There is only one “currency” that can’t be improved upon. That is a currency that is the product of a “real money process”. Once this currency is instituted, no further improvement is possible. It begins with knowing what money is.
Attributes of this “perfect” currency, all the time and everywhere are:
Free supply of money
Perpetual zero INFLATION
Zero INTEREST load on responsible traders
Perpetual 1.0 exchange rate among currencies
Zero time value of money
Why don’t we have this perfect money? Because bankers don’t allow it.
First, they claim 10x leverage over you and me. You “save” a dollar with them, they “loan” out ten dollars. Thus, if you make 4% on your money, they make 40% on your money. That’s a pretty big deal. To do this they put in a dollar of capital and get certified by the state (that they create). Their money doubles in just 2 years. Your money takes about 17 years to double. They call that “capitalism”. Neat, huh? Look mom, I’m a capitalist.
They arbitrarily collect tribute (they call it INTEREST). They allow the state (which they create) to counterfeit (states call it Roll Over) the money resulting in higher prices (they call it INFLATION). And they never report DEFAULTs. That’s like an insurance company arbitrarily setting PREMIUMS; never reporting CLAIMS.
Money is provably “an in-process promise to complete a trade over time and space.” It is always, and only, created by traders like you and me. For example, when we buy anything on “time payments”, we are creating money. And as we make those payments were are destroying money.
The proof is in examining trade. Trade happens in three steps: (1) Negotiation; (2) Promise to Deliver; (3) Delivery as promised.
In simple barter exchange, (2) and (3) happen simultaneously…on the spot. With money, (2) and (3) happen over time and space.
For example, we buy a car with 60 monthly payments. We create the $30,000 and give it to the seller…and he gives us the car. Then, each month we recover (earn) and destroy $500. After 60 months, we have recovered and destroyed the full $30,000. We have kept our promise.
But what if we fail to keep our promise? What if we miss a payment or two? This is where the “real money process” comes in. The process perpetually monitors everyone’s performance on money-creating-transactions like this. Missing a payment is known as a DEFAULT. You are now an “irresponsible trader”. That DEFAULT is immediately made up by an INTEREST collection of like amount. Who pays the INTEREST? Irresponsible traders (according to their propensity to default) do. If you make up the DEFAULT, you get the INTEREST back.
Immediately mitigating this DEFAULT guarantees perpetual perfect supply/demand balance of the money itself…i.e. zero INFLATION. Thus, there is no domino effect when you DEFAULT. There is just the automatic negative feedback mechanism of increased INTEREST load.
The operative relation is: INFLATION = DEFAULT – INTEREST = zero.
You are familiar with all these terms. However, you have been taught to believe that INTEREST is the “time value of money”.
Bankers claim that when there is “too much money in circulation”, they can claim higher INTEREST “tribute” from you. And when there is too little, they can claim less. Looking at the relation you quickly see there is no justification for this whatever. This allows them to manipulate the money…they call it the “business cycle”. And they make no mention of DEFAULTs at all. That’s like reporting COVID “cases” and not mentioning COVID “deaths”…which of course government is doing right now!
You can see from the relation that the “time value of money” is perpetually zero. A dollar today is worth exactly the same as a dollar 10 years from now. It trades for the same stuff.
The so-called “sound money” people claim gold (or something rare) is the basis of sound money. Others claim proof of work (Bitcoin…proof of wasted electricity) is the basis of sound money. You are learning here how foolish they are.
Let’s consider the unit of money to be a HUL (Hour of Unskilled Labor)… not a Dollar or Mark or Yen or Euro…or any other arbitrary and meaningless unit. We choose this HUL unit because we are all implicitly aware of its value. It’s what we, as high school students, typically traded for money. It trades for a certain size hole in the ground…regardless of when a high school student digs it.
Contrast that with the dollar. In 1960 when I was in high school, a HUL was worth $1.50. Today it is worth about $15.00 (minimum wage). However, with a “proper money process” we don’t want this to ever change…a HUL is a HUL is a HUL…anytime and anywhere.
Further, in 1964 a quarter contained 90% silver and traded for a gallon of gasoline. In 1965 a quarter contained 0% silver…and still traded for a gallon of gasoline. Obviously, the silver played no role in the trade. And today, you need 10 quarters to trade for a gallon of gasoline. No quarters traded today contain silver. The “sound money” people have hoarded all those. And the government loves it. All those quarters were retired…and they didn’t have to pump any gasoline in exchange. They do the same thing now with “collector” quarters (different stamping for each state). They’ve done it with stamp collecting. And they do it with the lottery…prey on the stupid.
Our HUL can only trade for the same size hole in the ground if we “guarantee” perpetual perfect balance of supply and demand for the HUL itself. And the process guarantees that.
Before you make your car-buying-promise, no money exists for that promise. After you deliver on your promise, no money exists for that promise. In the interim, the HUL you create goes into the mass of HULs we call the marketplace. It is the most common object of simple barter exchange. It enables us to make trades over time and space.
And obviously “all” those HULs represent a “promise to complete a trade over time and space”. And obviously “all” of them are created by traders like you and me.
MD: Note: There are charts
embedded in this article
which link back to the original. In time they will likely get
broken.
MD: A proper MOE (Medium of Exchange or Money) Process
treats all “traders” equally. But this instance does bring on to
the stage an important case. What limits should be placed on the
size of “promises” it will embrace…and why?
The case is fairly simple for individuals. It easily embraces
the case for viable shelter (buying a house). It easily embraces the
case for viable transportation (buying a car). It easily embraces
the case for unanticipated medical needs (supplementing insurance).
But how does it deal with the case for highly leveraged promises?
I will answer this question as I read the article and
intersperse my comments. Hopefully it will address these issues. The
most important issues are regarding “leverage” and detection of
“rollovers”.
The only way to get really wealthy in any society is through
unusual leverage.
Banks grant themselves 10x the leverage you and I have. As
individuals we have no leverage. We work an hour…we make some
number of HULS (note: HULs…Hours of Unskilled Labor… are the
ideal MOE measure). We must be really really good at what we do
(e.g. neurosurgery) to be worth 10x what we were in high school).
The mom and pop shop has almost no leverage. They “are”
the business. But as they grow they hire help. And that is the
beginning of their leverage growth. They take a piece of their
workers’ labor as if they performed it themselves. As they grow they
retain earnings but may also take on debt (i.e. they make money
creating promises) or they take on partners (sell shares in their
company). The money creating case is problematic. You can’t just say
I want to create a car company and create $100B (or 10B HULS).
Then we have the financial wizards. They claim to be able to
deploy surplus HULs better those who earn those HULs. And they take
a piece of the action if they succeed. They don’t suffer if they
fail; their clients do the suffering. They use options, derivatives,
high speed trading, and myriad other tricks to multiply the natural
leverage this game brings them.
Selling shares is not problematic. Each shareholder has to
decide how he’s going to come up with the money to pay for his
share. And the business itself decides how it will reward his
participation. There are many games being played in this space to
help mom and pop keep control as they grow. For example, they can
give themselves options to buy shares as payment. They can mix debt
and equity instruments as warrants. The options have proven to be
inexhaustible…their consequences unknowable and unsupportable.
Such tactics are of no concern to the MOE process. Its only
interest is in the “reasonableness” of the money creation and
tracking its return and destruction. That means assessing the
trader’s propensity to default and monitoring his performance in
real time. And we know how to address such issues. We call them
actuaries. They have great experience in the mutual casualty
insurance business.
So now lets see how we address this very unusual but real
instance of a threat to the MOE process. More importantly, we see
how the MOE process places the responsibility exactly where it
belongs…with the promise maker and with the process behavior. This
characteristic gives some assurance of self discipline.
