Trump Is Considering Firing Fed Chair Powell

From ZeroHedge:

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.

Deviant Investor: Debt Ceiling Delusions and Dollar Difficulties

Debt Ceiling Delusions and Dollar Difficulties

Read:  Harvey, Irma, Gold and Bad Options

MD: Notice that  Deviant Investor represents himself as a “non-traditional perspective”. And then he rejects us in moderation for being “unorthodox”. Go figure.

Here at MD we have no illusion about what money is. We see all governments as just traders. And we see all governments for the irresponsible traders that they are … they never deliver on their money creating trading promises … they just roll them over … and that’s just plain counterfeiting.

Now let’s point out where the Deviant Investor just plain “doesn’t get it”!


Guest Post from Clint Siegner, Money Metals Exchange

Those who paid any attention to the financial press last week saw the following narrative; President Donald Trump betrayed Republicans by cutting a deal with Democrats Nancy Pelosi and Charles Schumer. They agreed to punt on the borrowing cap until December and spend $15 billion for hurricane relief.

MD: So what? The borrowing cap is an illusion. It does not exist in practicality. Every time they pretend it does, it results in a paid holiday for government workers … and them moves right on up.

Americans are supposed to conclude that Trump is flip-flopping, and that Republicans aren’t responsible. Dig just a little, and you’ll find only one of those things is true.

Trump is flip-flopping, no question about that. The president campaigned on promises to honor the borrowing limit. This tweet from 2013 is what candidate Trump had to say on the matter: “I cannot believe the Republicans are extending the debt ceiling — I am a Republican & I am embarrassed!”

MD: Man is this guy deluded! He’s recognizing Republicans (presumably in contrast to Democrats), admitting to be one, and is embarrassed by what Trump is and does? Surely he jests!

But any implication that Republican leaders in Congress actually oppose more borrowing is patently false. Republicans in Congress overwhelmingly supported the deal. It was passed in the House with a vote of 316 to 90. The Senate voted 80 to 17.

MD: Leaving me with “Trump is Flip Flopping” is the truthful statement?

Some who voted in opposition likely only did so for the sake of appearances. Others thought the president and Democrats did not go far enough. GOP leaders Paul Ryan and Mitch McConnell wanted a deal to suspend the borrowing cap for much longer than the 3 months they got.

Make no mistake – lots of Republicans share the commitment to unlimited borrowing with the President and Democrats.

MD: I agree. They should have unlimited “money creation” privileges as should all traders (within principled reason … you shouldn’t be able to create money to build a General Motors from scratch). But, as with all irresponsible traders, they should have an interest load commensurate with their propensity to default. In their case, that is 100%. Therefore, they effectively cannot create money (the borrowing metaphor is a fiction). Institute a proper MOE process in competition with theirs, and the debt ceiling no longer moves in any direction but down … until they prove themselves to be responsible traders … which of course they never will do.

At least the currency markets seem to have gotten it right. Last week’s decline in the dollar may be a recognition the debt ceiling – the final pretense of borrowing restraint – will soon be going away. The sooner investors at large arrive at this conclusion, the better it will likely be for owners of hard assets.

MD: With a proper MOE process (i.e. real money) there is no such thing as a “currency market”. The “real” money (best denominated in HULs … Hours of Unskilled Labor” never declines or increases. In a proper MOE process, money is every bit as hard as gold (but easier to trade with). Gold isn’t money at all … and never has been. It’s just a clumsy and expensive and inefficient stand-in for real money … it’s just stuff like cement blocks are stuff.


Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

Thanks to Clint Siegner


Gibson’s paradox has defeated all the mainstream economists

MD: If you start with a false pretense, you’re likely to arrive at a false conclusion. This article deals with prices and interest rates. If you know how a “proper” MOE process operates, you know there is no correlation between the two at all. Prices are determined object by object … trade by trade … trader by trader. Interest is determined trading promise by trading promise … default by default. The two are not related at all. Let’s see if Macleod gets it.

Gibson’s Paradox

Gibson’s paradox has defeated all the mainstream economists who have tried to resolve it, including Irving Fisher, John Maynard Keynes and Milton Friedman.

As Keynes noted, the paradox is that the price level and the nominal interest rate were positively correlated in the two centuries before he examined it in 1930.

MD: Well, duh! The prevailing MOE processes were instituted by the money changers. And they also instituted governments to protect their operations. Money changers require a “time value of money” for their farming operation (business cycle) and tribute demands (interest collections) to work.  They use governments to collect this interest in the form of taxes. Governments sustain themselves through counterfeiting (inflation). Thus, with this process, price levels and interest rates will be positively correlated … over all time, not just the two centuries examined.

Monetary theory posits the correlation should be between changes in the level of price inflation and interest rates. Empirical evidence shows there is no such correlation. The response from the Neo-Keynesian and monetarist schools has been to ignore Gibson’s paradox instead of resolving it, so much so that few economics professors are aware of its existence today.

MD: There is only one kind of inflation … and thus no need for the modifier “price” in describing inflation. Inflation is simply the supply/demand imbalance in the exchange media itself. With “real” money (i.e. money in a “proper” MOE process), there is a guaranteed supply / demand balance and thus perpetual zero inflation.

This paper explains the paradox in sound theoretical terms, and casts doubt on the assumptions behind the quantity theory of money, with important implications for monetary policy.

MD: Money requires no theory … any more than addition and subtraction require theory. If you add and subtract improperly, you’re going to get an improper result.



Thomas Tooke in 1844 is generally thought to be the first to observe that the price level and nominal interest rates were positively correlated. It was Keynes who christened it Gibson’s paradox after Alfred Gibson, a British economist who wrote about the correlation in 1923 in an article for Banker’s Magazine. Keynes called it a paradox in 1930, because there was no satisfactory explanation for it.

MD: The reason is obvious. Inflation comes from government counterfeiting (i.e. creating money with no intention of delivering on the promise that is the money they are creating). Defaults (and counterfeiting is just DOA (defaults on arrival)) must be mitigated immediately by interest collections of like amount. If they are not, inflation will result. So it is counterfeiting that causes interest collections. And if these are inadequate, it causes inflation as well. And that is the modus operandi of all (improper) MOE processes we have ever had.

He wrote that “the price level and the nominal interest rate were positively correlated over long periods of economic history”.1 Irving Fisher similarly had difficulties with it: “no problem in economics has been more hotly debated,”2 and even Milton Friedman was defeated: “The Gibson paradox remains an empirical phenomenon without a theoretical explanation”.3 Others also attempted to resolve it, from Knut Wicksel4 to Barsky & Summers.5

MD: But when you know what “real” money is … how it is created … how it is destroyed … and how defaults are immediately mitigated with interest collections of like amount … and if not, inflation results … well, there is “no” paradox at all. The behavior observed is the behavior expected. How can these so-called great economists be so clueless?

Monetary theory would suggest the correlation should have been between changes in the level of price inflation and interest rates. This is the basis upon which central banks determine monetary policy, and now that the gold standard no longer exists, it is probably assumed by those that have looked at the paradox that it is no longer relevant. This appears to be a reasonable explanation for today’s lack of interest in the subject, with many professional economists unaware of it.

MD: With a proper MOE process, there is no such thing as “monetary policy”. The proper MOE process is totally objective and immune to any attempt to influence it with policy. The gold standard never did exist. There was never enough gold for it to exist. It has always been a purposeful illusion … created by those who had the gold.

Those economists who have examined the paradox generally agree that it existed. This paper will not go over their old ground other than to make a few pertinent observations:

• Data over the period covered, other than prices for British Government Consols cannot be deemed wholly reliable for two
reasons. Firstly, price data from 1730 to 1930, the period observed, cannot be rigorous; and secondly any observations of price levels by their nature must be selective and subjective as to their composition.

MD: For price data to be useful, it must be in units that don’t change over time or space. Ounces of gold is not such a unit. A HUL (Hour of Unskilled Labor) is such a unit. It has always traded for the same size hole in the ground. So if prices (which are typically related to ounces of gold) would be translated to HULs at that point in time, the gold measurement distortion could be removed. The way to do this is to first determine the ounce of gold per HUL rate at each point in time.

• Attempts to construct a theory to explain the paradox after the Second World War differ from earlier attempts, because the more recent academic consensus dismisses Say’s Law, otherwise known as the law of the markets. Barsky & Summers in particular resort to mathematical explanations as part of their paper, thereby treating it as a problem of natural science and not a social science.

MD: “According to Say’s Law, when an individual produces a product or service, he or she gets paid for that work, and is then able to use that pay to demand other goods and services.” But what does he get paid with? He gets paid with money. And money is “an in-process promise to complete a trade over time and space”. So Say’s Law has no relevance.

• The economists who have tackled the problem were unaware of the Austrian School’s price and time-preference theories, or have dismissed them in favour of Neo-Keynesian and monetary economics. The silence of the Austrian School on the subject is an apparent anomaly.

MD: The Austrian School is totally clueless about money … what money is, always has been, and always will be. With “real” money, it is proven that its “time-value” is zero. Therefore, any “time-preference theories” are out the window. They only exist with non-zero (and particularly with positive) inflation. With “real” money, inflation is guaranteed to be perpetually zero.

The Author shows that the theoretical reasoning of the Austrian School leads to a satisfactory resolution of the paradox without having recourse to questionable statistics or mathematical method.

MD: If it does that, it does it totally by accident … or by being a paradox itself. Let’s see.


Gibson’s paradox is based on the long-run empirical evidence between 1730 and 1930, a period of 200 years, when it was observed by Arthur Gibson that changes in the level of the yield on British Government Consols 2 ½% Stock positively correlated with the wholesale price level. No satisfactory theoretical explanation for this correlation has yet been published. It is shown in Chart 1 (Note: annual price data estimates from the Office for National Statistics are only available from 1750).

CHart1 Gib-01

MD: Where’s the mystery? The stock level is a function of inflation of the money itself. The general price of all objects is a function of inflation. They will always correlate. With a proper MOE process, that correlation curve will be a straight horizontal line.

The quantity theory of money suggests that instead there should be a strong correlation between changes in interest rates and the rate of price inflation. However there is no discernible correlation between the two. Contrast Chart 2 below with Chart 1 above.

CHart2 Gibs-01

MD: That failure to correlate is because of the failure to bring “defaults” into the analysis. If interest collections equal defaults there will be no inflation. To the extent they don’t (i.e. to the extent government counterfeiting is experienced and tolerated) there will be inflation. In a proper MOE process, interest collections are perpetually exactly equal to defaults experienced and inflation is perpetually equal to zero. They are trying to correlate the wrong two values.

If Gibson’s paradox is still relevant it presents a potential challenge to monetary policy. The question arises as to whether it is solely an empirical phenomenon of metallic, or sound money, or whether its validity persists to this day, hidden from us by the expansion of fiat currency and bank credit, and the central banks’ success in substituting pure fiat currency in place of sound money. If the paradox is solely a consequence of metallic, or sound money, it might pose no threat to the modern currency system; otherwise it may have profound implications.

MD: Monetary policy is an oxymoron when you know what real money is and the “proper” MOE process that delivers it. There is no such thing as “sound” money. This is now they refer to gold used as money. But gold represents a trade completed. It has never represented a trade in process and thus has never been money. The fact that they use it as an intermediary object does not make it money.

Modern macroeconomists appear ill-equipped to tackle this issue. The paradox is essentially a market phenomenon and macroeconomics is at odds with markets.

MD: If you’re describing issues that are a function of money and you are clueless about all things regarding money, you’re going to be “ill-equipped”.

An economist who favours macroeconomic theory will acknowledge a primary function of the state is to intervene in markets for a better outcome than a policy of laissez-faire; and that the needs and wants, the purposeful actions of ordinary people, collectively through markets free of exogenous factors, can be improved by government intervention.

MD: A person with two brain cells will recognize that the function of the state is to protect the money changers who instituted it in the first place … for that explicit purpose with the additional purpose of being the collector of the tribute they demand (i.e. taxes which are delivered to the money changers as interest payments).

Yet it is ordinary people and their businesses that were behind the relationship between the interest rate on gold or gold substitutes and wholesale prices during the period the paradox was observed.

MD: This is absolute nonsense. Ordinary people (i.e. traders) invented money. The money changers then co-opted that invention and took control in their own interests. There is no paradox here. There is only corruption. If traders institute a “proper” MOE process to compete with the money changer co-option … poof! The money changers and the governments they institute are out of business. They can’t compete. They can only tie … and they’re not interested in a draw.

For this reason an approach to the problem that is consistent with Say’s law and denies the validity of conventional neo-classical economic theory is more likely to resolve the paradox.

MD: Any economic theory is based on a false premise. When you have a proper premise no theory is called for. What is the theory of addition and subtraction?


Say’s law describes the fundamental framework within which markets work. By implication it holds that each one of us produces a good or service so that we can buy the goods and services we want: 6 we produce to consume so we are both producers and consumers.

