobile industry is another example of a business that is dependent on fake money. Without fake money, only a small fraction of the current sales would materialize.

Of course, the granddaddy of all fake money dependent businesses are the deep state lard bucket companies that swig and slurp directly from Washington’s fake money trough. These companies would quickly vanish if not for the plentiful supply of fake money.

Throughout all corners of the economy these fake money dependent businesses persist. Yet at this point in the business cycle many of them are running on fumes. Employees show up to work each day to move them forward. Management borrows money to cover the gaps between accounts payable and accounts receivable. But it’s a losing battle.

Credit markets, because of Fed policies of extreme liquidity, have been distorted well beyond what was thought to be conceivably possible over the last decade. The attraction of fake money was too much to pass up. Why save and invest when you can borrow and spend?

Yet, now, as credit tightens and fake money becomes scarce, clarity will be delivered with impassive rigor. Busts, bankruptcies, and bailouts will become the order of the day.

https://economicprism.com/when-fake-money-becomes-scarce/#more-6286


You can take the above for what you paid for it, nothing. But IMHO a lot of good valid points are given and worth at least some contemplation....
 

Bamby

New member
Many of us do think that something isn’t quite right with the world economy. One in a million actually understands, where does it go wrong? Powers that be, do not want you to know about it as it’s your ignorance which keeps them at the top of the financial food chain. I don’t know of any other example in history where so many were looted by so few.

Modern banking system creates money faster than our hearts beat. However, they make it so complex & unintelligible that none but they alone, understand it. All economies work pretty much the same way but since most of the global transactions use US dollar, making it the majority of the world’s currency, I will exemplify the US system.

It all starts when one politician, running for the Senate or the Presidency, promises that he will give you more facilities than his opponent will, but there is no such thing as a free lunch. So, to fulfill those promises, politicians spend more than the national income. This is called Deficit spending. Treasury borrows currency by issuing a bond. A bond is a piece of paper, a glorified IOU. It means ‘Loan us trillion dollars today and we shall return it in 10 years with interest’. This amount is the national debt, which is to be paid by people. Treasury holds a bond auction, world’s largest banks show up and compete to buy this national debt and make a profit. Through an open market operation, the banks sell these bonds to the Federal Reserve (a central bank) for profit. The Fed then writes bad, bogus cheques which should bounce because they have a zero balance in their account.

Boston Fed Reserve explains it saying: “When you & I write a cheque, there must be sufficient amount in our account to cover that, but when Fed writes a check, it creates money’’. When these cheques are given to the banks, the currency springs into existence, out of thin air. The banks, then go back to the treasury auction and buy more bonds. In this way, the Fed reserve and the Treasury swap IOUs using banks as middle men to create currency. This results in the build up of IOUs at fed reserve and of currency at the Treasury.

Earlier you could walk into any bank & redeem your $50 bill for a 50 dollar gold piece, which is not possible now as this system is nothing but just the supply of numbers. Once this money reaches Government, politicians are happy. They spend it on public work, infrastructure and war. All the employees deposit their savings into banks, technically loaning it to them, who can do almost anything with it, be that gambling or loaning it at profit. If you deposit $100, banks usually have to keep around 10% as vault cash for customer to withdraw some and they lend your $90 to some other borrower. This is called Fractional Reserve Lending. The Banks leave IOU for your $90, which is why it still shows $100 in you’re account. Now, there are $190 in existence. The borrower of your $90 gives it to the seller of a car or a house, whichever was the reason for him to borrow. The seller goes and deposits it in his account, from which the bank relends $81 to some other borrower. Now, your $100 has become $271. This process of re-depositing & relending repeats itself over & over again, reaching up to $1000, all backed up by a vault cash of $100. These commercial banks create check book money simply by creating numbers. In some cases, the Fractional reserve ratio is only 3% and for some others, even 0%. 92% to 96% of currency is created here in banking system, only 4% to 8% by the Government. The Prices act as a sponge. Increase in currency results in inflation, which is an impalpable tax.

This currency represents just the numbers, some printed but most of it just typed. True wealth is our time, labor, sweat, ideas, talent which gives it value. We work hard and pay tax to the Government agency called the IRS (Internal Revenue System). This is where the fraud lies. Much of our tax money does not go for schools, hospitals & other such public works but IRS pays it to the Federal reserve, for those bogus checks which it had written to create currency. Before the establishment of Fed, there was no need of personal IT. It was started in 1913, same year when the Fed was established. This can’t be a coincidence.