If the trader screws up, the trader must back his failed
promise or he must pay the consequences (i.e. be banned from
creating money…as we know all governments will be banned if they
don’t change their behavior).
If the process screws up (i.e. supports an irresponsible
trader), it must penalize oncoming traders (responsible or
irresponsible) immediately. They pay INTEREST (which is returned if
they prove to be responsible).
Now to the article. My interspersed comments appear formatted
as this pretext is formatted. And please bear with me…I’m thinking
through this as I write and it’s worth at least what you’re paying
for it.
==================
Well, with everyone and everything else getting a bailout, may as
well go all the way.
MD: What a remarkable opening. Is that like “if rape
is inevitable, relax and enjoy it”?
Two months after we
reported that the state of California is trying to turn
centuries of finance on its head by allowing businesses to walk away
from commercial leases – in other words to make commercial debt
non-recourse – a move the California Business Properties Association
said “could cause a financial collapse”, attempts to bail
out commercial lenders have reached the Federal level, with the WSJ
reporting that lawmakers have introduced a bill to provide
cash to struggling hotels and shopping centers that weren’t able
to pause mortgage payments after the coronavirus shut down the U.S.
Economy.
MD: Well, the concept of “throwing good money after bad” is well known. And this likely falls into that category. Shopping malls have become a thing of the past. They had their 50years in the sun and have now been made obsolete by a better idea (.e.g. Amazon). The handwriting was on the wall way before the COVID-19 hoax and government lock-down suspended trade. COVID-19 is a neutron bomb attack. It kills people but doesn’t destroy things. For those still alive, a restart should be a simple process. Suspend the delivery on existing money creating promises until the external restrictions have been lifted. Continue to support new money creating promises using regular actuarial principles. Such principles will detect “rollover” attempts and reject them.
I think the obvious solution is to recognize the situation and do an “automatic extension” of promise time terms (the “time” part of the time and space spanning trade) of all affected promises, and move painlessly on down the road. Nobody gets hurt.
The bill would set up a government-backed funding vehicle which
companies could tap to stay current on their mortgages. It is meant
in particular to help those who borrowed in the $550 billion CMBS
market in which mortgages are re-packaged into bonds and sold to
Wall Street. What it really represents, is a bailout of the only
group of borrowers that had so far not found access to the Fed’s
various generous rescue facilities: and that’s where Congress comes
in.
MD: The problem as expressed here does not exist with a
proper MOE process. Money is not “backed” by anything but the
process. So there is no such thing as a CMBS market or
mortgage-backed securities and bonds. If we had a proper MOE
process, such techniques could still exist for those who want the
risk of non-responsible traders. But that is no concern or
responsibility of the money process. And the phrase
“government-backed funding vehicle” is a marker. This is not a
viable proposal with the word “government” in it.
To be sure, the commercial real estate market is imploding, and
as we reported at the start of the month, some 10% of loans in
commercial mortgage-backed securities were 30 or more days
delinquent at the end of June, including nearly a quarter of loans
tied to the hard-hit hotel industry, according to Trepp LLC.
MD: And if those leases were taken on by trader created
money, then an automatic 30 day extension would have already been
applied to their promise. Such extensions could go on indefinitely.
There are no so-called investors involved at all. Mom and pop
created the money (they created money for the full lease as if it
was a purchase…but is paid out to the seller monthly) and this is
one of those unavoidable occurrences that the money process
naturally accommodates. Loan sharks anticipate this too. They take
the property. Moving these leases into the MOE process space stops
the domino effect such instances create.
MD: The above curve illustrates the superiority of the
MOE process solution. In April, the COVID-19 hoax lock down
occurred. Up until then the market was healthy and getting more
healthy. Then wammo!. With the MOE process, the above curve would go
flat…or maybe even continue to go down. And a new curve would
start up. That curve would be the automatic extensions of the time
component of the money creating promises. There is no pain to anyone
anywhere…and everyone is still responsible for their promise.
Note, this concept also applies to floor plans purchased in
anticipation of normal business sales performance…now interrupted
by the lock down. Such provisions are now provided by banks through
lines of credit or compensating balance loans…and they profit
exorbitantly.
“The numbers are getting more dire and the projections are
getting more stern,” said Rep. Van Taylor (R., Texas), who is
sponsoring the bill alongside Rep. Al Lawson (D., Fla.).
MD: In our system “sponsoring a bill” means “bowing
to a lobbyist”. That’s how our corrupt system works. That’s what
gives the wealthy so much leverage over the mom and pops. A proper
MOE process levels the playing field…at no cost or risk to anyone.
Under the proposal, banks would extend money to help these
borrowers and the facility would provide a Treasury Department
guarantee that banks are repaid. The funding would come from
a $454 billion pot set aside for distressed businesses in the
earlier stimulus bill.
MD: You’ve got to love that phrase “banks would extend money”. Folks. The banks don’t have money. They have a 10x leverage privilege. A proper MOE process makes that privilege unnecessary. Let the banks continue to exist if they want to. But the 10x privilege is an anachronism.
Richard Pietrafesa owns three hotels on the East Coast
that were financed with CMBS loans. They have recently had occupancy
of around 50% or less, which doesn’t bring in enough revenue to
make mortgage payments, he said.
MD: And here is a case where we have to ask: where does the money come from? When you buy a house over time you can securely make that money creating promise. You know what you expect to make and purchase a house accordingly. But if the income is interrupted its your problem to find a replacement for it.
But Pietrafesa has no way of replacing his interruption. Such deals are heavily leveraged (OPM…other people’s money). He couldn’t get the MOE process to allow this money creating trade in the first place. He would have to rely on forming a collective to get his hotel deal done. And if the collective fails, well, as individuals in the collective, they have an incentive to keep it from failing or they lose their share. The MOE process may allow their trading promise to Pietrafesa…but would not allow Pietrafesa’s promise to the owner of the hotel he purchased. For example, just like buying a house with time payments, they could actuarially show they could buy a piece of a hotel with time payments…and be responsible if it fails.
He said he is now two months behind on payments for one
of his properties, a Fairfield Inn & Suites in Charleston, S.C.
He has money set aside in a separate reserve, he said, but his
special servicer hasn’t allowed him to access it to make debt
payments.
MD: Here we have the domino effect. He’s paying a “special servicer” to cover this risk. He’s buying insurance. It’s an actuarial problem. And insurance companies are the ultimate leveragor. In insurance CLAIMs = PREMIUMS. The money is made on the investment income. But with a real MOE process which guarantees zero INFLATION, investment income can’t benefit from the leverage INFLATION gives. The insurance business becomes a risk mitigation business with a proper MOE process…as it should be.
“It’s like a debtor’s prison,” Mr. Pietrafesa
said.
MD: An MOE process does not have a provision for penalizing. It only has a provision for naturally ostracizing. Pietrafesa would have to pay INTEREST if he DEFAULTs and tries to create money again. And he has to make up that DEFAULT to become a responsible money creating trader again. It’s the natural negative feedback stabilizing loop of the process.
Those magic words, it would appear, is all one needs to say these
days to get a government and/or Fed-sanctioned bailout. Because in a
world taken over by zombies, failure is no longer an option.
MD: These days are no different than other days. In the
olden days the zombies were taken over by the Rothschilds…through
their J.P.Morgan agency. It was and is a protection racket…just
like the mafia runs. A proper MOE process removes the leverage and
drives them out of business…kind of like legalizing drugs drives
those dealers them out of that business. Ultimately, people need to
be responsible for their own stupidity…but not for the stupidity
of others.
While any struggling commercial borrower that was previously in
good financial standing would be eligible to apply for funds to
cover mortgage payments, the facility is designed specifically for
CMBS borrowers.
MD: Thus, the leverage is in the ability to lobby. Such
advantage needs to be eliminated…in a very natural, not
legislative, manner. A proper MOE process goes far in enabling that.