MD: Well duh! Is Say the inventor of “trade”. I think not!

Put another way, we cannot acquire the wide range of things we need or want without providing our labour and specialist skills for profit, the profit we require to sustain ourselves.

MD: That is not true. We trade our time, energy, skills, and/or resources for objects (produced by others time, energy, skills, and/or resources). We only profit when we use money to do this and end up with more money than we originally bargained for. If we end up with less money than we bargained for, we must add time, energy, skills, and/or resources to deliver on our original promise that created the money in the first place.

Furthermore, we may choose to defer some of this consumption for future use when it is surplus to our immediate needs. Deferred consumption is saving, the accumulation of wealth, which is either redeployed by the individual to maximise his own productive capacity, or made available to other individuals to enhance their skills for a return. The medium that facilitates all these activities is money, which effectively represents stored labour. It stands to reason that the money used has to be acceptable to all parties.

MD: It is just incredible how they can confuse and distort the obvious!

The primary purpose of money as a transaction medium is to enable all goods and services to be priced, thereby removing the inefficiencies of bartering.

MD: This is “absolutely” wrong. The “only” purpose of money is “to enable simple barter exchange over time and space.” It is created by traders making promises and getting them certified … that certificate record being money. It is destroyed by traders delivering on their promises and destroying the money (cancelling the record) they created. For any given trading promise, no money exists before the promise nor after delivery. Any trades “using” money (as contrasted with those  “creating” money) view the money as the most common object in simple barter exchange.

Money enables a buyer to compare the cost and benefits of one item against another, and for producers to compete and provide what consumers most want.

MD: Not if that money allows open counterfeiting by government. In that case, the trader must estimate the inflation that that counterfeiting causes. And not if money is measured by ounces of gold. In that case, the trader must estimate the supply/demand imbalance in gold itself. An “improper” MOE process makes a trader’s job significantly more difficult … and opens the door for money changer encroachment, manipulation, and tribute demands.

The forum for this competition is the market, a term for an intangible entity, which facilitates the exchange of goods and services between producers and consumers.

MD: Correct. But money is immune to that competition if it is “real” money from a proper MOE process. This is because such a process guarantees perpetual perfect supply/demand balance for the money itself. The money itself is in perpetual free supply (created by responsible traders at will as needed to effect  trading promises over time and space).

Consumers decide how they wish to allocate the fruits of their labour, and it is up to producers to anticipate and respond to these decisions. If someone is not productive and has no savings in order to consume and survive, he or she will require a subsidy, such as welfare or charity, provided from the surplus of other producers. Despite the flexibility money provides these human actions, they cannot be separated.

MD: Wrong. Someone can make a trading promise with no savings at all … and most do. Ideally, all trades would be such. Savings is an inventory control tool … it is safety stock necessary to mitigate uncertainty.

Therefore everyone is both a producer and consumer, or if unemployed, indirectly so. And it is the individual decision of the consumer what proportion of his production profit to put aside, or save for the future.

MD: Again … that is an inventory control concept.

Say’s law describes economic reality, and was generally recognised as the fundamental law of economics until about 1930. But it was an inconvenient truth for some thinkers in the late nineteenth century, most notably for Karl Marx, who advocated state ownership of the means of production, and the national socialists of the early twentieth century who advocated state control of production through regulation.

MD: Why would traders want the state involved at all when the state is obviously instituted by the money changers and is sustained totally by counterfeiting (which enables the money changers fiction of the “time value of money” … and creates the inflation that delivers that illusion … or more properly, delusion).

Both socialism and fascism were attempts by the state to subvert the free market process that allowed producers to have the freedom to respond to consumer demands, so both creeds contravened Say’s law. Finally, Keynes began in the 1930s to work up a proposition to separate production from consumption and to dismantle the relationship between current and deferred consumption, which culminated in his General Theory, published in 1936.6

MD: Keynes did nothing that wasn’t already being done. He just started twisting the money changer’s inflation knobs more drastically. More uncertainty (though it isn’t uncertain to the money changers at all … they’re driving the bus) serves the money changers farming operation … they call it the business cycle.

Keynes’s influence on modern economics is fundamental to today’s macroeconomic theories and has led to a widespread academic denial of Say’s law. Modern academics, including Keynes himself, were therefore unsympathetic with the theoretical framework required to address the paradox, if only on the basis that it was commonly accepted over the period being considered. It is also an anomaly that the subject seems to have escaped the attention of London-based economists of the Austrian School, such as Robbins and Hayek for whom Say’s law remained a fundamental basis of economic theory.

MD: What we have here is a failure to think. In this case “all” economists are provably and laughably wrong beyond belief. And the proof that they are wrong is simple beyond their wildest comprehension.


Gibson’s paradox was recorded in Britain, so we must first examine the social and economic conditions that pertained in order to understand the circumstances behind the paradox, and to eliminate the possibility it was the result of circumstances rather than evidence of sound theory yet to be explained.

The increase in the above-ground stock of gold, which was the foundation of money and all money substitutes for much of the time, was a potential factor over the period observed.

MD: So they’re using ounces of gold and what it trades for as their measuring stick. They’re using a rubber ruler. Is it any surprise they get spurious readings?

Uses for gold included jewellery and other adornments as well as money mostly in the form of coin, so it is not possible to establish accurately the money quantity.

MD: Which was its fallacy. Money, to be “real” needs it to be in perfectly free, unrestrained supply. Use of gold obviously constrained trade when it was confused with (i.e. used as an inefficient and ineffective substitute for) real money.

The observation was of British prices and bond yields, so it is the quantity of gold in circulation as money in Britain which matters, though there is the secondary consideration of gold in circulation in the hands of Britain’s trading partners.

MD: Make an incorrect rule and have an incorrect perception or premise, and you’re going to get an incorrect result. Gold is not money. Never has been. Never will be.

During the whole period with the exception of the 8 disruption caused by the Napoleonic wars, the quantity of gold was regulated between Britain and her trading partners solely by the demands of trade.

MD: Oh really? How about when the Spanish plundered the Aztecs? How about when new discoveries were made in California and Alaska? How about when a ship carrying a large amout of gold went to the bottom of the ocean and could not be recovered? The only way you can use gold as money is by edict … and that’s what is being explained and justified here.

Given the low level of peacetime intervention by governments in free markets at that time, differences in prices between countries were arbitraged through gold movements.

MD: It’s not a low level of “intervention”. It is a “higher” amount of counterfeiting by government in times of war. That’s why the money changers call for (and manipulate the people into) a war in the first place. The people have nothing against the people they are forced to fight.

We can therefore reasonably take the global quantity of aboveground gold stocks as indicative of the quantity of money in circulation regulated only by the market’s requirements; though bank credit or the over-issue of unbacked money became an increasing cyclical factor following the Bank Charter Act of 1844.

MD: And that is “reasonably” stupid. Stupid is as stupid does. Bank credit is a hoax brought to you by the money changers. Only traders create money … and only traders (well traders and counterfeiting governments) ever have created money.

Prior to the Napoleonic Wars, Britain began to build herself into the most powerful trading economy in history, aided by her overseas possessions and influence, together with the declining influence of Spain after the War of the Spanish Succession.

MD: Actually, it was aided by their “force”. They called it mercantilism. They just used force to limit trade to their companies. That’s why they had to have such a big and powerful navy.

The development of trade with India in the eighteenth century will have increased British demand for gold.

MD: Why? This is nonsense. It increased their demand for force. What did the Indians care about gold?

The wars against France following the French Revolution were costly both socially, involving nearly half a million men in the army and navy, and financially leading to a drain on gold reserves. Prices rose, driven by the increase in unbacked money substitutes issued by the country banks, and by the diversion of financial resources to support the war effort.

MD: Oh my! How self delusional can these writers be? When you have a false premise, you going to make false statements.

This led to the suspension of specie payments on demand against bank notes in 1797. By that time the public had become used to accepting bank notes as a valid substitute for gold, so it continued to accept them in lieu of specie.

MD: Well duh? Do you not know how the money changers farming operation works?

Following the Napoleonic wars, the economy had to adjust to peacetime. The Bullion Committee, which had been formed in 1810, recommended a resumption of specie payments to address the problem of rising prices, a recommendation rejected by the government.

MD: Right. And today we have LIBOR.

It was not until 1819, when the war had been over for four years that a second committee under the chairmanship of Robert Peel again recommended a return to specie payments, and from 1821 onwards a gradual resumption of cash payments for banknotes resumed.

MD: The money changers farming operation is maintained by jerking traders around … and front running the disruptions.

The over-issue of notes by the banks during the Napoleonic wars led to the failure of eighty country banks in 1825.

MD: And what is a bank failure? Its the bank “stiffing” the depositors. Failure is in the eyes of the beholder.

This was followed by two Acts of Parliament: in 1826 restricting the Bank of England’s monopoly to a radius sixty-five miles from London but permitting it to compete with branches in the provincial towns; and in 1833 withdrawing the Bank of England’s monopoly altogether. Banks were then free as a consequence to expand from single-office operations into branch networks through a process of expansion and mergers. The foundation of today’s British banks dates from this time.

MD: With a proper MOE process, no manipulation of any kind is possible.

During this period the debate about the future of money and banking intensified, with the banking school arguing that banks should be free to issue notes as they saw fit, so long as they were prepared to meet all demands for encashment into specie.

MD: But how were banks to put those notes into circulation as money? Answer: Traders (like you and me) put them into circulation. It has always been traders who create the money and put it into circulation. The bankers have just co-opted the process.

The currency school argued instead for bank note issues to be tied strictly to specie held in reserves. The controversy between these two schools ended with the Bank Charter Act of 1844, which required the Bank of England to back its note issue with gold, with the exception of £14,000,000 of unbacked notes already in circulation. The intention was for Bank of England notes to gradually replace those issued by other banks in England and Wales (Scottish banks still issue their own notes to this day).

MD: This is all again just manipulation by the money changers. They will accumulate gold and then dictate that it is money. When traders assimilate, they will say gold is not money and begin to counterfeit. And they will just continue the cycle.

Thus it was that the Bank Charter Act of 1844 sided with the currency school, so far as the note issue was concerned; but by neglecting the issuance of credit, modern fractional reserve banking was born.

MD: What does a charter mean when it is granted by a government to money changers … the very money changers who instituted the government to give them their monopoly and protect them from encroachment? If there was a “proper” MOE process producing “real” money, they couldn’t compete. Their monopoly would go totally unused.

It can be seen that Gibson’s paradox had to survive substantial variations of economic and monetary conditions likely to disrupt any correlation between the level of wholesale prices and interest rates.

MD: Nothing like adding irrelevant variables and noise to complicate an analysis and make prediction impossible.

If there was a common factor over the two centuries, it was that the domestic UK economy expanded rapidly, facilitated initially by a developing network of canals, which in addition to river and sea navigation enabled the transport of goods throughout the country for the first time.

MD: And such expansion would have zero impact on a “proper” MOE process. This is because money creation by responsible traders (those who don’t default) is totally unrestricted.

As the industrial revolution progressed, the new science of thermodynamics led to the development of steam power, fuelled by coal which was found and mined in abundance. The mechanisation of factories and mills together with the subsequent development of railways rapidly increased both productivity and the speed of transport and communications.

MD: And again, none of that would have been affected nor would have had an effect on “real” money. It is immune to such changes.

Her position as an important global power gave Britain access to raw materials and overseas markets to fuel economic and technological progress. Britain was so successful that before the First World War eighty per cent of all shipping afloat at that time had been built in Britain. d

MD: And that wasn’t by accident. Britain has always been a bad world citizen. They have always used force to beat down their competitors. And they have always leveraged that force by getting their competitors to fight among themselves … divide and conquer.

Finally, in the post-war decade to 1930 Britain underwent massive social and political changes, which were generally destructive to the accumulated wealth of the previous century.

MD: Wrong. They just transferred the influence to their colony … the USA. Britain never gave up colonial control of the USA.


Without an increase in the quantities of gold available the expansion of economic activity brought about by the industrial revolution would have been expected to lead to a trend of falling prices.

MD: In other words, gold is “deflationary”. There is never enough of it so it becomes more dear when traders, by edict, must use it as money to effect their trading promises over time and space.

As it was, new mines were discovered, notably in California, the Klondike, South and West Africa, and Australia. By 1730 the estimated aboveground stocks accumulated through history were about 2,400 tonnes, and by 1930 they had increased to 33,000 tonnes.7 Britain’s population increased from roughly seven million to forty-five million. In other words, the quantity of gold available for money increased at roughly double the rate of the British population over the two centuries.

MD: By that data, the supply of gold would have roughly exceeded the demand for gold by double … so prices should have gone up. The price of gold should have gone down. Regardless, this just shows why you can’t use a commodity for money. It just unnecessarily complicates trades over time and space. And if the trades were being measured in units of HULs, there would be no confusion.

