A number of Financial pundits seem to be bitching about “the Fed” and Ben Bernake.
I would just like to remark: have any of you noticed the size of the National Debt? Attempting to manage such quantity alone is truly remarkable and certainly unprecedented. Don’t you think?
So there are minority voices, once led by Ron Paul, to torch the Fed and abolish Central Banking (even though the Fed is not a Central Bank) and from these various roots or rhizobiums sprout similar voices with most of them wanting to denationalize money - e.g., “everyone can have their own gold standard” !! or we don’t need gold so what all of this has come down to is this:
Let those fit to rule the world of finance (hereinafter known as “the elites”), issue their own brand of money; and through competition, we’ll see which one(s) works best. It’s all for business and it’s all what is identified or in some manner associated with, “The Austrian School”.
Hey wait a minute, “Austrian” isn’t that European? Why are the republicans supporting this? Well they want a different mix to start a war with Russia so it’s ok for them to use an Austrian, after all, they used Hitler and Waldheim .
Unlike the printing presses of various persons in the original colonies, the denationalization of money (hereinafter “denationalization”) is truly, counterfeiting (see Art 1, sec 8, cl. 6, US Const) and what it would amount to is that the self appointed flagship leaders of the plutocratic elite - i.e., the Too Big to Fail Banksters - issuing their own brand of money, similar to the manner in which credit cards brands are issued.
The distinction is that none of the reserves, or else too small a portion, are US Treasury Securities and that none is monetized gold.
If Supreme Lord, Antonin Scalia, should not allow US to plead what I describe above and herein as counterfeiting, then what might we refer to it as? Uber Greenbacks Gone Apeshit? The distinction is in capital assets and reserves.
The way all of this denationalization has come about is by
(1) Romantic stupidity and
(2) the most uneconomic of all endeavors known to human civilization, war and war spending.
And regardless of what you might think after reading the remainder of what I have to say or which parts of it may drift in or out of your unconscious mind, wars and war spending always ruin everything and if there is any one Universal axiom of human civilization, it is that; and calling it “defense” doesn’t change that fact. According to the following account (scroll down the following link to “background, 3rd par. War of 1812) lQQk war is what allowed the Democratic-republicans (scroll down in the following link to (“US Political Conflict”) lQQk and their romantic hatred of the US Central Bank and support of slavery (scroll down to “Historical Context and Overview” in the following link) lQQk, to detach the National money making powers from the requirements of the US Constitution, which is hereinafter referrred to as “detachment”.
And they did this, without any amendment at all
This willful and intentional act of detachment ought to be identified as the post ratification origin of, “The Right to Do Wrong”. Those that like this sort of thing refer to it as “precedent”
So the charter of the 1st Central bank of the US expired in 1811 and then the 2nd Central Bank of the US wasn’t chartered until 1817. So the detachment of the money making functions of government in conjunction with Public Credit - e.g., the ability of the US Government to fund a war, occured between 1811 and 1817
You might also say, with a great deal of material evidence to support such contention, that the detachment coincided with the demise of the Federalist Party. But what is truly remarkable about this whole thing is that for all of the information available on the internet? Try to find a suitable search phrase to find out how the government, without the use of a Central Bank, funded a war, although the results are readily shown in the link for the 2nd US Central Bank.
So alas this mysterious factor is the key to this entire problem that we now face; but how is the public supposed to have an intelligent conversation regarding the greatest financial disaster in US History since the Great Depression and how to avert another, without knowing the facts? You can rip the doors off all of these institutions and totally trash the premises but if you don’t know what you’re looking for all it amounts to is a witch hunt, an invasion of privacy and vandalism - i.e., what a mob does best; and at heart of every mob is a demagogue.
The key to the detachment is the willful and intentional violation of US Const Art I, section 10, in allowing State banks to perform these proscribed functions in re Bills of Credit (scroll down to “background” in the following link lQQk )
If you peruse the foregoing information you’ll see at least two irresistible conclusions:
(1) the 2nd Bank of the US alleviated most of the problems created by State Banks and
(2) nonetheless, a partisan political faction remained loyal to political “talking points” in opposition to Central Banking which has been perpetuated and maintained all the way up to and including, Ron Paul and even in historical context, long after the opponents, Jefferson and Madison abandoned them.
One of the biggest lessons the USA ought to have learned from this is to avoid the national establishment of long term policies based on the transitory whims of a majority; keeping in mind that all policies under the Democratic-republicans are always long term.
O so what, tommy, what’s the big deal, it’s all just paper, anyway, right?
No it’s not all, just paper, even the person that made all of this worse, Andrew Jackson, was at one extreme as opposed to paper altogether. The intention has always been, even in times of the suspension of specie payments, or the gold standard (gold bars), that the capital reserves were US Securities (read this article lQQk).
