The Fraud of Money as Debt

[MD] The provocative (and ill-informed) title of this article begs some annotation. At Money Delusions, it is obvious and provable to us that  not only is money debt, it always has been and it always will be. Money is a promise to complete a trade over time and space … and a promise is obviously a debt.

So let’s see what this moron Shorty Dawkins has to say on the subject.

When the Federal Reserve System was established in 1913, it transferred the power of the US Treasury vis-a-vis the creation of money, into the hands of the Federal Reserve. The Fed creates money out of thin air and loans it to the US Treasury in the form of interest bearing debt instruments. Thus, the money of the US is based on debt. With over $20 trillion in Federal debt, the interest paid on that debt in fiscal year 2018 is estimated to be $310 billion. That’s no small amount!

[MD] What was actually transferred was the propensity to counterfeit.  Neither the Treasury nor the Fed create money. Only traders create money. You can’t give a single example where money is created that a trader is not involved and did not initiate it … that is, unless it is created by counterfeiting. And regarding the interest paid: If the process is a “real” process, the interest paid is exactly equal to the defaults experienced. Why don’t we ever see these people quoting defaults experienced?

What if money were not created out of debt? Is that possible? Sure. If the powers of the Federal Reserve were taken back by the US Treasury, it would be possible to spend money into existence, rather than into existence as debt.

[MD] Can he say anything more stupid? “Spend money into existence?” And if not into debt, into “existence” as what? Kind of left something out didn’t you Shorty?

The Federal budget for 2018 is: Total expenditures‎: ‎$4.094 trillion. The total estimated revenue‎: ‎$3.654 trillion. This leaves a projected deficit‎ of ‎$440 billion. Since the deficit must, under the current Federal Reserve System, be borrowed from them, at interest. Thus the deficit grows and next year’s interest payment will increase.

[MD] If a “real” money process were in existence, the government creating this debt would only do it once … and then be excluded from the marketplace as a trader. Deadbeat traders are automatically excluded when their interest load (due to their propensity to default) comes to equal the trading promises they seek to have certified.

However, if the US Treasury were to create the money, it could simply spend it into existence to cover the deficit. No interest need be paid! As the previous debt interests of the Federal Reserve came due, they could be paid off by money created by the US Treasury in the same manner. Eventually, the entire debt could be paid off in this manner.

[MD] “No interest need be paid” is true only for responsible traders. Governments are not responsible traders. In fact they never deliver. They just roll over their trading promises … and that is default … and purposeful default is counterfeiting! I’ll bet Shorty has a perpetual motion machine he would like to show us as well.

Beware! This is not free money!

[MD] In a “real” money process, money is “always in free supply”. That’s not to say it is “free money”. Rather, it says money “never” restricts the trading intentions of responsible traders who create it. They “always” deliver on their promises.

It may sound like free money, but it isn’t. As more money is spent into creation, inflation takes its toll. The true definition of inflation is the increase of the money supply above the value of goods and services produced. When the money supply increases faster than the value of production, there is more money chasing fewer goods and prices rise, as the value of the money decreases. If too many dollars are created, the value of the dollar decreases. Under the Federal Reserve System the value of the dollar has decreased by 98%, meaning that something bought in 1913 for $1 would now cost $98, disregarding any increases in productivity of a particular product.

[MD] In a “real” money process, inflation takes no toll … it  is guaranteed to be perpetually zero. The true definition of inflation is the amount that supply of the money itself exceeds the demand for the money … and we know in a “real” money process, supply and demand for the money itself is perpetually in perfect balance.

The fraud of the Federal Reserve System is that it was sold as a means of preserving the value of the dollar and that it would prevent crashes in the economy. Both of these selling points have not proven accurate. There have been multiple crashes of the economy since the Fed was established, including the Great Depression.

Ideally, the US dollar should be backed by gold and silver, or some tangible item, but that discussion is for later. First things first. We must End the Fed.

[MD] Gold and silver and any other commodity cannot maintain perpetual perfect balance of supply and demand for themselves. So obviously they are useless as money. Thus, your later discussion can be suspended. You don’t know what your talking about Shorty … and that is easy to prove.

The Federal Reserve has never been good for the public. It has only been good for the big banks. They love it, because it makes them money. Who pays? We do. We are slaves to debt. Isn’t it time to eliminate the Fed and turn its powers over to the US Treasury, where it belongs?

[MD] Even the blind squirrel occasionally finds an acorn. Congratulations Shorty. Governments are created by the money changers … always have been, always will be … unless we can effect iterative secession and have it our way in our own space.

[MD] It brought some amusement. It was easy fodder for illustrating how stupid the gold bugs are.

