Skip to comments.Your Liberty And Your Money
Posted on 09/25/2012 6:59:59 PM PDT by blam
Your Liberty And Your Money
By Dan Denning
September 25, 2012
Melbourne, Australia We begin with a cynical thought experiment. Its really a conclusion about whats going on in the financial markets. And the conclusion is this: the value of financial assets and currencies is being deliberately crashed in order to transfer wealth from the public to a small group of global elites.
Sounds crazy, right? Maybe even cranky? Well get to that shortly. But first
The typical result of credit booms and busts is to transfer ownership of real assets and productive businesses from the public to the insiders. In our thought experiment, the Federal Reserve exists to make this happen in a way that doesnt alert the public to whats really going on. The insiders or anyone who knows how these things work sell to the public in the mania phase. The panic and crash phase of a bust is when the public realizes the game is up.
Prices crash and liquidity disappears in the bust. Real assets and the share prices of real businesses are left lying around on the ground. If your money didnt get destroyed in the crash, all the good assets can be bought cheap. The end result is that the middle class ends up poorer and the financial/political elites end up owning all the good stuff.
This happens time after time in financial markets. Productive assets are slowly accumulated by a small group while in real terms, incomes fall for the majority. Another way to think of this is as modern feudalism, but with better-dressed peasants who have iPhones.
In the modern feudal world, you dont work the land. You work a keyboard, if you can find a job. And if you cant, the government will pay you a token wage to keep you from starving/working. The main improvement of the modern feudal system is that the King cant kill you extra-judicially. In the modern feudal system, only the Chief Executive has the power to deny you life, liberty, and the pursuit of happiness via a drone strike.
This reprieve from arbitrary death from above (the King) is probably the biggest improvement in modern feudalism. So far, the only people to be killed thusly are terrorists and unlucky strangers who dont vote in US elections. And to be fair, when it comes to subsistence, there are plenty of cheap calories in the modern world. People may be malnourished on modern food, but they wont starve. Worst case scenario, you eat your way into a food coma or some medical crisis.
Up until now, being a financial serf was bearable. But something is different about the preceding boom and the current bust. When Internet stocks crashed, it was a wealth transfer. People lost money. But it wasnt real money anyway. It was the gains from the bubble, not capital saved for retirement.
Besides, in response to the dotcom crash the US Fed lowered interest rates. World monetary policy became synchronised. The result was a boom in all assets and in all places. Stocks, bonds, real estate, commodities you name it. Nearly everything boomed.
Now we get to the part thats different about this bust. This bust began in 2009. But the authorities soon discovered that things had become so complex and so large that a normal correction/wealth transfer was not possible. Its okay to pump up Internet stocks and then watch them crash. But you cant very well pump up the whole global financial system and then watch it crash, can you?
Can you? Well, yes, you could. But there would be a couple of unavoidable results. One result would be a global economic collapse. The system is interlinked now. A financial crash becomes an economic crash the Greater Depression Ben Bernanke wants to avoid. But thats just the start.
A financial crash means the end of the current global monetary system. US dollar devaluation played a key role in the credit boom. But it undermined the stability of the whole dollar system. You crash the system, you crash the dollar. What comes after the dollar? You can bet the people who benefit from the dollar system the Fed dont want to find out.
But the most serious result of the system crash and were talking much more serious than Microsofts blue screen of death is that real people see their real lives really wiped out. When Middle Class savings are destroyed through stock market crashes, housing crashes, and inflation, people end up a lot poorer. And thats just the Middle Class. The people who went into the crash with even less come out of it worse than ever before.
Lets end the thought experiment there. It cant be possible that anyone would wish for all those consequences of a system crash, could it? The only people who could wish for such a thing are the people who see it as a chance to build an anti-democratic global system from the ruins of the current one a system with one government and one money and one rule of law which only applies to the governed and not the rule makers or money makers.
That cant really be what theyre after, can it?
In any event, we will find out this week if coordinated central bank interventions from the Federal Reserve, the Bank of Japan, and the European Central Bank are enough to keep markets from crashing for a little longer. The central bankers are fighting a losing battle, we fear. When you look at the worlds financial system as a series of geometric shapes, its a giant wedge of credit supported by a tiny triangle of equity.
In banking terms, theres only a small portion of real, quality collateral supporting a huge edifice of asset values. Sovereign government bonds used to count as quality collateral. But the debt crisis has changed perceptions of value and safety. What you have is a financial system supported by very few reliable, quality assets which arent also someone elses obligation or promise to pay.
So lets keep an eye on stocks and see how they hold up. Each new phase of money printing has packed a weaker punch. If the pattern holds, markets will be under pressure soon. And then well see if the financial crash is simply a pretext for getting you to surrender your liberty as well as your money
true horror story that’s all to possible with players in place now trying to make it happen
just in time for halloween
Here’s what I suggested back in 2009:
Fed does QE which is free money for primary Treasury dealers who in turn pump the equities markets higher as “Risk is On”
As the fed unwinds QE, these dealers (read Goldman, Morgan etc) reduce their equity exposure and the markets cycle lower.
Here’s the deal.
When the markets are going up it pulls in retail investors either directly or through their mutual funds. During this cycle the Fed is buying US Gov’t debt.
As the Fed hits their buying capacity, the banks cycle to a risk off stance and equities decline. The money coming out of stocks, from retail, is reallocated to buying Treasuries.
The issue here is that they need someone to be continuously buying our Gov’t debt.
We are on the 3rd iteration of this “rinse wash repeat” cycle.