What the big deal amounts to is the stability of value rather than the stability of price. And in terms of the US government, as opposed to almost any business, it’s not going anywhere unless the republicans abolish taxation.
So in terms of capital reserves, you can use goat shit as the basis of money, but then you’ll most likely end up having to pay someone, far in excess, of what you think it’s worth in order for them to even accept it. So the reserve you want is something with a stable value, because if you have to liquidate any part of it, you want to receive the greatest quantity of the universal medium of exchange - and what shall that Universal medium of exchange, be?
That is the question
This is what people always miss in regard to specie (gold and/or silver coins) or a gold standard (bars of gold). Either are supposed to serve as “The Universal Medium of Exchange”, not currency, and not necessarily a reserve for currency. Stop reading and think about the following for a minute:
The people that seem to be most keenly interested in these “issues” are gold bullion and silver speculators. Do they intend to use these metals for the purposes of mundane currency transactions - e.g., o shit I just ran out of celery, I’d better take one of my ounces of silver down to the grocery store food liner? of course not. In fact if they have to use it then they’re going to have to exchange it into some kind of medium of exchange which they find acceptable. So the idea is to maintain a particular value (the price which they paid for it, in a given medium of exchange) or to collect more of a particular medium of exchange they find useful than they could have when they bought it.
Just because you bought something at a particular price doesn’t mean you’re going to be able to sell it for the same amount and it will probably be for much less. There are other factors that cause this to happen, aside from the value of the medium of exchange, and this is what the problem is with any long term “asset” or worthless short terms assets too.
Which finally brings us to the point - the medium of exchange is always by fiat, because it’s value, as opposed to it’s price, is fixed by the fiat of government (see Art 1, sec 8, cl. 5, US Const)
Intentional Monetary Inflation
What an inflationary system ensures, is that you’ll always be able to sell things for a greater amount of monetary units than what you acquired it for, but that applies to everything else too and therefore only works as such for as long as there are willing and able buyers. So inflationists spend their time trying to use government to make inflation work - see “(2)” of the irresistible conclusions set forth above.
This is the distinction known as “the silver question” - viz., what happens when the supply of money is augmented by the addition of silver; and there it was found and generally agreed that the foregoing happened - viz., an increased monetary supply augmented by the monetization of new discoveries of silver resulted in higher prices; and then you get into the pedantic bullshit about silver is more likely to be discovered and monetized than gold and therefore silver is bad money, Gresham’s law, etc., etc. so abolish silver as a basis for money (the gold standard) or else change the 16 to 1 fiat valuation ratio of silver to gold to something else.
One example I see from “Austrian School” enthusiasts is the claim that “productivity” lowers prices and that this is what Harding and Coolidge policies led to; but the Fed ruined the whole things by interfering with the Holy Sacred Invisible hand of in God We Trust and caused the Great Depression by imposing their Satanic price stability manipulations.
So it is a sort of, fiasco in irony, that the anti-price stability people (the “Austrian School”) are the braintrust/pretence exploited by the foregoing “elite” where the “price stability” policies of the Fed, which the Austrian School have always been opposed to, becomes the only available recourse to deal with the resulting situation - e.g., we can’t trade our assets - they’re depreciated (lower than the price we want) - so we need more money !!
But what about the effect on everything else? O just destroy the labor unions and keep lending to the proletariat for the maintenance of their subsistence. They’ll knuckle under and submit they always do.
Value and price, like wealth and money, are not the same thing. This is what distinguishes monetized gold from bullion; the former is fixed in value, by government fiat, while the latter is a commodity, and therefore, subject to price. The only real solution to this situation regarding any fiat money which includes gold (or gold and silver) is the maintenance of a sufficient capital as a reserve, to the total amount of money (which is the 1st principle purpose and function of a real Central Bank) where the total amount of money, corresponds to, the total amount of economic activity. James P. Warburg (“The Money Muddle” (Knopf, 1932) laid it down like this:
“Money is created out of the necessity for some common denominator of value between all things and services that men have to offer and that other men desire. Since it is needed to perform this function, the primary quality of it is trustworthiness. No one will give up his hours of work, or the things he has produced, in exchange for something concerning the value of which he has any doubts. In other words, the workman would rather take home his bolts and try to get at least a loaf of bread for them than accept his pay in something which might or might not be exchangeable at the grocery store for food in satisfactory quantity.
If money is to be trustworthy, it follows that two general things must be true concerning it:
1. It must be impossible for anyone other than an agreed authority to create it. Otherwise anyone could cheat and simply manufacture for himself all the money he desired without exchanging anything for it.
2. The quantity of money created by the agreed authority must bear a direct relationship to the amount of work done or things exchanged in the community. Otherwise there can be no certainty that a given amount of money will buy a given amount of work or things. This is important. In fact, it is so important that it lies at the root of the whole money question”. Where and when total money exceeds economic activity various forms of speculation will occur which is where and when the money supply (credit) ought to be tightened.