Other things being equal, the net monetary effect from the increase in the quantity of above-ground gold stocks can be expected to reduce its purchasing power relative to goods; but it is an historical fact that the rapid industrialisation over the period raised the standard of living and life expectancy for the average person considerably, thereby offsetting the inflationary price effects of increased above-ground stocks, so much so that prices appear to have fallen by 20% between 1820 and 1900 according to the ONS figures used in Chart 1.

MD: Again, none of that cause and effect would have bothered a “proper” MOE process at all. Injecting a commodity into the mix (and a specific commodity at that) just complicates things … unnecessarily.


MD: We will know this topic to be total nonsense without even reading it. We know that with “real” money the supply is perpetually exactly equal to the demand.

The quantity theory as it is generally understood today dates back to David Ricardo, who ignored the transient effects of changes in the 11 quantity of money on prices in favour of a long-run equilibrium outcome.

MD: In electronic control systems we call this “low pass filtering”. We deal with averages and thus can ignore the noise. And it doesn’t work in electronic control systems either, if the noise and the signal appear indistinguishable.

In 1809 Ricardo took the position that the reason for the increase in prices at that time was due to the Bank of England’s over-issue of notes. His interest in this respect glossed over the short-run distortions identified by Cantillon and Hume. In the Ricardian version an increase in the quantity of money would simply result in a corresponding rise in prices.

MD: The issuance of a note is the documentation of a trader making a delivery promise that spans time and space. If note issuances increased, it meant traders increased or trading promises increased or both. If trading promises were delivered, there is no issue.

While this relationship is intuitive, it makes the mistake of dividing money from commodities and putting it into a separate category.

MD: What is that supposed to mean?

An alternative view, consistent with the theories of the Austrian School, is to regard money as a commodity whose special purpose is to act as a fungible medium of exchange, retaining value between exchanges.

MD: But it can only do that by maintaining perfect supply/demand balance of the exchange media itself… and no commodity can do that. The Austrian’s theory precludes them from using any commodity as the exchange media. And they just don’t get that!

This being the case, it must be questioned whether or not it is right to put money on one side of an equation and the price level on the other.

MD: But they’re using a “unit” of measure which is actually two units of measure combined. One unit is the “ounce”. The other unit is the “value” (i.e. supply/demand balance) of gold. That variable gold balance is the problem.

This is not to deny that a change in the quantity of money for a given quantity of goods affects prices.

MD: It should. Quantity of money doesn’t affect prices if its balance against demand for money remains constant.

That it is likely to do so is consistent with the relationship between the relative quantities of any exchangeable commodities.

MD: Supplies of exchangeable commodities are never in constant balance with the demand for those commodities … especially if those commodities are declared to be money.

Furthermore, there is an issue of preferences changing between the relative ownership of one commodity compared with another; in this case between an indexed basket of goods and money.

MD: All the more reason to reject commodities for use as money.

Changes in the general level of cash liquidity can have a disproportionate effect on prices, irrespective of changes in the quantity of money in issue at the time.

MD: With a “proper” MOE process and “real” money, cash is always perfectly liquid. Prices don’t change due to this characteristic of real money because all the money created is later destroyed by a like amount. It’s a zero sum game over time.

By ignoring these considerations it is possible to conclude that changes in the quantity of money in circulation are sufficient to control the price level.

MD: But you don’t want to “control the price level”.

It is this assumption that Gibson’s paradox challenges. To modern macroeconomists the price of money is its rate of interest, though to followers of the Austrian school, this is a gross error.

MD: It is a gross error. But Austrian school followers are in error too … in the opposite direction.

To them, the price of money is not the rate of interest, but the reciprocal of the price of a good bought or sold with it.

MD: It doesn’t get much stupider than that. With “real” money, there is no “price of money”. What’s the “price” of a HUL? It’s just a unit … an unvarying unit of measure.

Furthermore, under this logic money has several prices for each good or service, which will differ between different buyers and sellers depending on all the circumstances specific to a transaction.

MD: That’s like saying an ounce of carrots is different than an ounce of beef. It’s like saying the value of one is different than the value of the other. So what?

This is consistent with the Austrian school’s observation that prices are 12 entirely subjective and they cannot be determined by formula.

MD: Correct. But what the Austrian school fails to say is that the units used to measure those value differences must be constant over all time and space … and an ounce of gold does not come close to meeting that requirement.

Macroeconomics does not recognise this approach, and averages prices to arrive at an indexed price level. Austrian school economists argue that mathematical methods are wholly inappropriate applied to the real world. Apples cannot be averaged with gin, nor can gin be averaged even with another brand of gin. Averaging the money-values of different products cannot escape this reality.

MD: And “real” money has no interest in prices whatever. They are strictly a perception of the traders for specific trades.

The rate of interest on money is its time-preference; and again, depending on what the money is intended to be exchanged for its time-preference must match inversely that of the individual good.

MD: And this is provably wrong. Presuming the divisor is the amount of money created and the numerator is the amount of money taken to mitigate defaults ( interest collected), this has nothing to do with “time-preference” at all. If there are no defaults, a non-zero interest collection is just wrong regardless of the time span … and not allowed in a proper MOE process.

In other words, by deferring the delivery of a good and paying for it up-front it should be possible to acquire it at a discount.

MD: Why? If I supply you food, shelter, and other stuff while you build a house for me, is one of us entitled to a discount while the other is not when it comes to this trade? Of course not!

There is the possession of the money foregone, the uncertainty of the contract being fulfilled and the scarcity of the good, which all combine into a time-preference for a particular deferred transaction.

MD: Correct. But that is not the concern of the MOE process. If the MOE process detects a default, it immediately meets it with an interest collection of like amount. If it collected interest in anticipation of a larger default, it must return the difference … and vice versa. It works just like casualty insurance where PREMIUMS = CLAIMS in aggregate.

The quantity theory of money ignores this temporal element in the exchange of money for goods.

MD: And properly so with a proper MOE process where inflation of the money itself is guaranteed to be perpetually zero.

In doing so, it fails to account for the fact that in free markets demand for money, reflected in its time-preference, must correlate with demand for goods.

MD: And it does. A trader is making a trade spanning time and space. He must recover all the money he creates in delivering on that trade.

The quantity theory, by putting money on one side of an equation and goods on another suggests the relationship is otherwise. This gives us an insight into why the quantity theory of money is flawed, and when we explore the Gibsonian relationship between interest rates and the price level it will become obvious why interest rates do not correlate with the rate of price inflation.

MD: It may explain why quantity theory is flawed. Let’s see if an unflawed theory is revealed. We know the flawless process … and it’s not theoretical at all. It’s just outright obvious!


In the discussion covering the flaws in the quantity theory of money in the previous section clues were given as to how the paradox might be resolved. The starting point is to recognise that money is simply a commodity, albeit with a special function, to act as the temporary store of labour between production and consumption.

MD: If you recognize money is a commodity, you are provably wrong right out of the box. Money “must” maintain perpetual perfect balance between supply and demand for the money itself … and obviously no commodity can do that. And you can make no argument for relaxing or removing this constraint. Here’s an example where the incorrect premise is revealed immediately so no further pursuit along these lines is valid. It’s not about “temporarily storing labor”. It’s about keeping score and maintain perpetual perfect balance … by detecting defaults as they occur and immediately mitigating them with equaling interest collections.

We can see that including money, commodities necessary for human progress were in demand during a period of unprecedented economic expansion over the two centuries between 1730 and 1930.

MD: There are very few commodities necessary for human progress. Water and protein … that’s pretty much it. They are not money.

In some cases, such as in exchange for harvested grains, the price of gold would have varied from season to season, often wildly.

MD: Which precludes it from being money.

But with all the individual goods, there will have been a match with their time-preferences between manufactured goods and gold and gold substitutes.

MD: Nonsense! Prove it!

Therefore, the interest rate on money offered by banks is the other side of the time-preferences of the goods produced by their borrowers, who were predominantly manufacturers and merchants seeking trade finance.

MD: Banks don’t “offer interest rates”. They “demand tribute”. With a proper MOE process, banks don’t exist at all. What in the world would they do with inflation of the money itself guaranteed to be perpetually zero.

The reason interest rates are set by the demands for money by manufacturers is they have to expend capital in order to produce. Capital becomes one of two essential elements of the price of a future good, the other essential being profit. The capital value of an asset used in production is the sum of the value of output it generates discounted to its present value.

MD: Capital is just another figment of a capitalist’s (i.e. money changer’s) imagination. A HUL delivering a hole by just scraping with flat rocks will deliver a smaller hole than one delivering a hole with the use of a shovel. But the capital cost of that shovel is huge for just a one HUL hole. And it’s minuscule for 1,000 HULs of holes.

But when you put the concept of capital in the money changers’ hands … well, it’s simply “two years”. Making a 4% spread, a money changer with a 10x leverage privilege will double his so-called capital in two years, will pull it off the table, and have no skin in the game from thereafterv … yet his so-called capital will continue to “work?” in the marketplace.

If prices of goods are rising, the producer can increase his time-preference in the expectation of higher end-prices for his production. Alternatively, if prices are not rising, or even falling he is limited in his time-preference.

MD: If prices of “all” goods are rising, you have a money problem. That doesn’t happen with “real” money.

This explains why when prices generally rose, bond yields, as proxy for term interest rates paid by borrowers, also rose.

MD: Here’s an alternate explanation. The money changers had already co-opted the traders money process. Traders seeing prices rise saw an opportunity to supply what was rising in prices. They made trading promises spanning time and space to do that … i.e. they created money. The money changers, controlling their ability to create money, charged higher and higher interest (they were opportunist). Conversely, if prices were falling, traders didn’t want to make time spanning trading promises. They hunkered down and the money changers had no opportunity. They couldn’t collect tribute for something traders didn’t want … i.e. money. But you see you get different results. when what is going on is vastly different than what “should be going on … i.e. proper MOE process”.

Equally, when prices fell, a producer was less able to bid up his time preferences, so term interest rates fell. In other words, before central banks took upon themselves to control interest rates, interest rates simply correlated to demand for capital from producers.

MD: When you artificially put yourself in the supply chain … as bankers do … you can extract tribute … if that chain is active.

This analysis of the relationship between prices is wholly in accordance with Carl Menger’s insight, that a price only exists for commodities and goods for which supply is limited to less than potential demand.8

MD: A price exists regardless of supply/demand balance for the object being traded. A price of “1.000” exists in units of HULs for all money used to effect those trades over time and space. Menger is the blind leading the blind.


After 1930 the paradox was still observed until the 1970s, when the relationship appeared to break down.

chart three and four gibsons-01

In the 1970s price inflation according to the ONS accelerated from 5.4% in 1969, to 17.1% in 1974.

MD: Again, there’s only one kind of inflation … supply/demand imbalance for money itself. It only arises out of an “improper” MOE process. If inflation tripled in that period, it is because counterfeiting and defaults as related to interest collections tripled in that same period.

During that time the Bank of England only increased interest rates under pressure from the markets.

MD: i.e. their interest collections were less than defaults (mostly in the form of government counterfeiting) resulting in inflation by the relation: INFLATION = DEFAULT – INTEREST in aggregate terms. Use whatever denominator suits you if you want it in terms of rates.

Interest rate policy fed a growing preference for hoarding goods and reducing personal cash balances. In this case, the correlation between bond yields and the price level reflected a shift in public confidence in the future purchasing power of the currency, which drove the time-preferences in the market, instead of widespread demand for capital investment.

MD: And there’s the fallacy. They think interest collections come out of policy. That puts them either behind or ahead of the game … and perpetually wrong.

Bond yields topped out in autumn 1974 before declining; but interest rates finally peaked in 1979/80. This is not fully reflected in the bond yield shown in Chart 4, because the yield curve was sharply negative at that time.

MD: How do you expect to analyze what’s going on when you have manipulators turning knobs like little kids turning steering wheels on a carnival car ride that’s taking them around in a circle.

Since that tumultuous decade correlation ceased, and the Bank of England appears to have gained control over interest rates from markets.

It is hardly surprising that when central banks implement monetary policies to ensure that the price level never falls, the normal relationship between the price level and interest rates is interrupted. The relationship between savers and investing producers, which is the basis of the Gibson observation, becomes impaired.

MD: Conclusion: Don’t let anyone “implement monetary policy”.


The following question was raised earlier in this paper:

If Gibson’s paradox is still relevant it presents a potential challenge to monetary policy.

MD: Monetary policy is an oxymoron and should be challenged everywhere it raises its ugly manipulatory head.

The question arises as to whether it is solely an empirical phenomenon of metallic, or sound money, or whether its validity persists to this day, hidden from us by the expansion of fiat currency and bank credit, and the central banks’ success in substituting pure fiat currency in place of sound money.

