Posted on 01/15/2008 7:41:33 AM PST by shrinkermd
I shorted Countrywide but got out too soon. MW also was a nice short. What Paulson did was as "pure" a play as I could imagine, since it dealt specifically with subprime.
Paulson, for one, made $billions. ;-)
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The point is that we’ve allowed tyrants to structure our lives all these years..
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When anyone, even someone in government or a private corporation acting via a government monopoly, creates money and uses it to purchase goods or services, it *counterfeits* private wealth. The economic effect of a criminal printing money and using it to buy an airplane is exactly the same as when the Federal Reserve “borrows money into circulation” and buys an airplane with it.
So, it is even worse then you have said. It goes beyond the mere theft of gold, by forcing the exchange of gold for paper money. This event was the essential start of an ongoing theme of theft of private wealth because it made possible “borrowing money into circulation”, money that was “borrowed” from nothing.
Here is the exact crime: A portion of our private wealth is retained by us in the assets of corporations (via shares), is held by us in our homes and real estate, is held by us in the form of other assets (like a gun collection), and in money (either in electronic form of your checking account balance, or in currency).
Take the portion of private wealth held in the form of money. What proportion of our total wealth is that? I can’t cite an official number, but it is some, not insignficant, fraction.
When the Federal Reserve “injects liquidity”, what has exactly happend is that the pool of “money” is diluted by the exact proportion of the size of this injection in relation to the total pool of money. This is the very defintion of inflation.
So, when two college guys invent a new way of searching internet web sites, and set in motion the creation of $285 Billion in market capital, some of that sum ends up in the form of “money”. Here is the target of the crime: this portion of that total that ends up as “money”. This is an “expansion of the money supply”, and would result in proportinate dis-inflation, and a proportionate reduction in wages and prices.
In order to retain “price stability”, the Federal Reserve must create money (”inject liquidity”) by this exact amount. Well the word ‘must’ is really an excuse. What has happened is that with every expansion of the economy that we manage, through work, and improvement, innovation and invention, in order to maintain constant value of the “dollar”, the Federal Reserve must create a proportionate amount of money.
Since this “money” is “borrowed into circulation”, and used to purchase goods and services to the benefit of government, it is a built in parasite on the private wealth we all create.
This fiat-money, central bank system is like a economic tape worm that lives by sucking from those who create the wealth, the private citizen. The scope and scale of this is stunning. It is the grandest scheme of theft of private wealth ever divised. Roman emporers could never dream of being the beneficiary of such an immense, endless river of wealth.
Bump.
Precisely right.
But watch out, the apologists will soon rush in and disengenuously claim that there is * NO * inflation problem whatsoever.
Since this pool is really only the medium of exchange of all parties in the pool who created the wealth, it is a form of theft by forgery, a form of counterfeiting. For the person who injects the “money” is fraudulently representing that this money token represents an identical unit of value as every other existing token.
It is as if the token may have legal validity, but having validity cannot in any guarantee value. And the instant the money token is brought into existence, it acts to dilute the value of every other money token in existence.
Further, I believe that since financial calculations always occur on the margin of the pool, that when one fiat currency is easily exchanged with another one in a millisecond at the click of a mouse button, and back again with almost zero round trip fees, that (again, on the margin), there is no such thing as separate Dollars, Euros, Yen, etc., there is only “liquidity”.
At the very least, in the dozen or so countries which have “dollarized” their currency by pegging them in a fixed dollar exchange ratio, IMO, when a local (fractional reserve) bank creates local money from reserves to loan to a local businessman, nothing stops him from exchanging it into dollars. So, in effect, the local bank has created dollars from pesos (or whatever the local, pegged, currency is). Thus, when China’s commercial banks prop up a business owned by the nephew of a party official by rolling his non-performing loan and lending him even more, it has the effect of inflating all “liquidity”.
Thus, we can now suffer from exogenous inflation as well as that caused by our own Fed.
Insightful. I’m so thankful this forum exists because of this kind of insight.
Many thanks to you.
Money is actually easy to understand. It is the present system that is a mind-bender. There are people far smarter than I am who think the present setup is wonderful. In truth, the fiat-money, central bank, fractional-reserve system we have enjoys a complicated interdependence that cloaks the way it operates to convert private wealth to the benefit of government. And make no mistake, through inflation, government debt and the progressive income tax, governments are all addicted to this system, for it gives them money and power which for a political animal is one and the same.
As proof of how powerful this monetary Trinity is, even the House of Saud, who owns all the oil in their land, chooses to use fiat money rather than money denominated in oil. They sell their real oil for electronic money. There must be a very good reason why they don’t insist on payment in gold. Well, it must be that the present system is more valuable to them, as a whole, than the mountain of gold they could be building.
That thought is very sobering.
I think the average will be higher; many of these are in Cali and FL.
workers and savers and small investors are the real losers in this economy....
I guess we'll just have to sue people to get any money in this country..or sell drugs...
Sobering indeed.
Witness Iran. If my reserves were dwindling, and I was pissed at the US, why not switch to gold? Gold would be like not pumping oil out of the ground at all, really, since you are essentially swapping one hard, tradable commodity for another. With some arbitrage, you could make the currency market yield additional revenue in fiat currency.
MS, in 2002, made $59MM managing their currency. I shudder to think what they are making today, but its a tidy sum.
So, here’s a question, if Russia, who’s currently running a surplus anyway, and is sitting on both natural gas as well as oil, wanted to put the Ruble on the gold standard, wouldn’t that knock the dollar of as the world’s currency standard.
Everyone in the business minted money.
But, of course, every cause needs a poster boy.
can you please translate that rant?
Did someone tell you life was fair? They were lying.
One way to rank the relative economic weight of various countries is to look at the volume of electronic money transfers. One of the primary networks is SWIFT (Society for Worldwide Interbank Financial Telecommunication), based in Belgium. Their latest annual report, for 2006, is available here:
www.swift.com/index.cfm?item_id=42717
On page 28 of that report, they rank users of their FIN network. In the section where rank is by country of the users sending the message, the UK is first, with a 16.8% share, US is next with 16.4%, Germany 3rd with 9.4% and Russia is 23rd with 0.7%.
Of course there are other services and other rankings, but this relative size difference is roughly reflected in all of them.
But there is another, more basic problem: there is not enough gold, at least at the present price. For example, the largest gold ETF, symbol GLD has about US$ 17 billion in gold. I once read that the total market cap of all gold mining companies listed on US stock exchanges is around $100 Billion, meaning that Bill Gates and Warren Buffet together could buy the entire industry. I would expect that Russia’s exports are far more in USD terms than the size of all the gold in the GLD ETF.
Should Russia make the switch, one thing would then be certain: Russian accumulation of gold in exchange for oil would only last a few months, for the sudden demand for gold would boost the price by many fold and as it piled up on Moscow, the price would go even higher as the world ran out of gold.
Russia is free to tie the Euro or Dollar price of oil to the price of gold, and then they get the same effect, at least on the day of the sale. Of course, the instant they settled the payment, the fiat money is only fiat money and they could secure its value with a proxy for gold by buying Gold futures contracts. So, my suggestion that maybe a nation should insist on paying in gold for sales of oil is not without its own complications.
Having said this, a market always gives power to the buyer as well. Should Russia’s price for oil get too far above the prevailing market price, customers would be eager to buy elsewhere. Russia could still insist on getting paid in gold, but they would have to cut the price to sell any product. This is entirely different than having the entire nation switch to a hard-asset currency.
*BUMP* !
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