Shorty Dawkins

I am a writer of novels, currently living in the woods of Montana. My 5 novels can be seen here: https://oathkeepers.org/my-5-books-shorty-dawkins/

[MD] Frightening. Hopefully that doesn’t lead to the natural conclusion that there are people reading your novels. Stupidity is already widespread enough don’t you think Shorty?

What is “Proof of Stake”

HN: Hacker Noon
By Shaan Ray

What is “Proof of Stake”
https://hackernoon.com/what-is-proof-of-stake-8e0433018256

Oct 6, 2017

The proof of stake system is attracting a lot of attention these days, with Ethereum switching over to this system from the proof of work system.

MD:
The Bitcoin (i.e. blockchain) people claim it’s main asset is that there is no central authority. But there is certainly a central process or “switching over” wouldn’t be possible. The RFC process of the entire internet has shown us it is possible to have a universally accepted process … without cryptography and without block chains and without a central authority. The DNS (Domain Name System) is a distributed database protocol that has many attributes useful for a distributed database system with no central authority. And of course it has some serious issues.

HN: Proof of stake is an alternative process for transaction verification on a blockchain. It is increasing in popularity and being adopted by several cryptocurrencies. To understand proof of stake, it is important to have a basic idea of proof of work. As of this writing, the proof of work method is used by Bitcoin, Ethereum and most other major cryptocurrencies.

MD: At MD we know for “real” money you don’t need “proof” of anything. What you need is universal transparency to things. Those things are the “creation and delivery on time and space spanning promises made by traders.”

HN: Proof of work

Proof of work is a mining process in which a user installs a powerful computer or mining rig to solve complex mathematical puzzles (known as proof of work problems). Once several calculations are successfully performed for various transactions, the verified transactions are bundled together and stored on a new ‘block’ on a distributed ledger or public blockchain. Mining verifies the legitimacy of a transaction and creates new currency units
.
MD: Digging a hole and filling it right back in is work … totally useless work. A money system that relies on useless work is an open admission that the “money” itself has zero value. Rather it “represents” something of “perceived” value … and that perception must be universal. Thus, here we have open admission of a failure of the “proof of work” scheme.

HN: The work must be moderately difficult for the miner to perform, but easy for the network to check. Multiple miners on the network attempt to be the first to find a solution for the mathematical problem concerning the candidate block. The first miner to solve the problem announces their solution simultaneously to the entire network, in turn receiving the newly created cryptocurrency unit provided by the protocol as a reward.

MD: This is admission that this scheme is even more stupid than using precious metals as money (being proof of work). At least with precious metals all miners are creating something of “real” value. And when someone else gets there first, they don’t lose their work.

HN: As more computing power is added to the network and more coins are mined, the average number of calculations required to create a new block increases, thereby increasing the difficulty level for the miner to win a reward. In proof of work currencies, miners need to recover hardware and electricity costs. This creates downward pressure on the price of the cryptocurrency from newly generated coins, thus encouraging miners to keep improving the efficiency of their mining rigs and find cheaper sources of electricity.

MD: Another open admission of the absurdity of this process. We see the predictable today. So-called “miners” use exotic bots to “steal” computer cycles from internet users. They sneak onto government owned super computers. They also create faster machines that quickly obsolete existing machines thus wasting more “real” resources. It’s not unusual for brand new state of the art ASIC and FPGA based machines to pay themselves off in one to three months … and be totally obsolete in three to six months. In the meantime, they make so much noise they drive their owners out. But they do have an advantage. They use so much electricity, they can mask a hidden marijuana operation.

HN: Bitcoin is an example of a cryptocurrency that uses the proof of work system.

MD: There is no need for the “currency” to be encrypted. In fact, in a “real” money process, the traders, the process, and the terms must be in universal plain view … and unchangeable. This is easily accomplished with simple universal hashing protocols.

HN: Mining rigs in a bitcoin mining facility.

Proof of Stake

Unlike the proof of work system, in which the user validates transactions and creates new blocks by performing a certain amount of computational work, a proof of stake system requires the user to show ownership of a certain number of cryptocurrency units.

MD: In a “real” money system, new traders creating money don’t have to be existing large money changers. Here is open admission that the “proof of stake” system copies a myth from our existing flawed (rigged actually) Medium of Exchange (MOE) process.

HN: The creator of a new block is chosen in a pseudo-random way, depending on the user’s wealth, also defined as ‘stake’. In the proof of stake system, blocks are said to be ‘forged’ or ‘minted’, not mined. Users who validate transactions and create new blocks in this system are referred to as forgers.