Anyways, this takes us to another concept called Debt ceiling. It’s a Paradox. There is an interest on each bond & on every dollar in existence. If you borrow a dollar and it’s the only dollar in existence, you promise to pay it back with interest, you can not pay it unless you borrow again at interest to pay back this debt. There is never enough currency to pay the debt. It’s an impossible system. If we stop borrowing no new currency is created. Currency and debt are matter and anti matter, they meet and annihilate each other. The most important point is that the Federal reserve is not federal. It has stock-holders, who are its owners. Fed is a private corporation. As its website says, there is a 6% dividend to stock holders. No one can trace who owns stock in Fed reserve, but most probably they are the primary dealers- the banks. We pay taxes so that Fed reserve can pay those 6% to stockholders. This proves that this system has owners, which is why there is a huge disparity between the rich and the poor.


20-x-20.jpg

This system is evil, a form of enslavement. It’s a promise to make us pay tax in future. Nobody asked me if I promise to work hard so that my grand parents could enjoy. I wasn’t even there. No one is asking our children if they agree to work for the comforts which I enjoy, today. It steals prosperity out of future, so that it can spend it today. It’s a Pyramid scheme, a ponzi scheme, a legalized theft & a fraud, as says Mike Maloney. This system is falling and as I have always been saying that Islamic economics is inevitable & sure to come. Let’s get ready for it, as soon as we can.
 

Bamby

New member
It does make one wonder. Maybe our economy would be a lot more stable if we returned to using sea shells for currency. Unlike the banks nature can only create so many and they are real and not just a tally on someones ledger.
 

mla2ofus

Well-known member
GOLD Site Supporter
I think all of us with any common sense could see this coming. The politicians who've allowed it to carry on could and can see it, they just haven't had the balls to stop it. I've always equated it to a person getting a credit card, maxing it out and making minimum payments on it which is better than our treasury does. They just keep paying the interest.
Mike
 

Bamby

New member
mla2ofus I think it's important that everyone has a understanding of this aspects of economics. Some time ago my Mother got me involved in doing some maintenance / repairs for her elderly friends. They always wanted to pay me for the work but I was always reluctant in setting a price but they'd always insist on paying me what they truly thought was a generous sum of money.

Back in their day it would have been, but many had fallen far out of touch with the reality of the costs when I was rendering the services. Many times I'd had more invested in just the fuel I burned doing the work than I received as a tip for doing the work.

It wasn't their fault most had little to start with and they thought it was a generous sum and were making a sacrifice to pay me what they did and I graciously accepted it as if I was well compensated. Now that I'm also advancing in age as I walk the isles of the grocery stores I can clearly see just how much inflation is stealing what I do manage to have, and unfortunately it will be buying even less over time.
 
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Bamby

New member
Fate Has A Sense of Irony

“All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation.” ~ John Adams

In 2016 Governor Gerry Brown signed into law SB-3 which would phase in a series of increases in California’s minimum wage until it finally reaches the goal of $15 per hour in 2023. This was done to provide a ‘living wage’ for those working minimum wage jobs. I’m telling you right now, you may as well start stuffing little squares of toilet paper in your wallets and purses, because if you don’t learn about the nature of coin, credit and circulation it will have about the same value as the money you currently use to purchase goods and services.

How about we drop the minimum wage down to $1.25 per hour like it was back in 1964? Before you say I must be out of my mind let me add a little caveat to that; and while we’re at it, why don’t we restore the integrity of our monetary system? Allow me to explain.

Are you aware that back in 1964 the average annual salary of a working American was $4,576; yet people got by. Today that would be considered poverty level and make those receiving that amount eligible for all manner of government subsidies.

Did you know that in 1964 you could buy a brand new Chevy a, right off the lot, for around $2,588? Today that same car will run you ten times as much, with basic models starting around $25,000 MSRP. Did you know that in 1964 you could buy a brand new home for around $21,000, yet today that same home would cost you over $147,000? What else has gone up? Well, the price of a gallon of milk used to be less than a dollar, now it’s around $3; a dozen eggs used to be $.54 and gas was $.30 a gallon.

Much of that can be attributed to inflation; something people mistakenly believe to be the rising cost of goods and services. Inflation is not, I repeat NOT the rising cost of goods; it is the loss of purchasing power of your money.