It gets better, because not only are taxpayers ultimately on the
hook via the various Fed-Treasury JVs that will fund these programs,
but the new money will by default be junior to existing insolvent
debt. As the Journal explains, “many of these borrowers have
provisions in their initial loan documents that forbid them from
taking on more debt without additional approval from their
servicers. The proposed facility would instead structure the
cash infusions as preferred equity, which isn’t subject to the
debt restrictions.“
MD: The taxpayers are not on the hook. Our current
process with no stabilizing negative feedback will just keep
escalating until it blows itself up. Then most people (not in the
inner circle with advance warning) lose; it resets; and starts all
over again…with the insiders picking up the pieces for pennies on
the dollar. We now pay over 3/4ths of what we earn to governments.
Where does communism begin? Where does slavery begin?. It’s not a
good system folks. We’ve been duped. And praising the constitution
and wrapping ourselves in the flag is not going to fix it. It was
broken when it was installed…the anti-federalists got it right but
lost the argument.
Yes, it’s also means that the new capital is JUNIOR
to the debt, which means that if there is another economic downturn,
the taxpayer funds get wiped out first while the pre-existing debt –
the debt which was unreapayble to begin with – will remain on the
books!
MD: When a building collapses, it’s kind of immaterial
whether the lower floors or the upper floors collapse first. When
this calamity happens, the dirt this house of cards stands on is the
only thing of value.
Perhaps sensing the shitstorm that this proposal would create,
the WSJ admits that “the preferred equity would be considered
junior to other debt but must be repaid with interest before the
property owner can pull money out of the business.”
MD: And this is how we get 40,000 new laws every year.
They start with a bad process (i.e. principles diluted by laws) and
are stuck with a huge maintenance problem.
What was left completely unsaid is that the existing impaired
CMBS debt will instantly become money good thanks to the
junior capital infusion from – drumroll – idiot taxpayers who won’t
even understand what is going on.
MD: “will instantly become money”: Let’s examine
this. We know what money is. So somehow he’s saying that some trader
instantly makes a promise spanning time and space here. Who’s the
trader, the taxpayer? Well that’s no different than what we have now
with government doing perpetual rollovers of their trading promises.
That’s not money creation. That’s counterfeiting. We already know
that.
How did this ridiculously audacious proposal come to being? Well,
Taylor led a bipartisan group of more than 100 lawmakers who last
month signed a letter asking the Federal Reserve and Treasury to
come up with a solution for the CMBS issues. Treasury Secretary
Steven Mnuchin and Fed Chairman Jerome Powell have indicated that
this may be an issue best addressed by Congress.
MD: “asking the Federal Reserve and Treasury to come
up with a solution”? They’re the problem. Institute a proper MOE
process and we drive out the problem. That allows us to address
issues in a “proper” context rather than an “opportunist”
context.
In other words, while the Fed will be providing the special
purpose bailout vehicle, it is ultimately a decision for Congress
whether to bail out thousands of insolvent hotels and malls.
MD: The malls have no future. They are the buggy whip
of a previous era. They need to be plowed under and reseeded. But
the hotels are viable. They are just suspended in time. If they’re
collectively owned they are the responsibility of the members of the
collective. They are suspended in time. They are not failing. And
suspension carries no cost in this instance except maintenance.
Remember, with a propper MOE process, money has zero time value.
Failure? That’s something else again. It all get’s back to the
individual traders’ responsibility and recourse. A proper MOE
process should allow small traders to create money to tide
themselves over the temporary situation. It should not support large
highly leveraged traders to do so. It’s an actuarial problem.
And if some in the industry have warned that an attempt to rescue
the CMBS market would disproportionately benefit a handful of large
real-estate owners, rather than small-business owners, it is because
they are precisely right: roughly 80% of CMBS debt is held by a
handful of funds who will be the ultimate beneficiaries of this
unprecedented bailout; funds which have spent a lot of money
lobbying Messrs Taylor and Lawson.
MD: Handful of “funds”. What is a fund but a
collective… where the manager gets the gains and the participants
get the losses. People who buy into a fund roll their own dice. When
the fund is a pension fund, only the pensioner should have control.
With perpetual zero inflation, placing their pension under a rock is
a viable solution.
Of course, none of this will
be revealed and instead the talking points will focus on reaching the
dumbest common denominator. Taylor said the legislation is focused on
– what else – saving jobs. What he didn’t say is that each job that
is saved will end up getting lost just months later, and meanwhile it
will cost millions of dollars “per job” just to make sure
that the billionaires who hold the CMBS debt – such as Tom Barrack
who recently
urged a margin call moratorium in the CMBS market – come out
whole.
MD: Saving jobs “is” the issue. These workers are
suspended in time. It’s their responsibility to provide for
themselves. They can do this by creating money to tide themselves
over (say for a year or two if necessary). A proper MOE process could
actuarially support this money creation.
Say we have the maitre-d of the hotel restaurant. It’s
pragmatic for him to span this interruption and go back to work as if
nothing happened. So he creates a time and space spanning money
creating promise. He creates two years of normal income to be paid
back 1/100th monthly. The payback begins two years hence and proceeds
100 months. When he goes back to work he begins paying back,
essentially cutting his own salary a manageable amount. And while
suspended, he can put up dry-wall and make some pin money.
For the bar-back it’s a little different. He may make a money
creating promise covering 3 months income to be paid back monthly
beginning in three months over a two year span. And he immediately
goes looking for a replacement job…maybe putting up dry-wall. His
job is not his “career”.
“This started with employees in my district calling and saying
‘I lost my job’,” Taylor said, clearly hoping that he is dealing
with absolute idiots.
MD: An idiot institutes processes that have built in
domino effect.
And while it is unclear if this bill will pass – at this point
there is literally money flying out of helicopters and the US deficit
is exploding by hundreds of billions every month so who really gives
a shit if a few more billionaires are bailed out by taxpayers –
should this happen, well readers may want to close out the trade we
called the “The
Next Big Short“, namely CMBX 9, whose outlier exposure to
hotels which had emerged as the most impacted sector from the
pandemic.
MD: The money flying out of the helicopters is
counterfeit. It will go directly to producing INFLATION. It will only
create taxes to the extent the money-changers demand their tribute
payments…that’s where “all” taxes go.
With a proper MOE process the domino effect is mitigated; a
natural stabilizing negative feedback mechanism prevails; and a
pragmatic self controlled recovery is instituted. Remember. When you
have a government solution to a problem, you just have the same
problem multiplied and are still looking for a solution.
Alternatively, those who wish to piggyback on this latest
egregious abuse of taxpayer funds, this crucifxion of capitalism and
latest glorification of moral hazard, and make some cash in the
process should do the opposite of the “Next Big Short”
and buy up the BBB- (or any other deeply impaired) tranche of the
CMBX Series 9, which will quickly soar to par if this bailout is ever
voted through.
MD: And the real character of so-called “investors”
is revealed and amplified. Without a proper MOE process, money is the
chips in an opportunist, privileged casino called capitalism.
Traderism is where real money lives.
MD: So here we have another good example where a proper MOE process doesn’t “treat” a problem; rather it anticipates it and prevents its effect.
MD: Here at Money Delusions we are constantly comforted with how a “proper money process” makes even enormous problems and issues almost go away. This is a good example.
With the Covid-19 crisis, we have the general class of problems that affects everyone simultaneously in a global fashion. If the solution is for everyone to shelter in place, well, that puts out of work everyone who can’t do their job remotely…they can no longer trade their value to others.
This article takes a case in point where the French government is dictating a solution (e.g. shelter in place). And Amazon is responding rationally. It’s really all about where the buck stops. Here are the steps: (1) Government dictates quarantine. (2) Amazon workers comply. (3) Amazon workers don’t get paid. (4) Government says “that’s unacceptable”.