Having stated these simple facts and that the denationalization of money is happening, right now - that is money is being created by the “elite” rather than the “agreed authority”, consequently, Federal money, is being replaced with private brands of money, issued by the self appointed plutocratic elites - e.g., it’s vouchers but it’s still medicare.
So the the young Libertarians - Tea Party Conservatives and a considerable number from OWS - have been utterly duped and used as facilitators and tools for denationalization now they’re apparently pissed off because they have been identified as such and necessarily associated with these aforesaid elites !! and yet still believe that there is some sort of justice in fucking around with the otherwise sovereign medium of exchange.
Can they categorically deny that money denationalization was advocated and popularized by Hayek himself? Or that they have no association with the States Rights CSA champion, Texas Ron Paul, with his, adopted, Austrian School?
This is always what the Nazi GOPstapo do, and which Ron Paul, is: they attack and challenge the conventional wisdom and then claim to be conserving it, when in actuality, they’re conserving some anachronistic pipedream of some economist who was at best leisurely philosophizing about money and is now conveniently dead.
It’s the Dead Authority ploy which is as good as Roman Law !!
Ut O, here they come, the barage of, you communist, you socialist, you you you central planner you !! communists and nazis are the same thing. tommy, how can you call Ron Paul a communist !! therefore he’s not a Nazi. Reminds me of Strom Thurmond’s support of Ed Meese for AG - “If Mr. Meese were corrupt he would be a multimillionaire and he is not a multimillionaire and therefore he is not corrupt”. Like Hayek was merely an adviser to Pinochet, like Colonel Haushofer was to Adolf Hitler. Col. Haushofer was a “moderate” Nazi, just ask the Temple of Set, or Anton Svendor LaVey who dedicated his Satanic Bible to Haushofer, O. Anton is dead too.
Now if you look at Basel III, the risk formula, bookkeeping and then consider the use of capital arbitrage, selling short with CSD(s) and hedging with off balance sheet “assets”, the actual amount of “regulatory” reserves becomes geometrically reduced. The following is quoted from “THINKING BEYOND BASEL III: NECESSARY SOLUTIONS FOR CAPITAL AND LIQUIDITY” by Adrian Blundell-Wignall and Paul Atkinson OECD Journal: Financial Market Trends Volume 2010 – Issue 1 © OECD 2010 Pre-publication version (pages 12 & 14)
[p.12] “Simple example on capital arbitrage and promise shifting
• Bank A lends $1000 to a BBB rated company, 100% risk weighted, by buying a bond and would have to hold $80 capital. Bank A holds a promise by the company to pay a coupon and redeem at maturity.
• Bank A buys a CDS from Bank B on the bond, shorting the bond, thereby passing the promise to redeem from the company to Bank B. Because B is a bank, which carries a 20% capital weight, Bank A reduces its required capital to 20% of $80, or $16.
• You would think that Bank B would have to carry the promise and 100% weight the exposure – but instead it underwrites the risk with a reinsurance company outside of the banking system – the promise to redeem is now outside the banks and the BIS capital rules don’t follow it there. Bank B’s capital required for counterparty risk is only 8% of an amount determined as follows: the CDS spread price of say $50 (500bps), plus a regulatory surcharge coefficient of 1.5% of the face value of the bond (i.e. $15), all multiplied by the 50% weighting for offbalance sheet commitments. That is, $2.60 (i.e. 0.08*$65*0.5).
• So jointly the banks have managed to reduce their capital required from $80 to $18.60 – a 70.6% fall. In effect, in this example, the CDS contracts make it possible to reduce risky debt to some combination of the lower bank risk weight and a small weight that applies to moving the risk outside of the bank sector – so there is little point in defining an exante risk bucket of company bond as 100% risk weighted in the first place.
The simple transaction described above allows the banks to raise the leverage ratio from 12.5 to 53.8. The Basel risk weighting approach has allowed banks to expand their leverage almost without limit for all practical purposes. There are proposals try to deal with some aspects of the problem in relation to CDS contracts, by adjusting multipliers on exposures and on correlations between firms (see C.2)”.
[p.14] “Simple example on tax arbitrage7 (7 This subsection benefits from discussions with Sam Eddins, Ironbridge Capital, with whom one of the current authors is working to produce a paper on likely future developments in the financial system.)
Counterparty risk arising from the use of OTC derivatives was one of the key hallmarks of the crisis. Regulatory arbitrage and shifting promises was an important contributor to the explosion in CDS use. Tax arbitrage too allows promises to be transformed with strong implications for bank on- and off-balance sheet activity.