MD: If metallic money is sound money, then they have corrupted the meaning of “sound”. Metallic money can never be “real” money … and real money always easily out compete metallic money. Well, that’s not exactly true. In 1964 we had metallic coins with 90% silver. In 1965 we had metallic coins with 0% silver. In both years those coins traded for the same amount of “stuff”. Thus, the silver (intrinsic value) played no role in the trades at all.

If the Paradox is solely a consequence of metallic or sound money it might pose no threat to the modern currency system; otherwise it may have profound implications.

It is clear that the difference between markets historically and those of today is that interest rates were set by the demand for savings to invest in production, while today they are set by monetary policy.

MD: Evidence they were not determined by defaults experienced and thus they were improperly set in both instances … and achieving predictably different but improper results.

Monetary policy is not consistent with the basic function of interest rates, which is to reflect a market rate between savers and borrowers to balance supply and demand. Instead, monetarists believe otherwise, that interest rates can be used to regulate the quantity of money.

MD: Interest collections is not a policy variable. In a proper MOE process, they perpetually equal defaults experienced … just like in insurance PERMIUMS perpetually equal CLAIMS.

Gibson’s paradox is not dependent on metallic or sound money so much as it is dependent on free markets distributing savings in accordance with demand from borrowers investing in their businesses. We must therefore conclude that monetary policies intended to suppress this effect do have profound implications.

MD: A proper MOE process cares noting about savings. They have no effect on the process at all. Further, it doesn’t use the term “borrowing” or “loan” or “borrower”. It is “always” traders “creating” money which represents their in-process promise to complete a trade over time and space”… period!

Keynes in his General Theory in 1936 wrote the following in his concluding notes:

“I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work. And with the disappearance of its rentier aspect much else in it besides will suffer a sea-change. It will be, moreover, a great advantage of the order of events I am advocating, that the euthanasia of the rentier, of the functionless investor, will be nothing sudden, merely a gradual but prolonged continuance of what we have seen recently in Great Britain, and will need no revolution.”9

MD: Taking that unreadable paragraph and making some sense of it is pretty tough. But have you noticed that this article, and that paragraph, make no mention of the trader … the trader which is always the principal player … the trader without which the rentier or the functionless investor can do nothing at all?

The long, slow euthanasia of Keynes’s rentier class is what has changed. Businesses obtain the funds for investment from other sources directed by the financial system.

MD: That’s a flaw in the thinking. Investors (and funds from them) are only needed by deadbeats (those who can’t create money because they are not responsible traders) in a process of “real” money. Deadbeats are the exception … not the rule. That is, unless you are talking about governments … then they are the rule, not the exception.

Savers are channelled increasingly into stock markets, where they participate in businesses as co-owners, instead of lending to them indirectly through the banking system. The banks provide working capital, mainly through the expansion of bank credit, at rates primarily determined not by supply and demand for savings, but set by central banks.

MD: Businesses have a risk. The “individuals” running the business may create money … but they risk their responsible trader status if they fail. So they may choose to spread that risk among other traders. It’s a choice. With a “proper” MOE process, only real trading “persons” can create money. Businesses can’t do it. So when operating as a business they must resort to stocks or bonds to meet their trading needs over time and space. In so doing, they are using “existing” money created by traders with a persona.

Central banks’ insistence on monetary solutions to economic problems have not only buried the Say’s law relationship between savers and investing entrepreneurs, they have turned the principal objective of entrepreneurs from patient wealth creation through the accumulation of profits into ephemeral wealth creation through the accumulation of debt.

MD: So recognize central banks for what they are: the creation of money changers … who are the institutors of governments … who are the keepers of the central banks … who protect the money changers farming operation and demands for tribute. It’s just that simple to dissect folks! It’s a scam!

They have been caught up in a credit cycle created by central banks and are no longer borrowing genuine savings from savers who expect to be repaid. If Gibson’s paradox had been satisfactorily explained by Tooke or Gibson, the assumptions behind the quantity theory of money and its derivatives would have been thrown into doubt before they became central to monetary policy.

MD: “Credit cycle”… read “farming operation”. With “real” money, savers would do their saving by putting their money under a rock. It is always safer there than with a bank … and banks would charge them (not pay them) if they convinced the savers otherwise. They did when they held gold dust for the prospectors’ safekeeping … and were proven unsafe when they “loaned” it out and couldn’t get it back.

This is a dramatic claim perhaps, but it might have demolished the suppositions behind the quantity theory of money, which became Fisher’s equation of exchange, and the brand of monetarism followed by the Chicago school under Milton Friedman.

MD: There’s plenty of demolition to go around in this article. Both the “pot” and the “kettle” are black … and are wrong.

Misleading ideas, such as velocity of circulation in the equation of exchange would have not been taken as meaningful economic indicators. As it is Gibson’s paradox is unknown to the majority of economists today, who assume the quantity theory of money is unchallengeable.

MD: If you believe in “money supply” you have to believe in “velocity of circulation”.  It is a multiplier (just like the 10x leverage bankers give themselves). But to believe in “money supply” is to have a false belief.

So, to put the explanation of Gibson’s paradox at its simplest,

If the prices of goods are expected to rise, then their time preferences are bound to increase, and if they are expected to fall, their time preferences are bound to fall. That is why interest rates correlate with the price level.

MD: If the prices of “a good” rises, then the supply/demand balance for the good has decreased … and vice versa. If time preference compacts that demand (e.g. people wanting to see the movie in its first run rather than waiting for the DVD, that’s their choice). It’s a compaction of demand though … it’s not a time preference. It doesn’t result from money having time value.

And as George W. Bush observed, this was a scholarly article … even though it is easily proven to be totally misguided and misguiding. It has footnotes.

Click here to view the entire Whitepaper as a PDF…


The views and opinions expressed in this article are those of the author(s) and do not reflect those of GoldMoney, unless expressly stated. The article is for general information purposes only and does not constitute either GoldMoney or the author(s) providing you with legal, financial, tax, investment, or accounting advice. You should not act or rely on any information contained in the article without first seeking independent professional advice. Care has been taken to ensure that the information in the article is reliable; however, GoldMoney does not represent that it is accurate, complete, up-to-date and/or to be taken as an indication of future results and it should not be relied upon as such. GoldMoney will not be held responsible for any claim, loss, damage, or inconvenience caused as a result of any information or opinion contained in this article and any action taken as a result of the opinions and information contained in this article is at your own risk.

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Block chains and real money

MD: Transparency in the “money creation” part of a proper MOE process is crucial to its acceptance, discipline, and efficient and effective operation. Many eyes on the traders making the trading promise and getting them certified … i.e. creating money keeps those traders honest. Many eyes on the traders delivery or the process’ mitigation of defaults is also crucial to the process.
Transparency into the trader’s responsible (or irresponsible) trading history is crucial for provision for efficient mitigation of defaults with immediate interest collections. It’s an actuarial process if it is to be fair.
The universally shared ledger (enabled by block chain technology) will be enormously helpful to any “real” MOE process. The Bitcoin mechanism is nonsense … but that should not cast a shadow on blockchains … only on the ridiculous Bitcoin mining process to create new blocks. New blocks must be created at zero cost to be employed in a real MOE process.

EY teams with Microsoft, Maersk to use blockchain for marine insurance

  • Blockchain will be used to take paper out of the marine insurance equation

MD: A “real” MOE process isn’t so concerned with paper as it is with transparency.

  • EY has worked closely with blockchain developer Guardtime
  • Microsoft and Maersk are among firms to join the collaboration

A crane loads a shipping container branded AP Moller-Maersk A/S onto the freight ship. The company fell victim to a widespread cyberattack on June 27, 2017.

Balint Porneczi | Bloomberg | Getty Images
A crane loads a shipping container branded AP Moller-Maersk A/S onto the freight ship. The company fell victim to a widespread cyberattack on June 27, 2017.

Accounting giant EY said Wednesday that it plans to launch the first blockchain platform for marine insurance, alongside Microsoft, A.P Moller-Maersk and others.

The distributed ledger will be used to capture information about shipments, risk and liability, and to help firms comply with insurance regulations.

MD: I am presuming this distributed ledger is transparent to everyone. That is probably an incorrect presumption. At the very least, it needs to be transparent to all the players.

It will also ensure transparency across an interconnected network of clients, brokers, insurers and other third parties.

EY explained that its decision to secure marine insurance data with blockchain was due to a “complete inefficiency” in the sector.

MD: What makes it so inefficient? How does blockchain make it more efficient? If they have inefficiency problems, they need to fix them first.

“The reason we chose marine (insurance) as the starting point for this sort of market is mainly because of its complete inefficiency,” Shaun Crawford, global insurance leader at EY, told CNBC via phone earlier this week ahead of the announcement.

Crawford said the industry was “over capacity” and that there was “a lot of cost to it.”

MD: I wish he could enumerate the most significant costs.

He added: “It’s facing high administrative burdens of managing and writing claims with a lot of paperwork. All contracts are signed multiple times. They go from ship to ship, port to port, through quite a journey.”

MD: The paperwork could easily be removed without a distributed ledger. Paper doesn’t do anything but impose a requirement for an optical capture of documents for archiving. Most of that is already gone. And if it’s not gone, it needs to go before blockchain can do anything.

Distributed ledgers are groupings of data shared across multiple locations without the need for central administrators and other middle men.

MD: But the real reason is for transparency.

The original blockchain was built to serve as the distributed ledger for bitcoin transactions. But various blockchain experts believe the technology can provide transparency for a multitude of different industries, not just the financial services.

MD: Finally he mentions the operative word: “transparency”. And once they have transparency, they will be all about limiting that transparency.

“We’re not talking about a new currency here, we’re not talking about money. We’re talking about data aggregation,” EY’s Crawford added.

MD: You’re talking about transparency. There may be only two parties and one document in question. That’s not about data aggregation.

Maersk said the blockchain platform would enable the shipping giant to maintain a smoother relationship with the insurance market.

IBM deploys blockchain technology to provide enterprise solutions to food safety: IBM's Brigid McDermott

IBM deploys blockchain technology to provide enterprise solutions to food safety: IBM’s Brigid McDermott  

“It is a priority for us to leverage technology to streamline and automate our interaction with the insurance market,” Lars Henneberg, head of risk and insurance at Maersk said in a statement Wednesday.

“Insurance transactions are currently far too tedious and frictional. The distance between risk and capital is simply too far. Blockchain technology has the potential to facilitate the desired development that is long overdue.”

MD: They have lots of issues to resolve before they can apply blockchain to the problem.

Blockchain could benefit wider insurance industry

Marine insurance has traditionally relied on physical contracts being shipped to and fro, from one port to another, in order to be eventually signed, according to EY.

MD: So how does blockchain effect a signature? If blockchain can do that, any electronic medium can do that. Signatures haven’t been a problem for a very long time. And the method for protecting them (i.e. the notary system ) has always been a pitiful joke.

The global research firm has worked closely with software security company Guardtime to develop the blockchain platform.

Guardtime said it expects to roll out blockchain to the wider insurance industry after its initial marine insurance deployment.

MD: Does it have to mine to create its blocks? Does “proof of work” enter the concept as Bitcoin claims it needs to?

“Initially, we focused on marine insurance as it is well-suited to a blockchain solution as it has a complex international ecosystem, with multiple parties, multiple jurisdictions, high transaction volumes and significant levels of reconciliation,” Guardtime CEO Mike Gault told CNBC in an emailed note prior to the announcement.

MD: Not compared to normal internet email it doesn’t. These problems have already been solved. Transparency is the issue. Insulation from forgeries and mitigation is the issue. Insulation from fraud and mitigation is the issue.

“But down the line we expect it to be rolled out across other areas of insurance markets — as there are clearly shared benefits and attributes. In fact, blockchain can be applied to any commercial or specialty line of business with high-value assets.”

MD: This is really pretty silly. It’s kind of like if they were developing an email system and thinking … hey, other industries might use email too? Ridiculous!

Blockchain built on Microsoft Azure

The blockchain solution was built on Microsoft’s cloud platform, Microsoft Azure.

MD: A true blockchain solution is not built on any platform. The ledger is distributed on any platform and on all platforms. It’s no different conceptually than the internet we have been using since the early 1990’s. This is silly. This is like a long long time ago when we got direct access disk drives. We ditched batch processing with zillions of tape mounts and went to real time data acquisition and access. What blockchain does is make all the disk drives transparent simultaneously.

Cloud technology allows firms to store data and software via the internet rather than locally on a hard drive.

MD: So what? They would be stupid to be using cloud technology. The internet already allows them to access their servers from anywhere in the world. Putting those servers in someone elses building does nothing for them.

A proof of concept for EY’s digital ledger was completed in March.

What is Blockchain?  

“When we built the proof of concept, we built a prototype on Azure to make sure the whole thing worked and is secure, and now what we’re doing is building it,” EY’s Crawford noted.

MD: They have to be joking!They proved security? You don’t prove security until you put yourself out among the thieves and the murderers … and it’s a continual battle ever after.