First, it’s interesting that government acknowledges that some things are not acceptable. I, for one, find that government taking a full 3/4ths of what I earn is unacceptable. If I just declare it unacceptable (which it obviously is) nothing happens. But if I refuse to pay tax … well, the government pulls rank and forcefully takes my stuff.
In the case of government, they seem to think it is acceptable to demand workers be paid for doing nothing when doing nothing is dictated by the government. If the government feels that way, the government should be doing the paying. But in reality, no-body should be doing the paying.
In a free market of traders, traders deliver value and are compensated. Failing to deliver value results in no compensation. It’s just that simple. A calamity like Covid-19 is not the only thing that can tip over trader’s apple carts. There may be severe storms. There may be destruction of their work place. There may be a death or illness in the family. All such things are really the trader’s responsibility…not the responsibility of their trading partners nor of governments (to whom they trade their freedom for safety).
So what does all this have to do with Money Delusions?
Remember, money is “always and only created by traders like you and me”. It is “never created by banks nor the governments they institute”. So if the citizens are going to give government this power they must expect to suffer the consequences.
This represents a perfectly good reason for a trader to make a trading promise spanning time and space … i.e. to create money. The trader knows his trading is going to be inhibited for maybe up to 1/4 or 1/2 a year. He hasn’t planned for this. Once it has happened, he studies the situation and sees this is likely to happen in about 7-1/2 year intervals. So he immediately creates money to carry him over this 1/2 year of making no trades with the promise that he will return and destroy that money over a 7 year period (e.g. 84 monthly payments). That gives him a good cushion.
In this way, all traders take their own responsibility for the problem and initiate a solution. Over that period the trader can adjust his prices or work more hours to make up for this unintended idle time.
As we read this article I think we’ll find that the government claims the responsibility is Amazon’s … not the government’s and not the traders.
Amazon squeezing workers amid Covid-19 crisis is ‘unacceptable’ – French finance minister
French Finance Minister Bruno Le Maire said Amazon’s refusal to pay
wages of staff who walk out over coronavirus fears is “unacceptable” as
the country is considering nationalization of bigger companies at risk.
MD: So it is evident, it is the trader who is refusing to work. Thus, it is the trader who must suffer the consequences.
“These pressures are unacceptable, we’ll let Amazon know,” Le Maire said after several hundred workers protested the company’s policy on Wednesday. The e-commerce giant refused to pay workers who walked out or stayed at home in self-isolation over coronavirus fears.
Le Maire said Thursday that he would soon present a variety of plans to President Emmanuel Macron to assist the country’s biggest companies, such as BNP Paribas, Renault, Air France KLM, through the coronavirus crisis, some of which might include nationalization.
MD: Nationalization? The government just takes one trader’s business to satisfy another trader’s grievance? That’s what you get when you trade liberty for protection!
“We have several options on the table for all of the major industrial companies which could face major threats on the market, it could be us raising our stake in their capital… or it could be nationalizations,” Le Maire said.
MD: And where does the government get its “stake”? By stealing from traders. Government shouldn’t be able to do this. With a “real money process” it wouldn’t be able to do this. Governments never deliver on their promises. They just roll them over and that is default. A real money process would ostracize them.
MD: At Money Delusions we quite frequently come across one of these beauties we just can’t pass up. The only way to deal with this kind of nonsense is to annotate it in place.
MD: He begins with the obligatory flowery writing which is not relevant to the subject.
POITOU, FRANCE – Today, we are packing up, closing the shutters, putting away the lawn chairs and the croquet set.
Everything needs to be stored away; otherwise, rain, wind, and sun will do their damage. The wood cracks; the metal rusts; the curtains fade…
…It is nature’s way. And no matter what we do, nothing resists time.
Dirty War
In preparation for our departure, yesterday we got on our bicycles and rode around the countryside, saying goodbye to old friends.
Our first stop was a visit with a retired colonel, a man who had spent his life in the military – including engagements in the war in Algeria and peacekeeping operations in the Congo.
He is 80 years old and had cancer a couple of years ago; we didn’t expect to find him still alive. But he seems to be recovering and was cheerful and chatty.
“The Algerian conflict was a dirty war. We could have won the war militarily. But it was ruining the integrity of the army, turning it into a ruthless and unruly police force. I asked myself if I should resign. But I stuck with it and did the best I could. I don’t regret it.”
Broken Man
After a cold beer and warm conversation, we got back on our bikes and pedaled along the country road.
The next stop was to see a friend who used to work on our farm until he retired about 10 years ago.
He is in remarkably robust shape. At 79, he works in his garden every day and chops his own firewood.
But his oldest son was killed in a car crash last year – the second of his three children to die. Since then, he has seemed a bit like a broken man.
“How are you, Francois?” we asked.
“Okay,” was the answer from his mouth.
But his eyes told a different tale. He suffered.
After a few minutes and a glass of cold, freshly squeezed apple juice, we mounted up again.
A few miles farther on was the house of another retired couple.
Both are in their late ’70s. The woman is small, lively, energetic, and as friendly as ever. But her husband has multiple sclerosis. He no longer leaves the house, except to go to the hospital.
Still, his mind is alert, and he is keenly interested in China.
We took him a book from our library that we knew we would never read. It was written long ago in Chinese and now translated into French.
“In Chinese, there is no clear separation between writing and the ideas it conveys,” he explained. “Both should be true, beautiful, and timeless. To the eye… and to the mind.”
“Uh… yes,” we replied.
Rare Truth
MD: Ok, hopefully we’re now going to get into our subject matter … money. Look for clues that he knows what money is. We don’t expect to find them… but it’s always fun to look for them in these pontifications.
But our beat is money. And in today’s money world, truth is rare; beauty can be found only in irony and mockery.
Yesterday, for example, the president of the USA came out with this:
Our Federal Reserve cannot “mentally” keep up with the competition – other countries. At the G-7 in France, all of the other Leaders were giddy about how low their Interest Costs have gone. Germany is actually “getting paid” to borrow money – ZERO INTEREST PLUS! No Clue Fed!
MD: So the president is clueless about money too. What’s new.
The president is disturbed because the Fed is not debasing the U.S. money supply fast enough.
“Everybody else is doing it,” he seems to say. “Why aren’t we?”
Of course, “we” are. Our Fed is lending out fake money to member banks at a rate that is about even with consumer price inflation.
MD: Change the word “lending fake” to “counterfeiting” and you have the proper description of what is going on
This “free” money does to the U.S. financial system about what a hurricane does to a South Florida swimming pool; it becomes a greasy swamp with an alligator in it.
MD: In a “real money” process, we know that money is in perpetual free supply. Traders like you and I can create it any time we want to … and we want to when we can see clear to a trading promise spanning time and space. There is no “financial system”. There is only a purely objective process.
But our guess is that other Leaders were not “giddy” about the storm, but puzzled. Why would investors take shelter in a 10-year Italian bond at less than a 1% yield?
Raving Mad
MD: Notice the focus on so-called “investors”. In a real money process, everything is focused on traders like you and me. It’s about trading. It’s not about gaming the process for yield. And no “shelter” is needed. A real money process “guarantees” perpetual perfect balance between supply and demand for money itself … thus perpetual zero inflation and zero time value of money. The time span is not relevant.
There is the smart money. And there is the dumb money. But this money must be stark, raving mad.
MD: In a “real money process” money has no intellect. Money is a promise made by a trader. And a real money process does not allow a broken promise by one trader to affect other “responsible” traders. Defaults are immediately mitigated by interest collections of like amount. These collections are paid by irresponsible traders according to their propensity to default (i.e. risk).