MD: In any MOE system, counterfeiters are often “forgers”. Interesting choice of terms isn’t it. Presumably they’re using the “forge” metaphor where existing metal is hammered into different shapes. But there is also the “faking” form where signatures and whole documents are forged. Any MOE process must prevent this. In a “real” MOE process, it is the only leak possible and is mitigated by total transparency of the money creation and destruction activity.

HN: In most proof of stake cases, digital currency units are created at the launch of the currency and their number is fixed.

MD: Bad idea. This fixing of the number “guarantees” the process will be deflationary. In a “real” process, inflation (deflation) is perpetually zero.

HN: Therefore, rather than using cryptocurrency units as reward, the forgers receive transaction fees as rewards. In a few cases, new currency units can be created by inflating the coin supply, and forgers can be rewarded with new currency units created as rewards, rather than transaction fees.

MD: What are these cases? If this can be done, how can they say the number is fixed? Also notice that their process seems to “require” that the creators of the money be “rewarded”. This is also taken from our flawed (corrupt) existing system. They implement a process of elites with power and privilege and ability to demand tribute … just like our current flawed system.

HN: In order to validate transactions and create blocks, a forger must first put their own coins at ‘stake’. Think of this as their holdings being held in an escrow account: if they validate a fraudulent transaction, they lose their holdings, as well as their rights to participate as a forger in the future.

MD: So they take their fake wealth and risk it … like putting it up as collateral. This is also from our existing flawed system. The capitalists take just two years to reclaim their stake (they collect 40%/year interest which doubles in two years). After that, they are forever playing with OPM (Other People’s Money) and risk nothing themselves at all.  A “proper” MOE process uses perfect “transparency” and “interest collection according to propensity to default” to keep the players honest and provide negative feedback for stability. In a proper process, these deadbeats can pay back their defaults and return to good standing.

HN: Once the forger puts their stake up, they can partake in the forging process, and because they have staked their own money, they are in theory now incentivized to validate the right transactions.

MD: Myth in the open. Putting up a stake does not mean putting up their own money. They’ve gotten back their own money through deflation very quickly.

HN: This system does not provide a way to handle the initial distribution of coins at the founding phase of the cryptocurrency, so cryptocurrencies which use this system either begin with an ICO and sell their pre-mined coins, or begin with the proof of work system, and switch over to the proof of stake system later.

MD: Now they’re borrowing from the corporate model where a group can create a vision, sell a little less than half to suckers (in the form of stocks), hype the vision, pull out their stake but leave themselves in control, and bingo … you have another form of elite gaming of the system. And again, how do they switch systems later.?This sounds like they’re destroying the money and then using it to buy gold. Our current MOE manipulators call this the “business cycle”. It’s their “farming operation”.

HN: Cyptocurrencies that currently run the proof of stake system are BlackCoin, Lisk, Nxt and Peercoin, among others.
Proof of work mining versus proof of stake forging.
Block Selection Methods
For a proof of stake method to work effectively, there needs to be a way to select which user gets to forge the next valid block in the blockchain.

MD: There must be privileged users. In our present corrupt system we call them bankers (and sometimes governments) and they get 10x leverage over the rest of us.

HN: Selecting the forger by the size of their account balance alone would result in a permanent advantage for the richer forgers who decide to stake more of their cryptocurrency units. To counter this problem, several unique methods of selection have been created. The most popular of these methods are the ‘Randomized Block Selection’ and the ‘Coin Age Based Selection’ methods.

MD: This is characteristic of processes invented by very smart people with very good memories. Rather than seeing the rudimentary flaws in what they are doing, scrapping it, and starting over with a better concept, they run into obvious flaws we less smart people see immediately, and come up with more and more complicated workarounds … and the process soon stops because no one understands it.

HN: Randomized block selection

In the randomized block selection method of selection, a formula which looks for the user with the combination of the lowest hash value and the size of their stake, is used to select the next forger. Since the size of the stakes are public, each node is usually able to predict which user will be selected to forge the next block. Nxt and BlackCoin are two proof of work cryptocurrencies that use the randomized block selection method.

MD: This looks like an open invitation to corruption and manipulation. And when you have a “randomizing” process, the pseudo-random number generator must be open and fixed. Everyone must use the same process. The same random seed must yield the same next random number. This is problematic for obvious reasons.

HN: Coin Age based selection

The coin age based system selects the next forger based on the ‘coin age’ of the stake the potential forger has put up. Coin age is calculated by multiplying the number of days the cryptocurrency coins have been held as stake by the number of coins that are being staked.