“We provide that cloud service which we believe is one of the strongest ones on the market, and that’s why we chose Microsoft to work with.”

MD: With a proper blockchain solution, your need for strength goes down geometrically. That’s what blockchain brings to the party. There are guaranteed to me innumerable instances of every record and they are guaranteed to be identical and authentic. That’s what a shared ledger does.

Guardtime said Microsoft’s cloud offered a secure network on which to build the blockchain.

“For any new system to be implemented it needs to be built using the right model, one that is robust, scalable and can co-exist with existing IT infrastructure or systems,” Guardtime’s Gault said.

MD: Then they aren’t building a blockchain process … they’re building a secure multi-hosting process. We’ve had that for a few decades now.

“That’s what Azure and the cloud technology enables us to do, without comprising performance or flexibility, which is why it was so important to partner with Microsoft.”

Mark Russinovish, chief technology officer at Microsoft Azure, said that blockchain had the potential to be “transformational.”

MD: If that transformation takes place, from this description, Russinovish is out of a job … and Azure goes into the bit bucket. And that will be the case when the obvious becomes apparent to them and everyone else. Blockchain obviates the need for the cloud concept completely. In fact, there never was a need for the cloud concept.

“Microsoft believes blockchain is a transformational technology with the ability to significantly reduce the friction of doing business, especially streamlining business processes shared across multiple organizations,” he said.

He added: “Marine insurance is a prime example of a complex business process that can be optimized with blockchain.”

MD: Looks like they cut and pasted twice. Are they going to say it three times … like they do telephone numbers in advertisements?

Insurers MS Amlin and XL Catlin also collaborated with EY on the project, as well as insurance industry body ACORD (Association for Cooperative Operations Research and Development).

The blockchain solution is set to be implemented from January 2018 onwards.

The race to create large distributed ledger network has become increasingly competitive.

MD: Why? To be truly distributed, it needs to be replicated across multiple competitors. They all have to be on the same playing field.

IBM for instance announced it would partner with food giants like Nestle and Unilever in August, and use blockchain technology to trace the movements of food to avoid tackle contamination faster.

MD: Blockchain doesn’t do that any faster than they can do it right now. In fact, they probably don’t want transparency in that case … but when customers learn such transparency is possible (probably introduced by competitors), they will have to comply … or leave the business. If food can be contaminated, customers want the transparency to see it and protect themselves. They don’t want it hidden from them.

EY told CNBC that its decision to make the announcement ahead of time was due to a host of other players making similar moves.

Daily Bell: The downfall of freedom and happiness:

MD: There is a close linkage between liberty and a “proper” MOE (Medium of Exchange) process. A proper MOE process guarantees liberty to those who use it. It absolutely cannot be manipulated because of the structure of the process itself. Any responsible trader can create new money any time … just by documenting his time/space spanning trading promise … i.e. getting it certified. That certificate (and fractions thereof) then circulate in daily trade as the most common object in every simple barter exchange until he has delivered as promised and destroys the money he created. This guarantees a free supply of money to responsible traders. It guarantees zero inflation of the money itself to everyone using it in trade or storing it for future trades. Knowing this, since this article deals with liberty, lets look for all the issues that disappear if we just institute a proper MOE process.
How Society Grew Cold. Dependence on Cold Institutions
By Joe Jarvis – September 02, 2017

The downfall of freedom and happiness: dependence on institutions out of your control.

MD: First sentence out of the box is a misrepresentation. There never was freedom and happiness to fall down from. The system we have always had was instituted by the money changers and their self declared privileges were protected by the governments they instituted.

I’ve always blamed the government.

MD: Institute a proper MOE process and the government issues you blame go away. Are you ready to do that?

Governments start the wars, carry out the genocides, steal from the people. Governments lay the foundation of an unjust society, by creating a hierarchy from the beginning. Some make the laws, and some must live by them.

MD: And that takes money. Money that isn’t there with a proper MOE process. Money that is now supplied by counterfeiting (i.e. inflation) with our improper MOE process.

But the government is only half of the picture.

I always trusted in the power of the free market.

The free market is the true democracy which responds to the people. It is controlled by demand and quelled by consumer pressures. Economic self-interest ensures a proper check on the wealthy from becoming too evil.

But there is no free market on a macro level. There is only the collusion of the government and industry.

MD: With a “proper” MOE process there is no macro level (no planning and control level). “All” money and thus all commerce is created and controlled by the traders and the marketplace. There is no hierarchy of control. Governments and banks exercise no control whatever. In fact, their natural behavior excludes their participation.

They have positioned themselves as the mother and the father of society. How? By destroying the institutions which once stood in their place.

MD: Wrong. They are the only institutions that have ever stood. They just collapse and then replace themselves. It’s a saw tooth function.

The Marriage of Government and Industry

In his book Sapiens, Yuval Noah Harari describes a human transition. Populations went from farming societies inherently based on the sun and seasons, to industrial societies of assembly lines and time tables.

MD: And the farmers migrated freely and naturally. They could obtain a better living in the industrial domain than they could in the agricultural domain … since most didn’t own their land. Owners of the land had no problem in farming.

This caused many upheavals. Warm organic institutions–like family and community–were replaced by cold calculated ones–like factories and welfare. “Most of the traditional functions of families and communities were handed over to states and markets.”

MD: Anyone who has been around most families know they aren’t naturally warm. They are probably warmer in an agricultural setting because they need each other to survive. They “can’t” be independent … so they must be warm.

Of course, this meant dependence on government and industry for survival. The roles of family and community had been outsourced. Now the government would take care of you, and industry would sell you fulfillment. All the structures humans evolved with quickly melted away, or became diluted.

MD: Tell that to Henry Ford. He was a farmer. His family owned the land. He wasn’t interested in farming … but he was very interested in finding mechanical ways to do farming. So he created a factory … an industry. You are flogging the wrong horse here.

Prior to the Industrial Revolution, the daily life of most humans ran its course within three ancient frames: the nuclear family, the extended family and the local intimate community. Most people worked in the family business – the family farm or the family workshop, for example – or they worked in their neighbours’ family businesses. The family was also the welfare system, the health system, the education system, the construction industry, the trade union, the pension fund, the insurance company, the radio, the television, the newspapers, the bank and even the police.

MD: Look at Ben Franklin’s biography. This was not so as often as it was so. They’re flogging the wrong horse.

When a person fell sick, the family took care of her. When a person grew old, the family supported her, and her children were her pension fund. When a person died, the family took care of the orphans. If a person wanted to build a hut, the family lent a hand… But if a person’s illness was too grave for the family to manage, or a new business demanded too large an investment, or the neighbourhood quarrel escalated to the point of violence, the local community came to the rescue.

MD: Wrong. The person died … the business failed … the neighborhood failed. We’ve come to see it is always cheaper (i.e. more efficient) to just let failures fail than it is to mobilize resources to prop them up.

The community offered help on the basis of local traditions and an economy of favours, which often differed greatly from the supply and demand laws of the free market.

MD: Everybody keeps score in their head. Help someone paint their house but find they can’t work you into their busy schedule when yours needs painting … end of helping each other out. And this is the norm … not the exception. Friend is the “f” word.

In an old-fashioned medieval community, when my neighbour was in need, I helped build his hut and guard his sheep, without expecting any payment in return.

MD: Who is this “I” you speak of. It is certainly not you. Pioneers teamed together to raise their barns … because it was the only way to get it done. If they could do it alone, they would have. If they didn’t need a barn themselves, they weren’t helping.

When I was in need, my neighbour returned the favour. At the same time, the local potentate might have drafted all of us villagers to construct his castle without paying us a penny. In exchange, we counted on him to defend us against brigands and barbarians. Village life involved many transactions but few payments. There were some markets, of course, but their roles were limited. You could buy rare spices, cloth and tools, and hire the services of lawyers and doctors. Yet less than 10 per cent of commonly used products and services were bought in the market. Most human needs were taken care of by the family and the community.

MD: This is no different than building a stockade … with no potentate at all. It’s all about going to the next lower level of affiliation to accomplish things you can’t accomplish on the level you are at. And democracy is employed to get this done. And that limits the size of these affiliations to 50 or less. Democracy doesn’t work with more than 50 people involved.

On a small scale level like that, people were held accountable when they leached off the system. Families and communities were also the enforcement structure of this social insurance. Gossip was an important function of accountability. You can bet people talked if someone balked at their duties. The next time they needed something, they might find themselves in a bind.

MD: Ostracizing and segregation are valid methods of affiliating.

But in addition to the obvious replacements like police, welfare, and corporate jobs, there was the matter of replacing the emotional aspects family provided. Governments and industry teamed up to give us a solution.

MD: Industry and government are not on the same team. Money changers and governments are on the same team.

Markets and states do so by fostering ‘imagined communities’ that contain millions of strangers, and which are tailored to national and commercial needs. An imagined community is a community of people who don’t really know each other, but imagine that they do. Such communities are not a novel invention. Kingdoms, empires and churches functioned for millennia as imagined communities…

The two most important examples for the rise of such imagined communities are the nation and the consumer tribe. The nation is the imagined community of the state. The consumer tribe is the imagined community of the market. Both are imagined communities because it is impossible for all customers in a market or for all members of a nation really to know one another the way villagers knew one another in the past…

MD: With the communications mechanisms we can employ today, there are no needs for nations. There can be many small and overlapping affiliations that do everything a nation can do … especially defense. And you don’t have a crust of elites above the rest of the people picking fights with each other in the “national interest”.

Consumerism and nationalism work extra hours to make us imagine that millions of strangers belong to the same community as ourselves, that we all have a common past, common interests and a common future. This isn’t a lie. It’s imagination.

MD: In the final analysis, there is only “traderism”. We are all traders. We have only one purpose in life: being of value. If we fail in that purpose, out life ends and we perish.

Like money, limited liability companies and human rights, nations and consumer tribes are inter-subjective realities.

MD: You mean “like “improper” money”. Proper money has no such limitation.

They exist only in our collective imagination, yet their power is immense. As long as millions of Germans believe in the existence of a German nation, get excited at the sight of German national symbols, retell German national myths, and are willing to sacrifice money, time and limbs for the German nation, Germany will remain one of the strongest powers in the world.

MD: And as long as the tribe we know as Jews can tell lies to change that perception for the rest of the world … well, the Germans and their society are at risk.

But we can keep what we like about government and markets, and do away with what we don’t. We can form new “tribes” that give us actual mutual aid which communities once gave. We can move to or create villages that match our needs and desires.

MD: Iterative secession. It is the logical first step … and second step … and third step … and probably fourth step. Nation -> State -> County -> Town.

That way, we interact with warm institutions. Structures we are a part of and can influence. They are made up of people we know, and have real relationships with.

The government gives us imagined communities in order to control us. Nationalism makes sure we are ready to fight the next war, providing bodies and wealth to fuel political ambitions.

MD: Remember … governments were instituted by, and are tools employed by, money changers. It’s just that simple. Institute a competing “real” money and both money changers and their governments go poof!

The market gives us imagined communities as a way to sell to us. Apple users are part of an exclusive club that signal they are wealthy and hip. Doesn’t that make you feel fulfilled?

MD: And having never bought an Apple product in my life, I don’t subscribe to that nonsense. But I don’t subscribe to the nonsense of religion either … same concept.

But what about a community of people who are all passionate about farming, making their own products, and trading goods and labor? We can keep our smart phones and internet access, just like 10% of the village economies of the past relied on outside merchants. But when it comes to our water, electricity, food, hygiene products, and even entertainment, it is already quite easy to provide all that on a community level.

MD: It is even easier to provide it on an individual level. I’ve done it for 14 years with no difficulty at all.

Now that the world has been so voluntarily centralized by the internet, we can decentralize in ways that benefit us. We can create little communities without becoming hermits. We will be free to come or go as we please, no forced labor, false choices, or communist utopia. Just voluntary groups who offer warm alternatives to dictatorial and industrial institutions.

MD: By instituting UWB (Ultra-Wide Band) at layer 1 and ATM (Asynchronous Transfer Method) at layer 2, we can institute a completely decentralized internet with independently owned nodes. Our phones and computers themselves become nodes in a universal mesh network. They are linked by short run physical and wireless connections. This topology and technology can make a huge number of short hops in a connection-oriented fashion. Our current topology can only make 20 hops in the 1/8 second demanded for voice communication … and thus requires a backbone (carrier owned and government controlled) for the long haul. ATM can make 10’s of thousands of hops in 1/8th second. No backbone needed nor desired.

I don’t want my barber to remove my appendix when I get appendicitis. But I wouldn’t at all mind my neighbor providing my children’s education, with the help of the countless resources on the internet.

MD: Why not provide your children’s education yourself. You could be working from your house unless you work on an assembly line or in the trades … which very few people do. Even assembly piecework could easily be done in the home. And if 3/4ths of the fruits of your labor, you spouse could be the educator. You would get an immediate x4 pay raise to cover the cost.