1964 was the last year our government minted silver coins for circulation; and had they continued doing so, today $1.25 in silver would be worth $15.35. Hmmm, that’s right about where they want to raise the minimum wage to in California.

Our money used to be worth something; it was backed by either silver or gold and could be redeemed for either at any Federal Reserve Bank. That’s right, at any time you could waltz right into a branch of the Federal Reserve and turn in your paper money and walk out with the equivalent in gold. The last year you were able to do that was 1971; before President Nixon took America off the gold standard.

There was a time when, for every dollar printed, there was an equivalent amount of gold backing it up in Fort Knox. Now whether there is any gold left in Fort Knox is the stuff of conspiracy theories right and left, but the point is that those paper, (well actually they are clothe) bills you carry around are no longer backed by gold; therefore the government can produce as many of them as they want to fund their operations and keep the economy floating. Remember all that Quantitative Easing in 2008 when the FED purchased $800 billion in bonds and treasury notes to boost a lagging economy? Well, that’s a perfect example of flooding the economy with paper money; which is the root cause of inflation.

What people don’t seem to realize is that the FED, just like any other bank, is there to make a profit for their shareholders. They don’t actually have any reserve currency, or at least they didn’t when they were first established back in 1913. So how could a bank without any cash reserves fund our country unless it pulled money out of thin air?

So, if the FED is purchasing billions of dollars in T-Bonds and Treasury Notes, what’s in it for them? Well, how many of you have heard of, or ever purchased a U.S. Savings Bond? If you have you know that you pay, say $50 for a bond, then wait a certain amount of time and then redeem it for $100. Where does that profit come from if not from the government? And where does the government get their money? Well they either get it from your pay in the form of income taxes, or they borrow it.

When I was stationed in Spain I knew a guy who came from Arizona and he had a checking account back there with just enough to keep it open. When he got to Spain he opened another checking account at the bank on base. He would write a check from his account in Arizona and deposit it into his account in Spain. Then he would turn around and write a check from his account in Spain and mail it back to his bank in Arizona to be deposited. At the same time he was spending money right and left; far beyond what was being deposited into his account by the Air Force.

Eventually his house of cards came crashing down around him. First he bounced one check, then another. Then he’d start getting two or three per week, until suddenly he was bouncing them every day. Finally our commander called him in to his office and he was demoted and sent to a financial management class. Luckily he wasn’t booted out of the Air Force, but it goes to show you what happens when you try and spend more than you take in, and cover your tracks by trying to shift non-existent funds around.

In a way that is exactly what your government has been doing since we went off the gold standard in 1971, but instead of trying to fool the banks they just borrow the money with the promise of paying it back at a later date. You see, paper money has always been just a means of purchasing goods or services; it is real estate; or property that has true value. If you own all the land in a country then you own the country pretty much. Well, the United States, and the labor of those living in it, are the collateral on the debt your government accumulates…and you fools keep asking your government to keep doing more and more for you, when at the same time you beg to keep your taxes low.

You can’t have it both ways people; at least while expecting your government to remain solvent. One of three things must happen; your government will have to either cut its spending, it will have to raise your taxes, or it will have to keep borrowing money until it goes bankrupt.

Do you know what the GDP, or Gross Domestic Product is? The GDP is the total value of all goods produced by a country; it is a measure of the economic strength of a country. Well the GDP for the U.S. last year was $19.39 billion. It is expected to go even higher under President Trump, and should be cause for celebration among all Trump supporters; right?

Well hold your horses pardners, there’s a downside to all this. Economists estimate that under Trump our national debt will go up by $5.6 trillion; which far exceeds our GDP. That’s not taking into consideration that our national debt is already an astronomical $21.7 trillion.

I constantly hear that we just have to raise taxes on the rich and all will be just hunky dory. That tells me that people have absolutely no idea the amount of money our nation owes to its debtors. As I said, the national debt stands at $21 trillion, plus change. The combined wealth of the ten richest men in America is $523 billion…NOT EVEN A TRILLION DOLLARS! You see a trillion is a thousand billion; so the combined wealth of the ten richest men in America is only 1/2 trillion; not even a dent in the national debt.

Even if we were, somehow, able to pay off our national debt, how long do you think it would be before it begins to climb again with the way your government spends money today? So they would just start borrowing non-existent money, (it’s all done via computers now with entries into columns without any actual funds being transferred), then the government uses that non-existent money to deposit into the accounts of its employees, (government workers, the military, and those on social services) and then that money makes its way into the economy…CAUSING INFLATION; which means that the money you hold in your hands is worth less.