MD: Look how long Bitcoin ran before people started to pay attention  … it was several years. During that time they were giving coins away just to make it look like there was activity. Mining costs were trivial and the supply grew very quickly with the demand not growing at all. Now that it is starting to catch on (the hook is getting set), these early worthless “coins” own the process. What’s not to like about that? Duh? A Ponzi scheme with no Ponzi.

HN: Coins must have been held for a minimum of 30 days before they can compete for a block.

MD: This is building a time constant into the process … and is open for manipulation. A proper MOE process has no openings for manipulation at all.

HN: Users who have staked older and larger sets of coins have a greater chance of being assigned to forge the next block. Once a user has forged a block, their coin age is reset to zero and then they must wait at least 30 days again before they can sign another block
.
MD: How is this done? Does this mean the “timestamps” for the coins … used for determining age … can be manipulated too? What’s not to like?

HN: The user is assigned to forge the next block within a maximum period of 90 days, this prevents users with very old and large stakes from dominating the blockchain thereby making the network more secure.

MD: Another knob to manipulate … another opening for fraud and corruption … by regulators.

HN: Because a forger’s chance of success goes up the longer they fail to create a block, forgers can expect to create blocks more regularly. This mechanism promotes a healthy, decentralized forging community.

MD: This is classic complication delivering fairness. Hint people: Fairness is not complicated. But it does go against something that is current flawed wisdom … wisdom that says centralization is good. This says centralization is “not” good. So let’s apply that wisdom … iterative secession. BTW: With a “proper” MOE process, there can be any number of independent processes as long as they all deliver the same transparency and follow the same simple rule (DEFAULT perpetually equals INTEREST collected). No system can be better in any way so all competing systems are equal in performance to the traders using it.

HN: Peercoin is a proof-of-stake system based cryptocurrency which uses the coin age selection process combined with the randomized selection method. Peercoin’s developers claim that this makes a malicious attack on the network more difficult, since purchasing more than half of the coins is likely costlier than acquiring 51% of proof-of-work hashing power.

MD: Notice how all these “complicated” processes have “developers” making “claims” and solving open flaws in other complicated processes … such flaws being prone to “malicious attacks” … opened by their complexity.

HN: Most proof of stake coins that pay a reward in the form of a transaction fee for verifying transactions and creating new blocks, set a target interest rate which users can expect to earn from staking their coins.

MD: Another knob (interest) that a proper MOE process knows should never exist but rather should be an automatic negative feedback mechanism with no opening for intervention. A proper MOE process has no monetary policy. Rather, it precludes it totally.

HN: In the case of cryptocurrencies where forgers create new coins, this rate also becomes the maximum rate at which the currency supply is inflated over time.

MD: “Maximum rate”? For inflation? Over time? What a joke. They clearly have no understanding of what money is. Hint: Don’t try to create a money process without know what money is. Hint: Money is “an in-process promise to complete a trade over time and space and is “always” and only created by traders”.

HN: Proof of stake systems are more environmentally friendly and efficient, as the electricity and hardware costs are much lower than the costs associated with mining in a proof of work system.

MD: A “proper” MOE process is “perfectly” environmentally friendly and efficient. It costs nothing to create and destroy money. There is no “profit” to be made in the process anywhere. The total cost is always borne by the traders and is trivial to the size of their trades. Ideally, it is absorbed as an implicit default and is paid through interest collections on deadbeat traders. Responsible traders pay nothing at all.

HN: A greater number of people are encouraged to run nodes and get involved because it is easy and affordable to participate in this system; this results in more decentralization.

MD: In a proper MOE process, the only incentive to become a node is to decrease latency … and that is a huge incentive. It’s like a communication system with no backbone. Rather it is a mesh system where all nodes make up the connection path. This would be an obvious improvement over the current (easily manipulated) internet process. Can you say “network neutrality?”

HN: This is only a general guide to the proof of stake system. Each cryptocurrency issuer will most likely customize this system with a unique set of rules and provisions of their own as they issue their currency or switch over from the proof of work system.

MD: But the different monies  themselves must be indistinguishable to the “users” (as opposed to the “creators”) of the money. And they must be non-counterfeit able.

HN: Additionally, this is a rapidly evolving industry, and apart from proof of work and proof of stake, there are currently several other systems and methodologies of transaction verification and block creation being tested and experimented with.

MD: All equally complicated and demented I’m sure.

Can Central Banks Keep Control of Interest Rates?

MD: I haven’t posted for some time but this article was too pertinent, silly, and misguided to pass up (revealing total cluelessness … and/or corruption … of our current Medium of Exchange (MOE) process.) The article is from the great see-er of all things money oriented … the Wall Street Journal. This is the link to the article which is likely to go away in a short period of time.

Can Central Banks Keep Control of Interest Rates?