We are now in a position to meld the best of both worlds. We can reach back and choose what was great about pre-modern community governing structures. And we can hold onto the technology and civilization that we like in today’s world.

Society is like a pendulum which swings from one extreme to another. But each sway loses some energy and brings us closer to equilibrium.

MD: Wrong. There is no naturally stabilizing negative feedback mechanism. The reverse is true.

The advance of industry gave mankind countless benefits. But at some point, it went too far. We need to learn how to reintegrate warm institutions into our lives, without doing away with the benefits that large scale industry has provided.

MD: It hasn’t gone too far. As long as people choose to work in industry as opposed to their other options, it hasn’t gone too far.

In a sense, humanity was once so dependent on small scale warm institutions that we stagnated, and could not advance. People suffocated as the pendulum stopped and reversed.

MD: Nonsense … actually, nonsense to the second or third power.

Once we finally did break free, we lost all touch with warm institutions. Cold institutions replaced the family, and now many feel alienated and depressed.

MD: I am now an institution of one. Am I cold or am I warm?

Can we find an equilibrium? Can we meld markets and governance into family and community life in a way that both frees us from the tyranny of government and corporations, but allows us to remain free individuals?

MD: A proper MOE process guarantees perfect equilibrium of the money. And it is the money that enables trade over time and space. And it is trade over time and space that is the economy. Institute “real” money and poof! Your issues disappear … forever and ever.

The Pendulum is Ready to Swing Back

Radical experimentation in governance is required to heal society and correct the trajectory. Stagnation is the best we can hope for with the current model of government and corporate collusion.

MD: Removal of government is the best recourse. What is it good for? Government workers! Government dependents! That’s it. But then when you know that 3/4ths of the fruits of everyone’s labor goes to government, we’re going to have a little disruption when we tell government to take a powder. The real productive people will see their income quadruple. But the non-productive people … government workers and dependents will see their income go to zero.

We need to restore the community structures of the past. We cannot simply do away with institutions people rely on and expect no turmoil. Rather, a model of a better society needs to be created.

MD: Iterative secession: You have your space and do it your way … and I’ll have mine … and the likes of you won’t want to be in mine … and mine won’t want you to be in it … and that’s just fine for both of us.

This is why the next movement that will drastically improve civilization will be a period of decentralization of institutions, marked by voluntary association.

MD: If you want to drastically improve civilization, institute a “proper” MOE process. Most of your other issues (if not all of them) will immediately disappear. Just consider how many of your issues right now are caused by money changers and the governments they have instituted.

Deviant Investor: Eight Days to Destruction

MD: We here at MD central, are at ground zero +1 from Harvey. We were disturbed very little by the calamity. We were above the flood and could divert the rain. And having gold would not have changed that. Lets observe again why we don’t need the likes of Christenson in our space.

Eight Days to Destruction

Harvey made landfall as a Category 4 Hurricane on August 25. The wind and flooding caused massive destruction. The news mentioned one hundred billion dollars as a preliminary estimate of the damage.

WD: That’s $25,000 per person (using 4 million population). The population actually affected was probably  1/1000th that. So you would have $25,000,000 per person actually affected physically. When the bullet hits your heart, the damage can be viewed as infinite. This too will pass … and frankly, it will show that Bastiats broken window fallacy gets it wrong. I know many many contractors who were sitting on the sidelines that are now being called into service. And that money they will be earning was not doing anything in the economy before this calamity. When such a small percentage of us really have to work … “make work” becomes a strategy. We need a way to keep score when robots do all the work. We need to create work robots can’t do. Lawyers have been doing it for years … but are now being crowed out by word processors (boiler plate) and artificial intelligence … plus the proof that laws don’t work. First, West Law will show you every statute has been decided every way possible. And with 40,000+ new ones each year, there is no knowing what the law is.

At MD we know it is all about principles … not men … not laws. We start with the golden rule and really don’t have to go beyond that.

Eight days before on August 17 Harvey became a named storm. There was no apparent cause for alarm on August 17.

Two days later it was upgraded to a tropical depression. Harvey reached hurricane strength on August 24. Much can happen in eight days.

MD: Much can happen in 8 seconds … witness the mysterious collapse of WTC7.

  • August 17: Harvey is named
  • August 21: Total eclipse of the sun. The path crossed the contiguous 48 states. Read “Total Eclipse of Sense.”

MD: Don’t bother to read it. It’s nonsense.

  • August 21: President Trump announces a revised and renewed war effort in Afghanistan.

MD: Which changes nothing. Just another lie confirmed … as anticipated. Trump has still not mentioned WTC7. He “is” one of them.

  • August 25: Category 4 Harvey makes landfall, destroys buildings and dumps trillions of gallons of water on Texas. Houston, the 4th largest city in the U.S. flooded in many areas.

MD: Luckily, it hit ground zero at Rockport … which if you ever visited it was a dead community … because of previous hurricanes. The first port in Texas was originally Indianola … which no longer exists. It lasted until the first hurricane after its creation. You don’t build your nest on a highway.




  • Are you prepared for drastic changes in your physical environment? Harvey, Katrina, Rita, and 9-11 show that our world changes, sometimes in deadly ways.

MD: If you are dependent on government or PM (precious metals), the answer is an emphatic “no!”.

  • Are you prepared financially?

MD: Yes. By minimizing finances. Everything is bought and paid for. My toughest task is protecting my real property … which is un-protectable as is evidenced by the IRS putting a lien on its free-and-clear state in just 19 days … with no due-process whatever … after I  told them I couldn’t pay their demands if I wanted to. The RICO statues prohibit my financial support of criminal enterprises. Thank you very much USA Constitution and the rule of law!

  • What will a stock or bond market crash do to your life style and retirement plans?

MD: Nothing. It will make that store of wealth disappear for me … just like it did when the IRS paid a visit. You can only remove your self from the trading field to every extent possible … or you have to be all in and subject to any government encroachment government chooses to employ.

  • Given their extreme valuations, a crash is possible.

MD: Their value is to the gamblers and the duped. Buy raw land. Learn to live on it and from it. Learn to protect it from encroachment (which means invite others of like mind to join you on it and help you expand it … and to arm themselves for “self” defense). Iterative secession will grease that skid.

  • In 2008 we experienced a credit crunch, a destructive event because the economic world depends upon credit. It could happen again.

MD: Wrong. “All” money is credit … because all money represents a promise … and promises are credit.

The destructive event was leverage and failure to mitigate defaults with immediate interest collections. The process was infested with highly leveraged gamblers. An “improper” MOE process is always a house of cards. One card tumbles and the problem cascades.

A “proper” MOE process doesn’t suffer this contagion. If one trader fails to deliver, no other trader (defective processes call them “counter parties”) is affected at all. It only affects new trading promises creating money … and only those by irresponsible traders. It is far far  more stable than any other process.

  • The U.S. dollar is the world’s reserve currency. The U.S. military and the petrodollar support that status. Change is coming.

MD: A proper MOE process has no reserves … let alone a reserve currency. Once instituted, all the worlds currencies will copy it … or disappear from lack of users.



Gold Market: From January 21, 1980 to January 28, 1980, (seven days) the price of gold dropped from a high of $873 to a low of $607. Down 30%!

MD: Seems it had a similar dip in 1987 … and took 15 or 20 years to recover. I knew people who bought that really good $800 gold then.

DOW Index: From October 12, 1987 to October 20, 1987, the DOW dropped from a high of 2,505 to a low of 1,616. Down 36%!

MD: That index is totally worthless. Institute a proper MOE process and that index might be of some value. Now …  it’s just a measure of speculation … measured with a rubber ruler.

NASDAQ 100 Index: From March 27, 2000 to April 4, 2000, the NASDAQ 100 dropped from a high of 4,781 to a low of 3,525. Down 26%!

9-11 Attack: Three buildings collapsed at “free-fall” speeds after being hit by two airliners. An official story was created, but let’s not quibble about details. The United States was a different environment eight days after 9-11.

MD: 9-11 false flag … not attack. And the USA government didn’t change. It was just more obviously revealed to be the occupied government it was the day before the false flag. But to this day, a full 94% of the USA population still don’t get it.

S&P 500 Index: From October 2, 2008 to October 10, 2008, the S&P 500 Index dropped from a high of 1,160 to a low of 840. Down 27%!

Hurricane Harvey: A category 4 hurricane was a tiny storm only eight days earlier. Houston will recover and rebuild for eight months, or perhaps eight years following the incredible flooding. Houston, you have a problem!

MD: We had a different model in New Orleans. The areas cleaned out were infested by poor people dependent on government. Normal society would have pushed them away long ago … probably to higher ground. Those areas are now being repopulated by the wealthy … with little better, but far from perfect, resistance to a returning calamity.

In Houston, we earlier had a mayor who was a real estate guy. He was able to dismantle most of the obstacles to improvements of the inner city (and displacement of the riff raff to the periphery … as was the norm before we became over civilized by those who now call themselves “progressives”). Further, insurance specifically excludes “rising water” from covered damage. So those with loses will just plain lose.

But now in Houston they are wealthy … and just as the poor are able to go to wealthy (after winning the lottery or making it as a professional basketball player) and back to poor very quickly, the wealthy have a way of doing the opposite.

Houston will have no trouble like New Orleans had. And Bastiats observation will be proven to be wrong in this era of more people than work (caused by robotics).

Have you noticed, the slums in Rio de Janeiro live up on the hillsides away from the city center. A flood would bother neither the rich nor the poor there … but for different reasons.

Yes, much can happen in only eight days.


According to Charles Hugh Smith, “Next Stop, Recession: The Financial Meteor Storm is Headed Our Way

“The next recession – which I suggested yesterday has just begun – will be more than a business-cycle downturn; it will be a devastating meteor storm that destroys huge chunks of the economy while leaving other sectors virtually untouched.”

MD: “All” recessions are business cycle downturns. Business cycles are purposely caused by money changers. It is their farming operation. Remove their control of the MOE process and the problem goes away instantly … poof. Money is properly in perpetual free supply with a proper MOE process. The money changers farming operation can’t work with a proper MOE process.

His description of coming economic destruction parallels the devastation in Houston. If you live in the flood zones, you’ll see vast destruction. Higher areas will get rained on but could be virtually untouched by the massive destruction.

MD: And higher means 50′ higher! Give you a clue why coastal houses are built on piers? Why they have blow away walls underneath the living quarters?




  • Self-reliance. Find your own answers.
  • Possess real money. Don’t depend entirely upon the debt based digital and paper stuff that can vanish as quickly as a Cadillac in a Houston flood.


MD: He says without defining real money … and being clueless about what real money is, always has been, and always will be. He thinks precious metals are real money. This was proved conclusively in 1965 when they removed silver from the coins. Nothing changed. The quarter dollar coins without silver traded for the same gallon of gas as those containing 90% silver. The silver wasn’t involved in the trade at all! It proved that the money represented a trading promise … not something of intrinsic value. But these PM bugs still pedal their lore … as do all religions which are continually crowded by reality.

  • Minimize counter-party risk and off-load assets that will be destroyed in a credit crunch, debt reset, dollar devaluation, or crash in the purchasing power of the dollar.

MD: There is no counter-party risk with a “proper” MOE process. Is that minimal enough?

  • Possess assets that will be less affected by counter-party risk, a credit crunch, and massive inflation in the supply of dollars. Gold and silver come to mind.

MD: Yeh … and cinder blocks are an even better idea. You can’t build anything with PM. And when people are not accustomed to trading with it … and they certainly aren’t now … your education (indoctrination) problem will extend far beyond the calamity.

MD: Anyone who has carried a bag of dog food knows that isn’t a bag of dog food.

  • Otis (the dog) relied upon himself, knew what he needed, and did what was necessary. A bag of food was his “gold” in the storm.

MD: Anyone who has fed a dog knows they will eat all you put out there for them. They will eat until they can eat no more … which is two or three times what they should regularly eat. Left to themselves, you can give them 60 days of open food and they will live 15 days and die of starvation in their own dung.

Gary Christenson
The Deviant Investor

Deviant Investor: China has gold; the west has paper.

China Has the Gold, The West Has Paper

Guest Post from David Smith, Originally Published on Money Metals Exchange

Money Metals readers may remember my November 2014 report in which I discussed how gold flowed into China in “tributary fashion” like small streams flowing into a giant one. In this case, the gold has been streaming into China’s increasingly massive thousands-of-tons gold hoard.

MD: Is the same not true for India … whey they use it for making jewelry? If that flow was grain into silos would it be any different (assume nitrogen filled silos with zero leaks)? The point being … gold and grain are just stuff. If a country chooses to hoard it, why are they doing that? It’s not because it is money … because neither are money. And when it hits the fan, they’re going to try to trade their gold for food anyway … so why not just hoard the food? What are you trying to accomplish by hoarding gold. If you have all of it, it is, by definition, worthless in trade. You only have to know what money is for that fact to be obvious. Take it to the limit. If there is zero gold available to traders for making trades over time and space, they’re going to use something besides gold.