As I write this the value of a troy ounce of silver is $14.19 and the value of a troy ounce of gold is $1,210. That stuff you carry in your wallets and purses is money that only has any purchasing power because you have faith in it; you trust that if you pull it out of your wallet and hand it to someone in a store that you can receive a certain amount of goods or services in return for it.

Yet since the FED was created in 1913 the value of that paper you call money has dropped astronomically. Today it would take $2,549 to buy the same amount of goods or services that $100 would have paid for in 1913 when the FED was first established; that’s how much inflation they have caused by their monetary policies and our governments continued borrowing.

Yet people think that the answer to their economic woes is just to raise the minimum wage until people can afford to live the American Dream. That’s why I began this piece with that quote from John Adams, because things haven’t changed; most of our problems of an economic nature are due to “…the downright ignorance of the nature of coin, credit and circulation.”

People also believe that they can change things at the polls by switching back and forth between Republican and Democratic control of their government. Well, this national debt has been growing steadily for decades under both Republican and Democratic administrations; so I have but one question for y’all; how’s that voting thing working out for you.

Wasn’t it Einstein who said that the definition of insanity was repeating the same thing over and over expecting different results? Well, no matter, for that is what I see, an insane belief that people are going to Make America Great Again by voting for new masters once every so often.

The President who signed into law the Federal Reserve Act once said, “Liberty has never come from the government. Liberty has always come from the subjects of the government. The history of government is a history of resistance. The history of liberty is the history of the limitation of government, not the increase of it.”

I suppose Morpheus was right when he told Neo, “Fate, it seems, is not without a sense of irony.”
 

tiredretired

The Old Salt
SUPER Site Supporter
mla2ofus I think it's important that everyone has a understanding of this aspects of economics. Some time ago my Mother got me involved in doing some maintenance / repairs for her elderly friends. They always wanted to pay me for the work but I was always reluctant in setting a price but they'd always insist on paying me what they truly thought was a generous sum of money.

Back in their day it would have been, but many had fallen far out of touch with the reality of the costs when I was rendering the services. Many times I'd had more invested in just the fuel I burned doing the work than I received as a tip for doing the work.

It wasn't their fault most had little to start with and they thought it was a generous sum and were making a sacrifice to pay me what they did and I graciously accepted it as if I was well compensated. Now that I'm also advancing in age as I walk the isles of the grocery stores I can clearly see just how much inflation is stealing what I do manage to have, and unfortunately it will be buying even less over time.

In 1964 I landed a job working in a neighborhood Mom & Pop store not far from where we lived so I could walk to work. One of my jobs was delivering the groceries for mostly elderly ladies to their houses in the neighborhood.

Most often, the ladies would dig through their purse to find the shiniest penny to give me as a tip. A more reasonable tip for that time would have been at least a dime as my wage was 75 cents an hour.

One time a lady actually asked me what Frank (the owner) was paying me. I told her for fear of offending her and losing my job. She exclaimed "YOU'RE NOT WORTH THAT"! :yum: Thank you very much.
 

Doc

Bottoms Up
Staff member
GOLD Site Supporter
“All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation.” ~ John Adams

True to a huge extent with the populace. I believe the elected official know better or soon learn better once they spend some time in DC. But instead of fixing it things go better for them and their reelection if they do not cut any programs and save on the deficit while they are in office. So they knowingly kick the can down the road. They get creative (steal from social security) or move from one budget to another but they find ways to ensure they appear as the good guy so they keep their job for decades. They truly do not care what comes to pass after them. Sad but true.
 

Bamby

New member
We rarely ask "does this make any sense?" of things that are widely accepted as beneficial-- or if not beneficial, "the way it is," i.e. it can't be changed by non-elite (i.e. the bottom 99.5%) efforts.

Of the vast array of things that don't make sense, let's start with borrowing from future income to spend more today. This is of course the entire foundation of consumer economies such as the U.S.: the number of households which buy a car or house with cash is near-zero, unless 1) they just sold a bubble-valuation house and paid off their mortgage in escrow or 2) they earned wealth via fiscal prudence, i.e. the avoidance of debt and the exultation of saving.