 

MD: As usual, the title itself exposes the total lack of understanding of what money is. As anyone knows who has been paying attention here, interest rates are “not” controlled by anyone or anything in a “proper” MOE process. INTEREST collections are perpetually and immediately made to meet DEFAULTs experienced … and if that is under anyone’s control, it is the trader defaulting.

Inflation-adjusted—or ‘real’—rates remain low, lending support to booming , prices for stocks, property and other assets. But some worry that could vanish sooner than markets realize

MD: Actually, what we’re seeing here is the banks farming operation in action. They’ve loaded up the wagon with energized traders’ expectations and resulting risk taking behavior, and they will soon pull the rug out from under them.

By Jon Sindreu
Dec. 26, 2017 7:47 a.m. ET

Investors are elated by a booming global economy and the promise of central banks to tighten monetary policy only gradually. But a question haunts them: Will interest rates develop a mind of their own?

MD: “Will interest rates develop a mind of their own?” Can a stupider question be posed? Interest “rates” are a function of two things. In the numerator, they are a function of continuously accumulated DEFAULT experience. In the denominator they are a function of what someone chooses that denominator to be.  In a “proper” MOE process, the denominator would be related to cumulative defaults for each money-creating class, according to their actuarial propensity to DEFAULT.

While central banks set short-term rates—the 1.5% rate that the Federal Reserve publishes on its website—economists disagree about how much control they have over long-term borrowing costs. These are gauged by government-bond yields, especially those with returns tied to inflation.

MD: These so-called short-term rates are arbitrarily set by our current system. In general, they are about what their target rate of INFLATION is. They target 2%, have historically delivered 4%, while the proper value of inflation is 0%.

Low inflation-indexed—or “real”—rates push money into risky assets, because investors get little extra purchasing power for holding safer securities. According to a new report by BlackRock Inc., the world’s biggest asset manager, subdued real rates have been 2017’s main driver of returns in global infrastructure debt and investment-grade corporate debt. They also boost gold and real estate, analysts say, which don’t pay coupons but don’t lose value when inflation rises.

MD: “Subdued real rates?” What more direct evidence could their be of the banks farming operation? Do these so-called “asset managers” just accept this? Or are they actually part of the farming operation themselves?  “Main driver of returns?” In a “proper” money process, supply/demand ratios for each product and service are the main … and only real … driver of returns. If the ratio is high, the return will be low and vice-versa. Money has nothing to do with it because its perpetual supply/demand ratio is 1.000.

Many markets could climb off record highs if real rates rise. But it is hard to forecast, said Kevin Gardiner, global investment strategist at Rothschild Wealth Management, because “nobody knows exactly what sets interest rates.”

MD: “Climb off?” … don’t they mean “fall off?”.  Interest rates in the current process only benefit the money changers. With their special privilege, a 1% increase in interest rates yields them a 10% increase in return. In a proper process with perpetual 0% inflation, their privilege becomes no privilege at all … ten times zero is zero (10x 0.0000 = 0.0000)

Real rates have often moved in lockstep with central-bank policy—but not always. In the 1970s, runaway inflation pushed real rates down even as the Fed and other central banks increased nominal rates.

MD: With a “proper” process, the only “policy” is that DEFAULTs are immediately met with INTEREST collections of equal amount. That policy never ever changes. A “proper” process cannot be farmed.

Yields on 10-year inflation-linked Treasurys are currently below 0.5%. Before the 2008 financial crisis, they hovered at around 2%. After the Fed unleashed unseen amounts of monetary stimulus, they hit a record-low of minus 0.87% in 2013. Many analysts and investors see it as a sign that policy makers have strong control over real rates.

MD: With a “proper” process there is no such thing as “monetary stimulus”. Money is in perpetual free supply. That supply is perpetually identical to demand for the money yielding perpetual zero inflation.

“We are overweight global indexed bonds,” said Paul Rayner, head of government bonds at Royal London Asset Management. “We’ve done a lot of analysis on this, and ultimately the biggest driver of government bond yields still remains central bank activity, even for [inflation-linked bonds].”

MD: With a proper MOE process, Rayner is out of work. There is no “lot of analysis” to be done. Their worshiped relation  ((1+”i”)^”n”) … they call it the time value of money … is neutered when “i” is perpetually zero.

With a “proper” MOE process, there are no “government bonds”. Governments are simply no different than any other trader. If they are responsible, they create money without any interest load. If they are deadbeats, they pay interest accordingly. And since governments “never” return the money they create (they just roll their trading promises over … which is default), the interest paid by them perpetually equals the money they wish to create. In other words, they “can’t” create money.