Italy’s economy has been in a slump for more than 10 years. Its native-born population is expected to be cut in half by the end of the century. It owes more than 130% of its GDP.
MD: The “it” referred to here is the government. And the amount it “owes” is simply the amount it has counterfeited. It never had any intention of keeping its promises. No government does.
And its government bumbles from one unstable coalition to another… barely able to govern at all.
MD: That’s the modus operandi of all governments. It’s like the Harlem Globetrotters and the Washington Generals. They pretend to be in a basketball competition … but they work for the same guy.
You’d have to be nuts to lend money to Italy…
…unless you thought the fix was in.
MD: In this context, “lend” assumes new money is not being created. Rather, the control of existing money is being handed over to another party (the government) for some consideration (yield). So what does he mean here by “unless the fix is in”? He’s saying you don’t loan to a “deadbeat counterfeiter” unless the fix is in. I don’t know about you, but I only loan to a deadbeat counterfeiter when forced to … taxed… and I have zero expectation that the loan will be repaid…ever.
That is, buying Italian bonds – or German bonds, or French bonds… or USA bonds, for that matter – makes sense only if you are front-running central banks, counting on them to do something even nuttier than you did, buying your overpriced bonds at even higher prices.
MD: A good example is financial manipulators buying Venezuelan debt for pennies on the dollar. The holders had little expectation of being repaid. But the purchasers knew they could get the USA government to institute “regime change”. After that, the new regime would “make good” on the bonds. They do this by instituting a new money… i.e. they clean the slate.
Which is what Mr. Trump wants the Fed to do – rig up the credit market even more than it is now.
The Fed should print up more fake money, he believes, and lend it to his government at even cheaper interest rates. The idea is to get the economy running hot in time for the 2020 election.
Free Money
MD: With a “real money process” governments are just traders like you and me. But we know from experience that they never deliver on their trading promises. Then their defaults equal their money creation…and interest collections against them equal these defaults. They can no longer create money. They are thrown out of the game. A real money process cares nothing about “the economy”.
Our guess is that this huge bubble in debt marks a major change in world economic power.
MD: A bubble happens when the preponderance of traders make promises they can’t keep. This happens often in a manipulated money process. After a period of “tight” money, the money changers move to an “easy” money policy. Traders, having been strangled for some period, can now breathe…and they begin trading over time and space … creating money. Then the manipulators tighten the money again (they call the loans and refuse to “grant” new loans). Trades that were sound become unsound … and trades that were depending on those trades become unsound … and on and on. One failed trade cascades into a string of failed trades. A real money process doesn’t exhibit this behavior. If a trader defaults, it doesn’t affect other existing trades. It just serves as an automatic negative feedback … imposing slightly larger interest loads on new irresponsible traders. Responsible traders have zero interest loads because they don’t default.
MD: When did Americans every have honest money, small government, and balanced budgets? The whole idea of forming the USA union was to repay guys like Robert Morris.
Now, those gods forsake them.
Fake money has destroyed real capital, created chaos in the markets, caused trillions in malinvestment, slowed down growth, and resulted in appalling inequality.
MD: Remember, “fake money” is “counterfeit money”. A real money process tolerates no counterfeiting at all.
It has also corrupted the government; the feds use it to avoid making hard – but necessary – decisions.
Fake money finances their fake wars… rewards lobbyists, campaign donors, crony contractors… and has added more than $10 trillion in additional debt in the last 10 years.
And with so much cheap credit available, not a single candidate even suggests balancing the budget or curtailing wasteful spending.
Why make tough choices when you get free money?
The Fix Is In
Germany is actually “getting paid” to borrow, Mr. Trump reminds us.
But people only get free money when the fix is in. And the fix won’t stay fixed forever.
Today’s rigged-up bond bubble will be no exception.
When will it pop? How?
We would love to meet the person who knows the answers to those questions.
MD: Read a history book. It has “rhymed” in this regard innumerable times in innumerable places. It is the money changers principal tactic.
In the meantime, we wait… we watch… and we try to connect the dots. And we wonder: What really matters?
Our final stop yesterday was at the modest house of a woman whose husband had recently died after a long, losing battle with Alzheimer’s disease.
We sat with her for a few minutes and reminisced. We discussed the weather, the small tomatoes in her garden, and what was going on at the local church. But she had her husband on her mind.
“The last words he said were five years ago,” she explained, tears in her eyes. “He said ‘I love you.’”
Regards,
signature
Bill
MD: Beautiful writing Bill … but you’re clueless about money.
*** MD: This article is from ZeroHedge.com. There they are clueless about money, but continue to pontificate with articles like this.
At MoneyDelusions (MoneyDelusions.com/wp) we know that gold is not money … and easily prove it. Lets see how they get around our proof.
A couple of months ago, CNBC’s Josh Brown made a blog post saying that “Permabears are Ridiculous People”. Here’s my answer. Why Gold Is Money: A Periodic Perspective Profile picture for user Tyler Durden by Tyler Durden Fri, 07/05/2019 – 22:25 Authord by Nicholas LePan via Visual Capitalist,
The economist John Maynard Keynes famously called gold a “barbarous relic”, suggesting that its usefulness as money is an artifact of the past. In an era filled with cashless transactions and hundreds of cryptocurrencies, this statement seems truer today than in Keynes’ time.
*** MD: Agreed.
However, gold also possesses elemental properties that has made it an ideal metal for money throughout history.
*** MD: Disagree. It has never been money and never will be money. However, it may be a better money substitute than, say, cement blocks.
Sanat Kumar, a chemical engineer from Columbia University, broke down the periodic table to show why gold has been used as a monetary metal for thousands of years.
The Periodic Table
The periodic table organizes 118 elements in rows by increasing atomic number (periods) and columns (groups) with similar electron configurations.
Just as in today’s animation, let’s apply the process of elimination to the periodic table to see why gold is money:
*** MD: Note, he begins with the premise that money can be stuff (wrong). He then goes through the periodic table to see what the best stuff is for money. With an errant premise, you’re going to come to an errant conclusion. Watch him do it.
Gases and Liquids
Noble gases (such as argon and helium), as well as elements such as hydrogen, nitrogen, oxygen, fluorine and chlorine are gaseous at room temperature and standard pressure. Meanwhile, mercury and bromine are liquids. As a form of money, these are implausible and impractical.
*** MD: So he takes his false premise and hones it down to solids. What if he said music can be found in the periodic table … and the job is to select the best music. See how ridiculous things get when you start with a ridiculous premise?
Lanthanides and Actinides
Next, lanthanides and actinides are both generally elements that can decay and become radioactive. If you were to carry these around in your pocket they could irradiate or poison you.
Alkali and Alkaline-Earth Metals
Alkali and alkaline earth metals are located on the left-hand side of the periodic table, and are highly reactive at standard pressure and room temperature. Some can even burst into flames.
Transition, Post Transition Metals, and Metalloids
There are about 30 elements that are solid, nonflammable, and nontoxic. For an element to be used as money it needs to be rare, but not too rare. Nickel and copper, for example, are found throughout the Earth’s crust in relative abundance.
MD: Ok, here’s another false premise. “Money needs to be rare”. Nonsense. There must perpetually be an equality between the amount of money needed and the amount of money available. No “stuff” will ever meet this requirement. Money logically should be in “free” supply. Something rare will never be in free supply. And we can prove empiracly that he is wrong. In 1963 I was able to trade a silver USA quarter for a gallon of gasoline. In 1964 I was able to trade a composite USA quarter for a gallon of gasoline. Today, I can trade a USA quarter for 1/10th gallon of gas … whether it has silver in it or not. Logical conclusion? The silver (i.e. intrinsic value of the token) has absolutely nothing to do with the trade. Why the factor of 10 difference in trading power of the token? As we know here at MD, it’s because of counterfeiting (i.e. default not mitigated by interest collections of like amount) … predominantly by governments.