In January, 2015, I penned an essay titled “China’s Global Gold Supply “Game of Stones” outlining China’s long-range goal to dominate the world’s physical gold market.

Well, events have moved massively forward since then. I want to update you as to just how much things have changed – and how close we may be to experiencing a “defining moment” in the gold market.

I’m talking about a game-changing event that could, with little warning, propel the price of gold upward by hundreds – even thousands – of dollars per ounce in the space of a few weeks… conceivably overnight! (And since silver’s price movements are highly correlated with that of gold, we could expect an upside explosion in silver as well.)

MD: Would it propel all money in the world by the same factor … or does it just apply to dollars? How about the Yuan?

China’s 4-pronged gold accumulation strategy:


First: Buy physical gold in world markets, re-fabricate it when necessary (into .9999 fine bars in Switzerland), and ship to the mainland.

MD: Why do the refining in Switzerland?

Second: Hoard all domestically-produced gold… which is now being done, even when produced from operations with foreign-partners. This is also true with silver production, e.g. Silvercorp Metals – a Canadian silver/lead producer with operations on the Chinese mainland.

MD: Keep in mind there is only 1oz of gold per person on Earth … regardless of where it is located. And the hyperbole of including silver is silly. In aggregate value for silver, there is 1/5 the aggregate value of gold in the world. So we’re talking about 1.25 oz of gold equivalent per person on Earth. Adding silver to the mix doesn’t change the story at all. Recognize hyperbole for what it is … gilding the lilly.

Third: Partner with (e.g. Pretivm Resources; Barrick Gold-Pascua Lama) or buy outright, gold explorer-producers located on foreign soil.

Fourth: Purchase for cash, gold production “off the books” from ‘informa’ miners in S.E. Asia, Africa, and South America. China’s intent is to supplant the U.S. as the largest holder of physical gold (claimed to be around 8,000 metric tons) on the planet. (Disclosure: I, David Smith, have held for several years, positions in Silvercorp and Pretivm, purchased in the open market.)

Right now, China is vastly understating what it actually holds as well as how much is being imported.

This deception is easier than ever because a significant amount is no longer routed (and thus reportable) through Hong Kong, but rather through other mainland entry ports. What the authorities admitted holding as of last summer was almost unbelievably small compared to what even the official figures streaming through Hong Kong alone, plus domestic production add to the total, and China is now the number one global gold producer.

As reported by Steve St. Angelo China has, during Q1, 2017, imported a record 57.4 metric tons of gold to the mainland, from Australia.

Notice the Australian/U.S. multi-year pattern of gold mine exports vs. production

In Addition: A parallel determinant is China’s effort to lessen its holdings of U.S. dollar reserves, by signing infrastructure agreements (denominated in yuan) with countries participating in its massive, long-term New Silk Road project. It’s been reported that China has even approached Saudi Arabia about yuan-based oil sales – a direct threat to the decades-long monopoly of the U.S. petrodollar.

And then there’s this:

The Perth Mint sold $11 billion worth of bullion to China last year alone, and demand continues to climb. Demand is so strong that Perth Mint brings in gold from mines in other countries like Papua New Guinea and New Zealand, and jewelry from South-East Asia that is refined down to the Mint’s signature 99.99 percent gold bullion. (ABC News)


Steve St. Angelo reports that so far in 2017, scrap gold recovery is down sharply, even though the price of gold has risen – an unusual historic occurrence.

His projection for the year? “…as the price of gold has increased in 2017, global gold scrap supply will fall by almost a third, or 32% versus 2010… this major gold market indicator trend shift suggests that individuals are now holding onto their gold rather than sell it for a higher FIAT MONETARY PRICE.”

MD: So far you’ve said nothing of import. You might just have been describing the Hunt’s attempt to corner the silver market of yore.

A Surprising Shock-Rise?


Precious metals prices have been in a cyclical decline since mid-2011 – not unlike the last secular bull market in the 1970’s – before gold’s eight-fold rise less than two years later.

It’s understandable that you might meet this latest suggestion of an unexpected, massive rise in the price of gold and silver with skepticism. A rise that could take place so quickly that those who hesitate could not react before prices had climbed far above prevailing levels. Before the supply cupboard had been swept clean. But the truth is – it’s not a pipe dream, not blowing smoke, not wishful thinking. This is not just possible, but increasingly probable.

Everything in life involves playing the odds. If something is “unlikely” but possible, and if that something taking place had the potential of being a “game-changer,” would you not seek to prepare for it in some measure?

MD: Professional gamblers remove the odds from the equation. They totally control them … they don’t “play” them.

A vertical up-move in gold would place you in a tidy profit position, even if you held a relatively small amount (e.g. the oft-touted 5% of your investable assets). So, it’s not necessary to mortgage the house or go into debt in order to “participate.”

MD: This nonsense would make better hyperbole if you were discussing bitcoin. The deflation of bitcoin is a few orders of magnitude greater than gold. And with deflation like that, the utility as money to traders is the same … zero. But to gamblers (and so-called investors) it is a big deal.

I believe it’s almost “a given” that precious metals will resume their secular bull run, which could continue for the next three to five years. If you agree, does it not make sense to begin (or continue) a conservative metals’ acquisition plan? With little worry as to the price where you began?

MD: Well, you are a gold salesman. Peddle your wares. Tattoo artists have convinced lots of people that all those marks on their bodies will bring recognition to them. In the end, it will … negative recognition.

It’s not that difficult. Either buy metals when you have some surplus investible funds, and/or do so on a regular, dollar-cost-average basis. If the “China card” never gets played, you’ll still do well as metals’ prices advance over the coming years. You’ll have been purchasing “paid-up insurance” for the rest of your holdings, hedging more as time goes on.

MD: Buy raw land in a low tax jurisdiction. At least you can camp out there once in a while for recreation.

And one more thing. Don’t think of it as “spending money” on buying gold and silver. You’re simply exchanging continually-depreciating “paper promises” – the enduring term coined by David Morgan at – for “honest money” which has stood the test for millennia and will likely continue for as far as the eye can see.

MD: That’s not too convincing. The gold and silver I bought four years ago does not exchange today for anywhere near what the dollars did that I traded for it. But in the long run you are correct. That 4% inflation leak does take its toll. We went through a period of gold escalation before in the 80’s as I recall. Then it fell like a rock and took 15 years to get back to where it was at its peak. Even with gold, timing is everything. 15 years is a real long time to a 30 year old … and to an 80 year old.

Remember, if you don’t hold it in your hand, you can’t be sure you really own it. John Hathaway, Tocqueville Asset Management covers this precisely, saying,

When the market reverses, the diminished physical anchor to paper claims, concerns over title and encumbrances on central bank bullion, and worries over the drift of public policy will drive liquid capital into gold. However, this time around, it seems to us that the major recipient of flows will be the physical metal itself. Holders of paper claims to gold will receive polite and apologetic letters from intermediaries offering to settle in cash at prices well below the physical market. To those who wish to hold their wealth exclusively in paper assets, implicitly trusting the policy elites to resurrect normally functioning capital markets and economic conditions, we say good luck. For those who harbor doubts on such an outcome, we say get physical.

MD: So that gold I have in’s vaults is not safe? I know to get one of their goldgrams from wherever it was and into my hands cost 10% of the value. I had to even pay import duties on it. Even if I had all that gold in hand, it would be sitting on my raw land in the low tax jurisdiction where I live … and frankly I would rather have a little more land and no gold … thank you very much.

David Smith is Senior Analyst for and a regular contributor to For the past 15 years, he has investigated precious metals’ mines and exploration sites in Argentina, Chile, Mexico, Bolivia, China, Canada, and the U.S. He shares his resource sector findings with readers, the media, and North American investment conference attendees.


Thanks to David Smith, Originally Published on Money Metals Exchange

Amazon instant pick-up points

MD:  The cost of the “last mile” of delivery is a significant portion of the whole cost of the delivery. This is normally executed by the USPS carrier, the UPS driver, or the FedEx driver. This is one driver, one vehicle, delivering one  package to one purchaser at a time. Even in downtown locations, the delivery can’t be made door to door (like mail) because of the size of the packages.

But what if Amazon … or UPS or USPS or FedEx partnered with gas stations (and/or convenience stores). They could drop off dozens of packages at these points  in a single delivery (eliminating dozens of last mile deliveries). The purchaser would be likely passing the convenience store on a regular basis anyway and would just stop in and pick up their package (they would do the last mile themselves at no additional cost). Further, they would likely make some other impulse purchase.

Companies like Dollar General could trump what Amazon is doing by offering this service to their own customers. They already have very many conveniently located outlets … especially in rural areas.

I think Amazon is barking up the wrong tree here.

Just a thought for greater efficiency and lower cost.

FILE PHOTO: An Amazon pickup location is seen at the University of California in Berkeley, California, U.S. August 14, 2017. Reuters/Jeffrey Dastin/File Photo

BERKELEY, Ca (Reuters) – Inc is rolling out pickup points in the United States where shoppers can retrieve items immediately after ordering them, shortening delivery times from hours to minutes, the company said on Tuesday.

The world’s largest online retailer has launched ‘Instant Pickup’ points around five college campuses, such as the University of California at Berkeley, it said. Amazon has plans to open more sites by the end of the year including one in Chicago’s Lincoln Park neighborhood.

Shoppers on Amazon’s mobile app can select from several hundred fast-selling items at each site, from snacks and drinks to phone chargers. Amazon employees in a back room then load orders into lockers within two minutes, and customers receive bar codes to access them.

The news underscores Amazon’s broader push into brick-and-mortar retail. The e-commerce company, which said in June it would buy Whole Foods Market Inc for $13.7 billion, has come to realize that certain transactions like buying fresh produce are hard to shift online. Its Instant Pickup program targets another laggard: impulse buys.

“I want to buy a can of coke because I’m thirsty,” said Ripley MacDonald, Amazon’s director of student programs. “There’s no chance I’m going to order that on and wait however long it’s going to take for that to ship to me.”

FILE PHOTO: An Amazon pickup location is seen at the University of California in Berkeley, California, U.S. August 14, 2017. Reuters/Jeffrey Dastin/File Photo

“I can provide that kind of service here,” he said of the new program.

FILE PHOTO: An Amazon pickup location is seen at the University of California in Berkeley, California, U.S. August 14, 2017. Reuters/Jeffrey Dastin/File Photo

Instant Pickup puts Amazon in competition with vending machine services. Yet the larger size of the Amazon sites means they are unlikely to pose a threat to those selling snack and drink vending machines to offices and schools. MacDonald said Amazon considered automating the Instant Pickup points but declined to say why the company had not pursued the idea.

Amazon’s ability to shorten delivery times has been a sore point for brick-and-mortar retailers, who have struggled to grow sales as their customers have turned to more convenient online options. Until Instant Pickup, Amazon shoppers could expect to have their orders within an hour at best via the company’s Prime Now program, or within 15 minutes for grocery orders via AmazonFresh Pickup. Amazon has made two-day shipping standard in the United States.

Instant Pickup prices may be cheaper than those on, MacDonald said. He declined to detail how the items are priced, however.

Other locations in the program now open include Los Angeles, Atlanta, Columbus, Ohio and College Park, Maryland.

Reporting by Jeffrey Dastin; Editing by Andrew Hay

What role does money play in secession initiatives?

MD: Control of money is a real big deal in all things political. An “uncontrollable” money is therefore anathema to all things political … especially governments. But it is wonderful for traders … like you and me.

As you read this article, consider how it would read if the Catalans were to first institute a competitive “proper” MOE process before attempting secession. Virtually all of the issues this article cites vanish when a “proper” MOE process is in place.

Remember, such a process is immune to political interference. If you want to affect it, you have to use force. And if it’s in general use, you probably can’t come up with that much force. Traders are far more powerful than the populace in general … which is peculiar because traders “are” the populace in general … there are just no borders when it comes to traders.

Catalans Think Twice About Risks of Rupture as Jobs Return

  • Support for independence falls to 35% from 49% in 2013
  • Threats to their interests give separatists pause for thought
Carles PuigdemontPhotographer: Pau Barrena/Bloomberg

Joan Boix has been attending separatist demonstrations in Catalonia for at least five years and he contributes to the campaign for a split from Spain.

But as the regional government in Barcelona girds its supporters for a final push that it hopes will deliver independence, the 62-year-old executive is hesitating. Hardliners talk of setting up a rogue Catalan tax agency or a general strike in order to force the issue. But Boix has a company to worry about.

MD: Set up a “competitive” proper MOE process. Let people gravitate to it. If you set up a tax agency, you are just playing into the hands of a “replacing” government … predictably made up of people ultimately unfriendly to traders and general trade.