Debt has this peculiar characteristic: it has to be paid back with interest.Depending on the rate of interest and the length of the loan, this translates into a mind-numbing reality: borrowing $100 can cost $200 once interest is factored in.

One might reckon that people would be cautious about paying two or three times more for something by using debt rather than cash. But consumer economies are based not just on debt, but on TINA (there is no alternative) and on the timeless seduction of getting something now and paying for it later.

College students are frightened by scary stories of permanent impoverishment and social degradation if they don't borrow a small fortune to buy a diploma (never mind if you actually learn anything remotely useful or wise; you're not buying an education, you're buying an accreditation of your ability to grind through a bureaucratic system without any unhealthy questioning if "higher education" actually makes any sense. Hint: it doesn't, unless you're skimming wealth off the poor students.)

The higher education debt scam is classic TINA: there is no alternative to borrowing a small fortune to buy a (mostly worthless) diploma, unless you favor living in a cardboard box the rest of your life.

TINA drives the trillion-dollar deficits of the US government as well: the entrenched self-serving interests feeding at the public trough would quickly ramp the political pain to 11 if their share suffered any cuts, and so There Is No Alternative to funding every parasitic, predatory cartel with its maw in the public trough (healthcare, higher education, banking, national defense, etc.)

Tragically, for a lot of low-income working poor households, there really isn't any alternative to high-interest debt. When the tire on the gets-me-to-work vehicle blows, the expense has to be financed, either at the tire shop or with a credit card.

Equally tragically, fiscal prudence, i.e. the avoidance of debt and the exultation of saving, is not taught in our educational system. As those of us who work in construction know, many blue-collar tradescraft folks earn good pay, but they mis-spend it on needless consumption or over-borrow to buy stuff they could easily live without.
I could list dozens of personal histories of earned wealth squandered on painfully frivolous consumption or "investments" that never seem to actually increase the owner's wealth.

What's not taught in our educational system--perhaps because it would undermine Consumption Funded by Debt?) --is opportunity cost: when you buy the $100 item and end up paying $200 or $300 because the purchase was funded by debt, the opportunity cost is: what else could you have done with the money squandered on interest, penalties, late fees etc.?

This opportunity cost separates those with decent earnings and little productive wealth and those who earned the same income but acquired real wealth. The flip side of debt (paying interest) is earning interest on savings/ capital. Those with capital can earn a return on their capital while those with only debt are debt-serfs, devoting much of their future earnings to the repayment of debt with interest. (Late fees and other charges can triple the cost of the initial purchase in short order.)

Pre-easy-credit, people couldn't borrow money for the simple reason they were poor credit risks. Credit has always existed, but it was generally linked to collateral and / or a transaction that would soon settle the debt in cash, for example, a loan extended by a wholesaler who will get paid off once the end-customer pays.

With public debt, the collateral is the tax-donkey's obligation to pay taxes, and with private-sector debt, the borrower's future income. If the tax-donkey closes down his/her business and sells his/her house, the obligation to pay taxes vanishes into thin air (after the tax-donkey pays the transfer taxes, of course, and any capital gains on the sale of the house.)

The debtor who has no collateral other than his/her future income has a trick card to play: bankruptcy. Since there's no real-world asset for the lender to repossess (or in the case of used cars, the repo'd vehicle is typically worth less than the outstanding loan), the borrower can stiff the lender.

But since the lenders own the political machinery, bankruptcy will cost you. In the case of student loan debt, it's not easy to get out from underneath student loan debt. In the case of credit card debt default, the lenders will cut the defaulted borrower off from access to credit: it's cold turkey withdrawal from credit, Baby. TINA no longer matters; there's no credit available except from loan sharks, and their rates guarantee poverty (or very unfortunate "accidents".)

Does any of this make sense? No. But it's so darn profitable to the oligarchy, it's difficult to escape debt-serfdom and tax-donkey servitude. Interestingly, when there really is no alternative, people tend to get creative / innovative. But when easy credit is available, they default to taking the easy way out, which is to borrow from future earnings without questioning the opportunity cost of debt-serfdom and tax-donkey servitude.

Remember: every dollar of debt is an expense to the borrower but a source of income to the lender. Keep that in mind as you study these charts of student loan debt and federal debt:
student-loans5-17a.png

US-debt1-17.png

Future income devoted to paying interest is money that can't be invested productively. On a national scale, that guarantees falling productivity, soaring wealth inequality and eventually, widespread impoverishment.
 
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