Super Rare and Synthetic Elements
Osmium only exists in the Earth’s crust from meteorites. Meanwhile, synthetic elements such as rutherfordium and nihonium must be created in a laboratory.
Once the above elements are eliminated, there are only five precious metals left: platinum, palladium, rhodium, silver and gold. People have used silver as money, but it tarnishes over time. Rhodium and palladium are more recent discoveries, with limited historical uses.
*** MD: They had the specie wars towards the end of the 19th century in the USA. Why? Because, though both gold and silver meet the ridiculous “rare” requirement, the people who had the gold pulled rank on the people who had the silver. They prevailed lawfully (i.e. in an un-principled fashion). Laws only dilute principles as is vividly illustrated in this example.
Platinum and gold are the remaining elements. Platinum’s extremely high melting point would require a furnace of the Gods to melt back in ancient times, making it impractical. This leaves us with gold. It melts at a lower temperature and is malleable, making it easy to work with.
*** MD: Ah … so his wisdom is divine. How interesting!
Gold as Money
Gold does not dissipate into the atmosphere, it does not burst into flames, and it does not poison or irradiate the holder. It is rare enough to make it difficult to overproduce and malleable to mint into coins, bars, and bricks. Civilizations have consistently used gold as a material of value.
*** MD: This is the “can’t destroy it” and “precident” argument for gold stuff as money. Again, he started with a false premise and he brings forth false arguments. What’s not to love about the process?
Perhaps modern societies would be well-served by looking at the properties of gold, to see why it has served as money for millennia, especially when someone’s wealth could disappear in a click.
*** MD: The gold bugs would be well-served to look at societies, both modern and otherwise, for the real definition of money. In “no” society can you point to a case where money is created that a ‘trader” is not involved in its creation. Money is obviously and provably “an in-process promise to complete a trade over time and space.” It is always and only created by traders like you and me … making promises and delivering with time payments … like for a house or a car.
This article on zerohedge addresses the new overture by Facebook to create a new money (Libre). Knowing what you have learned here about money, it is a fun exercise to take articles like this and blow them full of holes.
Money is an “in-process promise to complete a trade over time and space.” It is always, and only, created by traders (like you and me buying things with time payments). It is always properly destroyed by traders delivering as promised. If the trader defaults or if counterfeit money is found, it is immediately mitigated by interest collections of like amount. The operative relation is INFLATION = DEFAULT – INTEREST = zero.
A proper Medium of Exchange (MOE) process monitors the creation of the money and the delivery on the promise. It guarantees a perpetual perfect balance between supply and demand for money while also guaranteeing perpetual free supply of money.
The money creation process and delivery is never anonymous or done in secret. However, in the interim between creation and delivery, the money circulates in private and anonymous simple barter exchange. In today’s technology (block chains) this can be done with great efficiency and robustness. It can employ the greatest deterrent to cheating … that being transparency.
Now all governments are instituted by money changers. They are designed to protect the money changers “banking” operations. These operations just co-opt the trading process, claiming tribute (INTEREST); manipulating supply and demand to keep traders off balance (the so-called business cycle); and funding governments (traders who never deliver as promised) through INFLATION.
If Google (or better yet Amazon) institutes a proper MOE process, they blow this long running conspiracy out of the water. They return the money process to the traders who created it in the first place.
That ain’t gonna happen. Too bad. If it did happen this planet would be a far more pleasant and safe place to waste about 80 years of your time … the only time you will ever get by the way.
MoneyDelusions: We’re going to get this from people who don’t know what money is … and nobody but the money changers seem to know … and they’re liars. It is easily proven: Money is “an in-process promise to complete a trade over time and space.” It is always, and only, created by traders like you and me. For example, when we promise to buy a house with 360 monthly payments … or a car with 60 monthly payments … we are making a promise spanning time and space. To do this we create a “money obligation” and get it certified by the process … which then monitors it for performance. In most cases it is just an entry in a couple ledgers. One ledger (the money process’) keeps transparent track of the performance on your promise. The other ledger (yours) keeps track of how much performing you have done and have left to do.
In the mean time, this money you created exchanges as the most common object in every simple barter exchange.
Should you fail to meet your performance promise (i.e. DEFAULT), a proper Medium of Exchange (MOE i.e. money) process immediately recovers your DEFAULT with an INTEREST collection (from other irresponsible traders) of like amount. In this way it protects everyone using money to make trades.
The operative relation is: INFLATION = DEFAULT – INTEREST = zero
‘So INTEREST is absolutely “objective”. It’s not dictated by the likes of Sanders or Cortez … or the money changers … or the governments the money changers institute to protect their scam. INTEREST is guaranteed to be zero for responsible traders (non-DEFAULTERS) and adjusted according to a trader’s propensity to DEFAULT (i.e. irresponsibility). Past irresponsibility can be cleared away by simply making up the DEFAULT.
The money itself has no intrinsic value … so precious metals are not money. The money itself is not created from waste … so BitCoins are not money. Money maintains a perfect perpetual supply/demand balance, thus also ruling out precious metals and so-called crypto.
The obvious indicators that you are immersed in a defective MOE process is concepts like “monetary policy”; “stimulation”; “unemployment”; “inflation targets”; “usurious interest”; etc.
“Using faulty assumptions is the lynchpin to the inability to meet future obligations. By over-estimating returns, it has artificially inflated future pension values and reduced the required contribution amounts by individuals and governments paying into the pension system.”
[MD] The quote above is taken from the link to an article at ZeroHedge.com (where everyone seems to be clueless about money … yet claims unending depth of knowledge on that subject.) Look at the quote and if you’re interested follow the link. When you do, keep in mind the obvious facts laid out below. Think!!!
A proper MOE (Medium of Exchange) process makes a huge difference in planning and providing for periods of “failure to be of value”. Life is about being of value and trading that with others. If you’re not of value and you haven’t saved value, you are pretty well doomed in a “real” world. Our current flawed MOE process (1) targets inflation at 2%; (2) delivers inflation at 4%; (3) takes 3/4ths of the fruits of everyone’s labor; and (4) sanctions tithing (to the money-changers) of all trades … it’s their corrupted definition of INTEREST.
In a proper MOE process, traders (and only traders) create money. They do it by making a “promise to complete a trade over time and space”. You do it when you buy a house or car with time payments. That’s what money is … an “in-process promise”. As traders deliver on their promise they return the money they created and it is destroyed. And in the mean time that money exchanges as the most common item in every simple barter exchange. To the extent traders fail (DEFAULT), that failure is immediately mitigated and recovered by an INTEREST collection of like amount. The operative relation is INFLATION = DEFAULT – INTEREST = zero.
With guaranteed perpetual zero INFLATION there is “no time-value of money”. All of finance hocus pocus goes out the window. People can put their surplus value (money) under a rock and it maintains its value perfectly and perpetually. They have no reason to risk it for a return to cover inflation. In fact, the best unit of measure of this value is the HUL … Hour of Unskilled Labor.All of us have been a HUL at one point in our life … usually summer jobs in high school. On average, workers today are able to trade their time at 3 HULs per hour … about $50,000 per year. This was true 50 years ago when I started my career … but then the HUL was valued at $1.50 per hour, not $8.00/hr as it is today. But that HUL 50 years ago traded for the exact same size hole in the ground that it trades for today. It’s the dollar that has changed. The HUL hasn’t changed throughout history and won’t change in the future.
In our confused system, traders think money-changers and the governments they create to protect themselves are the creators of money. They obviously are not. You can point to only one instance where money is created without a trader involved … and that is counterfeiting … and that is far and away done exclusively by the money-changers and their governments.