But classic economic theory says that central banks can only influence rates at first, as people ultimately see through their meddling. So unless officials set policy to reflect the economy’s long-term economic trends—which is how the Fed’s Janet Yellen and Mark Carney at the Bank of England have justified keeping rates low in recent years—inflation or deflation will follow.

MD: “Classic economic theory?” You mean “classic economic stupidity!” don’t you? People never see through banks meddling. It is the farming operation and it has worked as long as the governments they institute protect the operation. Again, this is an open realization that banks have an enormously profitable farming operation. A competing “proper” MOE process would make that farming operation experience perpetual crop failure and/or market opposition.

According to this view, rates are so low because people are saving a lot and these saved funds can be lent out and used to invest, a copious supply that pulls down the cost of borrowing.

MD: Stupid is as stupid does … or as stupid has been duped to think. In our current process there is the illusion that savings play a role. And the 10x leverage privilege retail banks enjoy is directly affected by that. But in the final analysis, it is the Rothschilds that control everything through their control of all but two central banks in the entire world … and of the Bank of International Settlements. They do whatever they please. With a competing process they would be out of business almost instantaneously, never to raise their ugly head and influence again … ever!

Some money managers and analysts now warn that the tide is about to shift, whether central banks keep policy easy or not. By looking at the share of the population aged between 35 and 64—when people save the most—research firm Gavekal predicts real rates will soon rise as people retire and spend their life savings, eroding gains in stock markets.

MD: Boy … this guy is deluded beyond repair I think. The Rothschilds are in total control. The theoretical mechanisms the writer thinks are at work have been propagandized into his head. Yes, a degree in economics is just buying self imposed propaganda. With a proper MOE process, there are no economics … just trading decisions made on a perfectly static level playing field … i.e. buying and selling and producing decisions.

It “could happen tomorrow or 10 years from now, but I’m not counting on the latter,” said Gavekal analyst Will Denyer.

J.P. Morgan Asset Management argues that aging is already starting to push rates higher, meaning that 10-year real yields will be 0.75 percentage point higher over the next 10 years.

Other investors have a different worry: They fear that yields will stay low even if central banks try to tighten policy because they are concerned a recession may be coming. This year, the Fed has nudged up rates three times and yields on long-term government bonds—both nominal and inflation-linked debt—have stayed unchanged or declined, echoing similar issues that then Fed Chairman Alan Greenspan had in 2005.

MD: Translation: “a recession may be coming” means “harvest time may be coming”. It’s pretty easy to see when it’s time to harvest. You look at how ripe the crop is … i.e. how thoroughly the traders have been sucked in. The farming analogy is near perfect.

Indeed, the yield curve—the yield gap between short and long-term Treasurys—is now at its flattest since 2007, and many investors underscore that, in the past, this has often preceded an economic slowdown in the U.S.

“Unless the evidence is very compelling that’s a false signal, I think the market’s going to be nervous,” said David Riley, head of credit strategy at BlueBay Asset Management, who is now investing more cautiously.

MD: Booga booga … buy gold advises the great see-er.

Still, investors may read too much into what yields say about the economy, said the Bank for International Settlements, a consortium of central banks. In new research looking at 18 countries since 1870, the BIS found no clear link between rates and factors like demographics and productivity—it is mostly central-bank policy that matters.

MD: “A consortium of central banks?”…  Rothschield’s holding company you mean?

Does this mean investors can rest easy because rates won’t creep up on them? Not so fast, said Claudio Borio, head of the monetary and economic department at the BIS, because officials may still raise them to contain market optimism. Central banks in Canada, Sweden, Norway and Thailand are thinking along these lines, analysts said.

MD: “Not so fast” says Rothschild’s weather man. We can do anything to the crop we choose to do … when we choose to do it.

If central banks control real rates, then it is inflation that has a life of its own—it isn’t just a reaction to officials deviating from economic trends—and it could explain why central bankers have failed to stoke it for years. So officials might as well raise rates to quash bubbles instead of “fine-tuning inflation so much,” Mr. Borio said.

MD: Anyone who has followed MoneyDelusions analysis of these ridiculous articles has to be holding their sides in pain from laughing too hard.

Still, Isabelle Mateos y Lago, global macro strategist at BlackRock Investment Institute, thinks investors don’t have to worry about this yet.

“The conversation is moving this way, but I don’t think central bankers have a fully articulated view,” she said.

MD: “Central banks don’t have a fully articulated view?” Dream on. They do control the weather of this farming operation you know. And they control the farmers ability to buy seed and tractors and land. But having dropped the obligatory number of names, the write concludes his nonsense for now.