“Most of the businessmen I know have to make debt repayments so an indefinite strike is a hard sell,’’ he said.

MD: Ah … but what if that debt was promised in HULs rather than your competitor’s controlled money? Then this would not be an issue at all. And you would not be talking about a strike … let alone an indefinite one. You would already have the existing government and its money changers on the ropes.

Regional President Carles Puigdemont is trying to increase his leverage as officials in Madrid vow to block his plans for a referendum in October. But the potential costs of a collision with the Spanish state are become clearer for Puigdemont and his supporters.

Two of Puigdemont’s senior aides were interrogated by Spain’s Guardia Civil last month and Prime Minister Mariano Rajoy has warned Catalan officials they could face criminal charges if they use public funds to facilitate the vote. Even the Catalan police, who Puigdemont wants to use to oversee the vote, may think twice — most of their salaries are paid from Madrid.

Rajoy on Wednesday called for Catalans to show “common sense” and “isolate the extremists and radicals who are today influencing the regional government.”

MD: Extremists and radicals … i.e those who “are not us”.

In the end, money worries may tip the balance against dramatic action for many Catalans.

MD: And there you have it. If a proper and competitive MOE process is in place, money worries are already dealt with. Nothing dramatic can happen with the money.

Spain on the Mend

Despite its distinct traditions and language, the idea of breaking away from Spain had little mainstream traction until the economic crisis — and the corruption it uncovered — hurt Catalans’ finances and undermined their confidence in the Spanish state.

MD: Said as if that won’t happen again. Government “is” the problem. Institute a competitive and “proper” MOE process, and let the government do the scrambling for survival.

Support for independence peaked at 49 percent in 2013, as the Spanish economy was contracting for a third straight year and unemployment reached a record 26 percent.

But Spain is on the mend now. Joblessness is down to 17 percent and the economy is growing at a pace of more than 3 percent. After a decade of turmoil, Catalan moderates are nervous about putting the recovery at risk.

MD: Oh really? What caused the economic collapse in the first place? What caused it to go away? You can be sure government manipulation played a role in both cases … and the sense of both is probably more related to propaganda than to reality.

Just 35 percent say Catalonia should be independent, according to the Catalan government’s polling agency. That’s the lowest in five years.

Investors are largely discounting the risk of a split. The spread between Spanish 10-year government debt and German bonds is close to its narrowest in seven years, though the yield on the Catalan government’s thinly traded 2020 bonds has jumped by about 50 basis points since the start of July.

MD: What are the “Catalan government’s” bonds? If they can create and sell bonds, they can institute and support a “proper” MOE process.

Puigdemont said in an interview last month that anyone who thinks an uptick in the economy will dampen the separatist movement is making a mistake, and warned investors that the movement may roil Spanish debt markets this fall. Others argue that Spain’s attempts at intimidation, including a smear campaign against Catalan leaders, will ultimately backfire.

MD: If you remove government from the equation, what are you separating from? The issue “is” government. As long as it is there, you will have an issue.

“If they were winning the political battle they wouldn’t need such tactics,’’ said Manel Escobet, 63, a member of the national secretariat at the Catalan National Assembly, a separatist campaign group. “The dirty war being conducted by the Spanish state is just helping us to broaden the support for us’’

MD: If you’re in an “all out war”, finess is not employed. You deploy all your weaponry. And such tactics are probably the most important weapon in the arsenal. People are putty in propagandists hands.

Corporate Concerns

But even some of those who would be willing to strike accept that their chances of achieving their goals remain remote. Pere Gendrau, 36, runs a pub in Berga, just over an hour north of Barcelona and in the late 1990s he was active with the fringe groups that went on to form the anarchist group CUP, which Puigdemont’s mainstream alliance relies on for a majority in the regional assembly.

Gendrau says that he and his employees would find a way to support a general strike, an idea raised by Regional Vice President Oriol Junqueras as far back as 2013. But, like Boix, he can see the problem for those managing larger operations.

MD: What are they striking against? Themselves? Institute a “proper” money. Set up a minimal organization to deal with customary public issues … i.e. potholes … and then quit paying taxes to Barcelona.

“It could be the way to move forward, but we probably won’t reach that point,” he said. “I’m not so sure what the bigger companies’ reaction would be.’’

Boix’s company produces about 2 million wooden pallets a year for Catalan exporters and employs 130 people in the Bergueda region, where separatist parties got almost 80 percent of votes in 2015’s regional election.

The family history illustrates the sharp divisions that still lie beneath the surface of Spanish society. Boix’s grandfather, a Catalan mayor, died in a Nazi concentration camp at Mauthausen after fleeing to France during the Spanish Civil War. The French government has apologized to the family for the failings of the Vichy regime, but in Spain it’s more complicated, since Prime Minister Mariano Rajoy’s party was founded by a former minister from the Franco regime which governed for almost 40 years.

Historic Divisions

“In Spain it’s as if nothing ever happened,” he said. “Just in my family, 10 people fled across the French border, and only my mother and two others returned.’’

So the friction between Catalonia and Madrid may be as good as permanent. There are pockets of the region where almost everyone backs separatist parties. But the success of modern Spain since the dictatorship may be enough to keep the country together, and the economy growing, despite their differences.

MD: He who controls the money controls the playing field. Remove all control of the money and the playing field is level. Let the games begin.

Boix is happy to support a strike in favor of independence. But only so long as it doesn’t hurt his bottom line.

“If it’s being asked to stop for a day or two, that’s fine,” he said. “We’ll find a way to compensate by working through a public holiday.”

That’s probably not enough to force Rajoy into any dramatic concessions.

— With assistance by Charles Penty

Deviant Investor: The Luster of Gold Returns Due to Economic Uncertainity

Deviant Investor: The Luster of Gold Returns Due to Economic Uncertainity

MD: It’s always fun to examine the articles written by gold bugs who are clueless about what money is. The landscape is always rich with delusions. Let’s see.

The Luster of Gold Returns Due to Economic Uncertainity

Guest post from Paul Somerfield

The role of gold as a safe-haven investment is one of the fundamental principles of modern markets and it seems as if recent movements have once again confirmed this fact.

MD: That being true … and it probably is, gold is “precluded” from ever being money. Of course, if you know what money is, among its very few attributes is: real money has “no intrinsic value.” Anything having intrinsic value disqualifies itself from being money … it is a promise to deliver that has already been delivered. Money is an “in-process” promise to deliver on a trade.

The price of December gold futures rose to $1,279.40 dollars per ounce; the highest level since early June. During this same time, the cash value of gold has likewise increased by 6.2 per cent. Both of these observations could be great news for medium-term investors and these rates may very well be indicators of a more bullish gold market. What are some of the underlying factors which have caused such gains?

MD: A proper MOE “never” changes the value it stands for. That’s why the HUL (Hour of Unskilled Labor) is the ideal unit for money. HULs have never changed what they trade for over all time. They have always traded for the same size hole in the ground that they trade for today. The fact that  gold price is changing like this proves it is “not” money. Either the value of gold is changing, the value of the dollar is changing, or both.

Tepid Consumer Spending


One of the most important influencing factors in regards to the price of gold involves consumer sentiment and spending.

MD: … again proving it is not money. Real money doesn’t care about consumer sentiment and spending. It is strictly valued as a pair of traders value it at an instant in time. Once valued that way, the trader creating it is obligated to reclaim it and destroy it as promised. If he mis-valued it, he has to adjust his behavior accordingly (work harder than planned or bask in his brilliance). None existed before his trading promise (for that promise), and none must exist after delivery (or default mitigated by interest collection). Inflation of the money itself is thereby guaranteed to be zero. What else can it be?

This is generally seen as a broad snapshot of how an economy is performing. It should also come as no surprise that spending within the United States will have a decidedly profound impact upon the valuation of this yellow metal. Recent figures have shown that spending only increased by 0.1 per cent in June. This is actually the smallest increase witnessed so far during 2017. Thus, some market makers are wary about the medium-term status of the domestic economy.

MD: Spending tells you nothing about money. It could be coming from traders creating new money (which they later will destroy), or from money traders have acquired and accumulated in their previous trades. As soon as they spend it, it is available for other traders to claim and return if they have in-process trading promises to deliver. Regardless,, spending is of no import whatever. Neither is saving.

The Question of Federal Reserve Interest Rate Hikes


There has been a fair amount of speculation as to whether or not the United States Federal Reserve will enact an interest rate hike.

MD: This is the biggest delusion and “hand-tipper” of all … i.e. the notion that the Federal Reserve sets interest rates. The operative relation for “any” money … proper or improper … is: INFLATION = DEFAULT – INTEREST.

Defaults are being perpetually made by counterfeiting governments … they make trading promises and never deliver … they just roll them over. This is far and away the largest supplier of defaults … and if inflation is to be zero, they must be met with interest collections of like amount. Since the whole “improper” process we have to use is open-ended, with no direct negative feedback loop (like defaults being immediately met by interest collections), the unmeasurable INFLATION can be anything governments say it is … until it is so out of wack their improper MOE collapses … and they reset and start the con all  over again.

Any such hike is normally closely tied into inflationary figures. However, softer inflation has pointed to the well-founded observation that the Federal Reserve may postpone any rate increases for the time being.

MD: Inflation is “not” measurable … it can only be estimated … and is thus always a fiction. Only a “proper” MOE process can know what inflation is. And such a process knows what it is in real time … all the time. It is zero. The inflation  being referred to here is a strictly a made up number. And until the inevitable money calamity, it will be predictably very low. If they report it as it really is, the Social Security payments have to be automatically adjusted (COLAs). And that blows the whole Ponzi scheme. None of this could be happening with a proper MOE process.

A slower pace of rate increases has historically tended to support the value of precious metals and there is no doubt that these latest observations have played an important role.

MD: All rates of increase (or decrease) are very small and slow. It is a death of a thousand cuts … and then the camel collapses under the addition of a single straw (to mix metaphors).

A Rising VIX?

MD: This VIX thing is amazing … just in the fact that it exists. They invented the options trading model (Black-Scholes) which was very sensitive to the underlying “distribution”. So what do they do? They game the distribution. They invented the VIX and now bet on that. You can’t make this up.


One of the most recent news stories involves the Dow Jones closing above 22,000 points for the first time in history.

MD: Right. All companies are increasing in value simultaneously and continuously … but inflation is near zero? Bet me!

Although this is supposedly good news and a sign of a relatively strong domestic economy, some are concerned that the CBOE Volatility Index may be in for a reversal in the near future.

MD: CBOE  Volatility Index … another VIX like measure … without a knob. They have made this thing so complicated and attached so many knobs, there is never any hope they can know how to turn all those knobs. When it blows up I hope someone has a camera on as they all violently turn  the knobs … like kids in the car arcade ride, going in a circle and turning the steering wheels … connected to nothing … violently, as if they’re having effect.

It is important to point out the inverse relationship between the VIX and index values. Still, any sudden increases in the VIX index will likely cause some investors to pull their money out of the open markets and to place their funds into safer havens.

 MD: Important to point out? To whom … fiction writers?

The Trump Dilemma


One point that cannot be stressed enough is the instability associated with the White House. As the Trump administration continues to flounder and as officials seem to be replaced on an almost daily basis, some are questioning whether or not the president can deliver on many of his other promises put forth during the election campaign.

MD: Since a “proper” MOE process has no “social” linkage or dependency whatever, “real” money does not have this instability.

It is also important to point out that politics could also play a role in the price of gold; particularly if tensions continue to rise between the United States and Russia.

MD: I’m surprised he says it this way. Politics plays a role in the value of the dollar. As such, it plays a role in the price of everything in the same way. If gold was money this wouldn’t matter. But “mining” and amount of trade play a role in the value of gold … and that makes it unsuitable as money.

Rumors of a so-called “trade war” may further exacerbate this situation. Although more rhetoric than reality at the present, the possibility of protracted political instability may help to support gold prices.

MD: Again, “real” money is not affected by trade wars. The traders with in-process trades still have to reclaim the money they created …. trade war or not. If the war causes many to fail (i.e. defaults), what do we know will instantly happen? Of course, interest collections will increase by like amount and the warring parties will have their playing field instantly impacted … in a negative feedback fashion. No manipulation necessary.

The Other Side of the Coin


Not all analysts believe that gold will remain bullish indefinitely. The traditional overhead resistance of $1,280 dollars is approaching and there could be a reversal soon. Regardless, the long term trend is strongly upward due to continually devalued fiat currencies.

MD: Again proving … it is not and cannot be money.

The coming days will be interesting in terms of gold prices. Those who hope to keep abreast of the latest news should employ reliable online resources such as CMC Markets. Gold may indeed have regained its luster to the average trader.


Thanks to Paul Somerfield


Gary Christenson

The Deviant Investor

MD: Remember folks … .these people are “gold dealers”. They want to keep people buying and selling gold so they have to keep making up and telling new stories.