Throw off that yoke of confusion (educated into traders by the money- changers) and it’s a whole different ball game. Money-changers and governments wilt on the vine. They can’t compete. And the world is a far better place … a far more friendly place for planning for down time under the comfort of guaranteed zero INFLATION.
[MD] At MoneyDelusions we are under no delusion about what money is. It is clearly “An in-process promise to complete a trade over time and space”. It is only and always created by traders … not money changers or the governments they institute.
Here we examine articles that display obvious delusions and expose them. ZeroHedge is full of such articles. They recognize that the current money process is flawed, but they don’t know what money is. Therefore, they repeatedly propose equally or even more flawed alternatives. The [MD] Money Delusions annotations reveal and correct their confusion.
From ZeroHedge: MMT: Recipe for Revolution https://www.zerohedge.com/news/2019-04-02/mmt-recipe-revolution Authored by Robert Wright via The American Institute for Economic Research, Historian Stephen Mihm recently argued that based on his reading of the monetary system of colonial Massachusetts, modern monetary theory (MMT), which he cheekily referred to as PMT (Puritan monetary theory), “worked – up to a point.”
[MD] The Federal Reserve system we employ works up to a point. That point is 4% short of optimum … i.e. it yields a 4% annual inflation… on purpose. But worse, it enables an encroaching government that freely counterfeits the money.
One can forgive him for misunderstanding America’s colonial monetary system, which was so much more complex than our current arrangements that scholars are still fighting over some basic details.
[MD] What was so complex about it? Let’s see if he ever tells us. Hint: No he doesn’t.
Clearly, though, America’s colonial monetary experience exposes the fallacy at the heart of MMT (which might be better called postmodern monetary theory): the best monetary policy for the government is not necessarily the best monetary policy for the economy. As Samuel Sewall noted in his diary, “I was at the making of the first Bills of Credit in the year 1690: they were not Made for want of Money, but for want of Money in the Treasury.”
[MD] In a proper MOE (Medium Of Exchange) process, there is no “policy” at all. It is perfectly objective. The article tips its hand by the second paragraph. Samuel Sewall should have noted “I was at the ‘counterfeiting’ of the first Bills of Credit…” He alludes to money being created by something or someone other than government as being the norm. But gets that close and still doesn’t get it … that it is always and only created by traders.
While true that colonial governments controlled the money supply by directly issuing (or lendin) and then retiring pieces of paper, their macroeconomic track record was abysmal, except when they carefully obeyed the market signals created by sterling exchange rates and the price of gold and silver in terms of paper money.
[MD] Note use of the words “lending” and “issuing” but not the word “creating”. In a proper MOE process it is not “lended” nor “issued”. Money, being a promise, is “created” by the promise maker… a trader. It is “destroyed” as he delivers on his promise. If he doesn’t deliver (i.e. he DEFAULTS), his default is immediately mitigated by INTEREST collection of like amount. This guarantees zero inflation by the operative relation: INFLATION = DEFAULT – INTEREST = zero. He recognizes that money is ultimately destroyed (he says “retired”) but then loses it as he addresses the fictional “macroeconomic track record”.
MMT in the colonial period often led to periods of ruinous inflation and, less well-understood, revolution-inducing deflation.
[MD] A proper MOE process “guarantees” perpetual zero inflation.
South Carolina and New England were the poster colonies for inflation, in part because they bore the brunt of colonial wars against their rival Spanish and French empires. Relative peace and following market signals eventually stabilized prices in South Carolina.
[MD] Fails to elaborate by revealing that they were commodity based economies, and thus took the brunt of the “tariff” load that rewarded the money changers and funded the governments they instituted.j.. and put the load on the traders and their customers.
In New England, however, Rhode Island for decades was able to act as a “money pump” that forced inflation on other New England colonies until they abandoned MMT entirely in the early 1750s.
[MD] In a proper MOE process, “traders” are the only money pump. And they won’t pump promises they can’t see clear to delivering.
In New York, New Jersey, and Pennsylvania, by contrast, legislatures followed market signals and were never pressed as hard militarily as the buffers to their north and south were. They therefore did not inflate away the value of their paper moneys by issuing too much.
[MD] “Market signals”? Like wetting the finger and holding it in the air? In a proper MOE process there is only one signal. That is DEFAULTs. And proof that nobody gets it? Show me anywhere a time series of DEFAULTS. You can find innumerable time series for INFLATION and INTEREST. Why do you suppose that is? In a proper MOE process, only the exact correct amount of money is ever “issued”. It’s not subjective at all.
After the French and Indian War, however, the Middle Colonies suffered from a large deflation rooted in wartime excesses, structural economic changes, and new imperial regulations. Real estate prices plummeted and debtors’ prisons overflowed. The direct result was colonial unrest over the Stamp Act, which quickly escalated into a pamphlet war, a trade war, and then a shooting war.
[MD] All due to confusion of what money really is … and who creates it and why.
About the only time the colonial monetary system functioned effectively was when paper money circulated in tandem with full-bodied gold or silver coins (specie). When the government found itself in dire straits, as it did during the American Revolution, the value of paper money vis-a-vis specie slipped.
[MD] And here is the “monetary” nonsense… “in tandem with specie”. The last sentence should read “when the government counterfeited, the value of the money slipped”. This is obviously because they had no mechanism of linking defaults to interest collections for the automatic negative feedback mechanism needed for stability.
This was the market’s way of signaling that too much paper money was in circulation at the current price level and that further emissions would spark inflation. This is precisely what happened. Yes, America eventually won the war, but only after returning to a monetary system anchored by the precious metals.
[MD] The monetary system had nothing to do with winning the war or precious metals. What really happened is that the American trader prevailed in spite of government and money changer bad behavior.
While the prospect of returning to a more solid monetary anchor after the inevitable failure of MMT may intrigue some, the socioeconomic costs of hyperinflation would be enormous. With everyone’s savings destroyed, as in Germany in the 1920s and Venezuela today, the end result is impossible to predict, but undoubtedly thornier than rosier.
[MD] The “end result” is well known. You have a reset; responsible traders get screwed; manipulators and speculators walk; and it starts all over again. Institute a proper MOE process that knows what money really is and the problems are extinguished as long as it is employed.
Tyler Durden [TD]Trump Is Considering Firing Fed Chair Powell
[MD] This article is illustrative of what you see in the behavior of a “flawed money process”. Let’s take it point by point, always keeping in mind that “Money is an in-process promise to complete a trade over time and space.” It is “always and only created by traders making such promises and getting them “certified” (open to transparent scrutiny) by a “real money process” … not the corrupt and contrived process we have all always traded under.
[MD] A proper “real money process” has no chair to fire. It doesn’t even have a central authority requiring a chair.
[TD]if amid the barrage of negative news hitting the market this quarter there has been one outstanding item which would have sent it sharply (even) lower, that would be a flashing red headline – or a tweet from the president – announcing that Trump has fired Fed Chair Jerome Powell.
[MD] A real money process can’t be manipulated. Thus, it wouldn’t even notice such a tweet, let alone change behavior in the face of it.
[TD] And while to many such an act would seem unthinkable, even from someone as unorthodox and unpredictable as Trump, it now appears that’s precisely the outcome the market will have to worry about next as Bloomberg reports that the president has discussed firing Federal Reserve Chairman Jerome Powell “as his frustration with the central bank chief intensified following this week’s interest-rate increase and months of stock-market losses”, citing four people familiar with the matter.
[MD] This is likely all just theater setting up the trip-wire in the money changers’ farming operation … i.e. the so-called business cycle.
[TD] While advisors in Trump’s inner circle have rightfully warned him that firing Powell would be a “disastrous move” for stock prices, and instead are “hoping that the president’s latest bout of anger will dissipate over the holidays”, the sources reveal that the president – who is facing the imminent departure of two of his closest advisors, chief of staff Kelly and secretary of defense Mattis – has talked privately about firing Powell many times in the past few days.