Write to Jon Sindreu at jon.sindreu@wsj.com
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MD: Please do write Jon as he begs … and send him a link to this exposure of his Money Delusion.

Dollar Cost Averaging (Quora question)

“How can I evaluate returns from a dollar cost averaging (automatic investment) into a leveraged fund (e.g. SSO) over a longer term (10+yrs)?”

(Link to Quora question and answer)

Early in my career I wrote an application for “financial criminals” to move people away from “whole life” insurance to “term” insurance, and investing the premium saved by dollar-cost-averaging into their mutual fund. The “illustrations” I produced for them were dramatic. Basically, the “investment income” goes to you and the mutual fund managers and not to the insurance company.

Well, to do this, the “law” demanded lots of small print. But it also demanded I show the cash flows precisely as if they were done into the mutual fund historically. That meant going back the 30 years (the planning window) and saying “if the next 30 years are exactly the same, this is where you would be”.

But it was really pitching “if you’d done this 30 years ago with our mutual fund, this is where you’d be” … and it was dramatically better than what the whole life scenario delivered (unless you used a poorly performing mutual fund … or had zero inflation).

This was 30+ years ago. Back then you had “whole life” insurance salesmen … with a comfortable annual commission stream. It tipped their cart. These insurance salesmen now call themselves “financial analysts”. Follow the money.

None of this would work if we had a “proper” Medium of Exchange (MOE) process … that “guaranteed” zero inflation … all the time and everywhere. If we had that, you could put your surplus money under a rock and do better than either alternative.

Leveraging doesn’t work with zero inflation (i.e. (1+i)^n is always “1.000” for all “n” when “i” is perpetually zero). So don’t expect a “proper” MOE process to be adopted any time soon. It puts the money changers and the governments they institute out of business.

(see http://MoneyDelusions.com (http://MoneyDelusions.com))

Todd Marshall
Plantersville, TX

Venezuela’s currency crumbles

Venezuela’s currency crumbles at dizzying speed

© AFP/File / by Alexander MARTINEZ | In one year, Venezuela’s currency, the bolivar, has lost 94 percent of its value

MD: Currencies cannot and do not crumble under a “proper” MOE process. Let’s see what delusion this writer is under as he blindly leads the blind.

CARACAS (AFP) – Venezuela’s money, the bolivar, is sinking faster and faster under an intensifying political and economic crisis that has left citizens destitute and increasingly desperate.

MD: You can be sure it has already sunk. People in Venezuela are already getting what they need through barter and theft. Money can’t be involved at all at this point.

Its depreciation accelerated this week, after a disputed vote electing an all-powerful “Constituent Assembly” filled with allies of President Nicolas Maduro, which the opposition and dozens of countries have called illegitimate.

MD: Democracy with more than 50 people involved doesn’t work. The people are not involved. And Maduro is working in a democracy containing less than 50 people, you can be sure. But those 50 people are really endangered now by the masses. Soon, Maduro will be standing alone … as he gets out of Dodge himself. And then the people will sort this all out for themselves in small groups … of 50 people or less.

On Thursday alone, the bolivar slumped nearly 15 percent on the black market, to be worth 17,000 to one US dollar.

In a year, the currency has lost 94 percent.

The decline has been dizzying — yet largely ignored by the government, which uses an official rate fixed weekly that is currently 2,870 to the dollar.

MD: Remember when our USA government used an official rate for the dollar at $35 per ounce of gold. The real world knew for some time it was really above $70. They only delude themselves. France wasn’t deluded.

Ordinary Venezuelans, however, refer only to the black market rate they have access to, which they call the “dolar negro,” or “black dollar.”

“Every time the black dollar goes up, you’re poorer,” resignedly said Juan Zabala, an executive in a reinsurance business in Caracas.

– Salaries decimated –

His salary is 800,000 bolivares per month. On Thursday, that was worth $47 at the parallel rate. A year ago, it was $200.

MD: Yet he still goes to work? I think I would be looking for someone besides my employer to trade with long before this. I’d walk out into the country side and offer my services to help defend some farmer and harvest his crop.

The inexorable dive of the money was one of the most-discussed signs of the “uncertainty” created by the appointment of the Constituent Assembly, which starts work Friday.

As a result, those Venezuelans who are able to are hoarding dollars.

MD: What are they going to think when the USA, suffering from the same delusions as Venezuela, has their dollars go up in smoke.

“People are protecting the little they have left,” an economics expert, Asdrubal Oliveros of the Ecoanalitica firm, told AFP.

MD: How are they protecting it? How can they protect it? They should apply everything they have to becoming more skillful traders … traders who don’t use money. It’s too much to hope for them to institute a “proper” MOE process at this point. Maybe after the reset, one or more of the small groups will see the light and implement a proper MOE process for their own use … and that “will” spread.