[MD] Think about it. In a real money process such manipulation would be impossible. Yet with our corrupt process, it is tactics.
[TD] Still, even Trump likely realizes that any attempt to push out Powell would have a devastating effect on the one barometer of his presidency he holds dearest to his heart – the stock market – and not only that, but terminating the Fed chair would likely send a shockwave across global financial markets, resulting in a collapse of risk asset prices and undermining investor confidence in the central bank’s ability to guide the economy without political interference. Worse, it would come at the worst possible time, just as markets are in freefall in recent weeks, with the Nasdaq just entering a bear market and the S&P less than 3% away from being 20% down from its all time highs.
[MD] A real money process has no connection to markets whatever (and vice versa). Notice how a real money process makes all these very serious problems simply vanish!
[TD] It is likely that any move against Powell would be met by considerable legalistic resistance as it is unclear how much legal authority the president has to fire Powell, as the Federal Reserve Act says governors may be “removed for cause by the President” and since the chairman is also a governor, that umbrella definition also extends to him. Even so, the rules around firing the leader are legally ambiguous according to Peter Conti-Brown of the University of Pennsylvania notes in his book on Fed independence.
[MD] Ah … the law. That’s what they introduce to dilute principles. With 40,000 new laws every year, the law is beyond total idiocy. Return to principles. The golden rule (principle) is usually all that’s needed. In this case they need new law … because what they have is badly written law. But observe, no new “principle” is needed. Why dilute principle with laws when it has such negative impact on principles it attempts to parse? And “Fed Independence?” Since a real money process is natively totally independent and immune to manipulation, independence is no issue.
[TD] Additionally, while the Fed is independent only on paper, and history is replete with examples of presidents influencing monetary policy in the past, most notably when LBJ literally attacked then Fed chairman William McChesney Martin, there has yet to be an instance of an acting Fed chair being fired by the president.
[MD] “independent only on paper”? So George Bush tripped over a correct observation: “the Constitution is just a piece of paper.” What a great testament that is to any legal system… not!
[TD] Such a move would represent an unprecedented challenge to the Fed’s independence. Though he was nominated by the president, Powell was thought to be insulated from Trump’s dissatisfaction by a tradition of respect for the independence of the central bank.
[MD] All laws are unprecedented … until they become precedents … which happens virtually immediately. Look at West Law for any statute. They are immediately ruled on all sides of the issues they claim to address. Ridiculous! And “tradition of respect for the independence of the central bank.” That’s respect for the Rothschild family. I have no such respect.
[TD] That separation of politics from monetary policy is supposed to instill confidence that Fed officials will do what’s right for the economy over the long term rather than bend to the short-term whims of a politician.
[MD] Don’t you see? “Monetary policy”? A proper real money process has “no policy knobs”. It’s just simple arithmetic. Traders are free to create money any time they see fit … which means any time they can see clear to deliver on a promise over time and space. If they fail, the immediate and natural negative feedback mechanism of meeting DEFAULTs with INTEREST collections of like amount guarantees stability and ZERO INFLATION. The manipulators can’t screw with the knobs when there are no knobs to screw with.
[TD] The reason behind Trump’s ire is simple: he sees the Fed’s rate hikes as the cause behind the market’s recent slump, and after explicitly “urging” the Fed not to hike rates last week, saying Powell was “being too aggressive, far too aggressive, actually far too aggressive” and telling Reuters the central bank “would be foolish” to proceed with a rate hike, he may well see Powell’s “not so dovish” rate hike as an open act of defiance – usually a career-ending move for anyone who ultimately is accountable to Trump.
[MD] Rate hikes always signal the beginning of the money changers’ harvest season. Traders (with in-process money creating promises) get thrown off balance and the money changers take their stuff for pennies on the dollar. It’s how the farming operation works. They call it the business cycle. Greenspan was the best flunky the traders have ever had. He didn’t change rates. What’s worse than non-zero rates is rates that are not predictable over the time span of a trader’s promise. It’s a built in rug puller!
[TD] The irony is that just over two years ago, Trump attacked Powell’s predecessor, Janet Yellen, for creating a stock market bubble with her dovish policies: in Sept 2016, Trump accused the the Fed of “keeping the rates artificially low so the economy doesn’t go down so that Obama can say that he did a good job. They’re keeping the rates artificially low so that Obama can go out and play golf in January and say that he did a good job. It’s a very false economy. We have a bad economy, everybody understands that but it’s a false economy.”
[MD]”artificially low” rates? Zero is the proper rate. Anything else is artificially high! A real money process cares nothing about the economy. It’s just a mechanism for traders to span time and space with their trades. It’s more efficient than a forced double trade … e.g. trade what you have for gold; carry gold to another place and time; trade gold for what you wanted in the first place. And it’s not the economy that is false. It’s the money that underlies all trades that is being jerked around and is therefore false.
[TD] Two years later, when the same “false economy” belongs to Trump, the president has changed his tune, and his ideal Fed chair would be none other than Janet Yellen (whom Trump refused to reappoint for being “too short.”)
[MD] Well duh! That’s what money changers, governments they institute, and puppets they employ do … that’s their job … that’s their skill. Those with scruples need not apply.
[TD]The even bigger irony is that Powell finds himself in a lose-lose situation: on one hand he can merely perpetuate the unsustainable asset bubble created by his predecessors Greenspan, Bernanke and Yellen whose inevitable bursting would have devastating consequences on the financial system (which, however, he can leave to his successor as both Bernanke and Yellen did), or he can bit the bullet and be the one responsible for at least attempting the renormalization of monetary policies, an even which inevitably lead to far greater pain for those who invested in said bubble.
[MD] “Unsustainable asset bubble”? This so-called bubble is sustainable as long as traders can deliver on their money creating promises. That’s what determines sustainability. And jerking them around makes that impossible for them. So given the chance they just roll the dice. What do they have to lose? Like governments in this environment: they just reset and start over. Some winners, lots of losers, and the clown is once again high, dry, and looking for a ball player.
[TD] Furthermore, when Trump signed up for the presidency he should have picked one of the two options: the fact that he did not and two years later decided to continue on the autopilot set previously by the Fed is precisely why it is Trump who will now have no choice but to be the fall guy for the mess prior administrations, and previous Fed chairs created.
[MD] Just think about the worst thing that could happen to the money changers, the governments they institute, and their operatives like Trump. That is traders telling them all to “go pound sand”. That they’re instituting a “real” money process to compete with the one they have been forced to use (due to no other alternative). Poof! It all falls down and the traders are jubilant.
[TD] Trump’s public and private complaints about members of his administration have often been a first step toward their departures — including former Attorney General Jeff Sessions, his first Secretary of State Rex Tillerson and outgoing chief of staff John Kelly.
[MD] Pretend you were elected president. Look at all the positions you have to fill immediately. You can’t. So you rely on advisors (almost exclusively tribe members). And then slowly you see where they’re eating you alive and you one-by-one replace them with someone you think can do the job. What’s really wrong with all of this is that people first think that government is the solution to everything … when it fact is the solution to nothing.
[TD] And while it’s not just Powell who is on the chopping block as some of Trump’s recent anger has also been directed at Treasury Secretary Steven Mnuchin for his part in persuading the president to select Powell to lead the Fed, the fact that Powell’s tenure is now in jeopardy and that the Fed Chair could be fired after even a mere sharp drop in the market – with an S&P500 bear market looming as a likely psychological catalyst – will lead to a self-fulfilling prophecy as traders will now sell merely on the fear of, and frontrunning the news that Trump has fired Powell precisely as a result of such selling.
Business Finance
[MD] Write your own comment. You’ve been well briefed.