But Zabala — who is considered comparatively well-off — and other Venezuelans struggling with their evaporating money said they now spent all they earned on food. A kilo (two pounds) of rice, for instance, cost 17,000 bolivares.

MD: Better go make a relation with a farmer. Help him with his crop … and in protecting his property … in exchange for food.

The crisis biting into Venezuela since 2014 came from a slide in the global prices for oil — exports of which account for 96 percent of its revenues.

MD: It came from an attack by USA money changers. They bought debt for pennies on the dollar. Now they’re using the power of the USA to turn those pennies back into dollars.

The government has sought to monopolize dollars in the country through strict currency controls that have been in place for the past 14 years. Access to them have become restricted for the private sector, with the consequence that food, medicines and basic items — all imported — have become scarce.

MD: Institute a proper MOE process to compete with the others and you are the guaranteed winner.

According to the International Monetary Fund, inflation in Venezuela is expected to soar above 700 percent this year.

MD: That’s meaningless. At 700% or 1500 % or anything close makes money a fiction. They are paying people with nothing. The people are trading their HULs (Hours of Unskilled Labor) to the employers for nothing. They would be better off taking that time and setting up barter trading agreements in their own neighborhoods.

In June, Maduro tried to clamp down on the black market trade in dollars through auctions of greenbacks at the weekly fixed rate, known as Dicom. There is also another official rate, of 10 bolivars per dollar, reserved for food and medicine imports.

MD: Some clueless economist recommended this. There is only one thing that can fix Venezuela. Institute a proper MOE process to compete with international bankers, and release “all” government employees. The resulting chaos with be less devastating that taking these nonsensical steps. The people will work it all out themselves. They will slowly re-institute governments democratically (i.e. with less than 50 people involved).

“Things are going up in price faster than salaries,” noted Zabala, who spends 10 percent of his income on diabetes treatment, when he can.

MD: When you have inflation this is always the case. When inflation is guaranteed to be zero, salaries and prices are in perpetual lock step. They don’t change. Salaries are paid in units of HULs. The skill factor (the number of equivalent HULs a person trades for … on average about 3.5x in the USA … thus making about $50,000 per year) is also constant … unless their skill changes.

– ‘No limit’ –

Maduro has vowed that a new constitution the Constituent Assembly is tasked with writing will wean Venezuela off its oil dependency and restart industry, which is operating at only 30 percent of capacity.

MD: It needs to wean itself off the money changers. If oil is what you have to trade, trade it?

But the president, who links the “black dollar” with an “economic war” allegedly waged by the opposition in collaboration with the US, has not given details on what would be implemented.

On Thursday, Maduro promised “speculators” setting their prices in line with “the terrorist criminal dollar in Miami” would go to jail.

MD: That will change nothing. Institute a proper MOE process and those same speculators die on the vine. Unfortunately for Maduro, so does government. But it “is” the fix to the problem for the people.

For the past four months, Maduro has been the target of protests which have been forcefully confronted by security units, resulting in a toll of more than 125 deaths.

 MD: Ultimately, they weren’t able to control the French revolution. This is at the same stage as that was. The security units will fear for their own lives. They won’t have time to secure Maduro.

The opposition says the new Constituent Assembly is an effort to create a “dictatorship” along the lines of Communist Cuba.

MD: So stop it. Don’t pay taxes to it. Find a way to do without government entirely. It will just blow itself up again and again and again.

Against that backdrop of tensions, “there is no limit on how far the black dollar can go,” according to Ecoanalitica.

But a director of the firm, Henkel Garcia said he believed the current black market rate “didn’t make sense” and he noted that in the past currency declines weren’t linear.

Oliveros said increased printing of bolivares by the government was partly the reason for the black dollar’s rise.

MD: Partly? It’s the only thing!

“When you inject bolivares into the market, that means that companies, individuals go looking for dollars, which are scarce,” he said, estimating that the shortfall of dollars this year was some $11 billion.

MD: It’s not about scarcity. It’s about being static. If your exchange media changes, you must make it stop doing that. That media should “never” be scarce. It must always be in free supply. But defaults must be immediately mitigated by interest collections of like amount.

The horizon is darkened further with big debt repayments Venezuela has to make, for instance $3.4 billion the state oil company PDVSA has to reimburse in October. That debt is denominated in dollars.

MD: Reimburse to whom? Declare bankruptcy. Fold your tent. Then shoot the bill collectors when they come after you. It’s called a reset.

by Alexander MARTINEZ

© 2017 AFP