Consider two bonds, H at a 10% coupon and L at an 8% coupon. One investor is tax exempt while the other investor is subject to a 50% tax rate on bond H and a 25% tax rate on bond L. The non-taxable investor can buy bond H with the proceeds of shorting bond L and capture 2% of the face value traded, per year, with no initial investment. The taxable investor can buy bond L with the proceeds of shorting bond H and capture a 1% spread after-tax with no investment. Both traders gain as long as the taxable investor can utilise the tax deductions. Neither partner needs to know that the other even exists. Price disparities signal the opportunity. The combined profits realised by both trading partners, after-tax, come at the expense of a reduced government tax liability. These sorts of transaction using CDS complete market techniques give strong incentives to banks with investment banking arms to create structured notes that are very interesting to investors – giving rise to returns and risk profiles that they might not otherwise be able to achieve. Banks arbitrage tax parameters that are never closed by their actions, allowing additional (theoretically, unlimited) business and revenues – but at the same time risking a build-up of counterparty risk and leverage. Without a properly binding constraint on the ability of banks to expand leverage through capital arbitrage, the incentive to build attractive businesses on the basis of these incentives – continually expanding counterparty risks – may once again become excessive”.
The Volcker Rule
So someone like Mittney who is a follower of the ‘let it rip, let them sweep, take the money and run and the ones that get away are the winners the ones that don’t are the losers, but hey that’s capitalism, c ya’: gives a nudge and a wink clears his throat and says “why, yes, of course, greater reserves are needed”, while at the same time avowing to abolish the Volcker rule which addresses CDS arbitrage described above cf., lQQk cf., lQQk and then according to other accounts GOPstapo soldiers are reporting from The Front, claiming there’s no need to vote for it because it doesn’t do what author Carl Levin claims (which raises the question: why is Mittney opposing it then?); and then others using similar psychology are saying O well the “corporate personhood” lobbyists have already destroyed it by lobbying and shot it through and through with so many loopholes you might just as well not vote for it; consequently one more thing Mittney can flip-flop on - e.g., O now that it’s nothing I support it !! and McConnell can spin on the Senate floor (Gee I better be careful giving them ideas). In similar light Jaime Dimon testified at the various Senate Committee hearings bragging about the enormous quantity of alleged “assets” and reserves his bank has.
Is he referring to those on the balance sheet or off?
But what is really fucked up about this whole thing is that Congress is going along with it. O Dear Lord, anything to increase the money supply, it’s so Irving Fisher !! It’s so Committe for the Nation.
So whatever the case, or actual motive, I’m not above considering that it’s shear stupidity, the system is guaranteed to stay as is until at least 2018 or longer so that - amongst other things - studies and observations can be done. In other words, recycled assets, is the new basis for private denationalized money. Think of it as, the new clad !! Think of it as, recycled plastic, just pour it in the hopper, let it mix and grind. All the good shit, all the bad shit. Just like Wonderbread !!
And by God, if it’s good enough for a hot dog - and there’s nothing more American than that - then by God, and by fiat, it’s sold to American.
In God We Trust.
None of the foregoing ought to be confused or confounded with “fractional reserve” banking, which is the way banking has always been done. There is no alternative to banking than the Romanticism of - weez a gonna go back to Andrew Jackson !! which merely had State Banks doing unregulated “banking” under color of reserve banking using US Government Securities as reserves And the reason I mention this is because I see from time to time, people denouncing banking in general. It dovetails with their desire to abolish “corporate personhood” which allows un regulated Banking and other deregulation of corporations.
Now there’s this group of or from OWS and maybe the Tea Party that is co-opting with the Democratic Party to abolish corporations or at least all rights they have under the 14th A US Const as well as our right to sue municipal corporations (Tony Scalia & co already prohibited us from suing Univeristies under pretense of the 11th Amendment US Const but hey all they do is demand a life of servitude in exchange for their services, right?). Well even if your amendment to further enshrine the two party system for eternity and making it Federal law to make certain republicans never receive more contributions than democratics, here’s a 501(c)3 private association or free assembly that influences Congress as much as a whole lot of other people that your Constitutional mutilation doesn’t even touch lQQk
Who are these guys ? O they must be authorities from in God We Trust.
There’s also some flying saucer person popular with some of the Tea Party and OWS who uses lizard people to replace Jews in Landed Gentry propaganda.
All that fractional reserve banking is, is that the reserve of the bank is a fractional part of the total outstanding credit. It is the only way banking is done and was ever done. But this thing about Andrew Jackson really isn’t such a bad idea in terms of US land and resources - make a law that says it may only be paid for in use or conveyance with monetized gold not recycled plastic and that any other reconveyance of usufruct or asset appurtenance thereto, rights of use &c, may only be done in the same manner with approval of the Comptroller and some other officer. This is merely a generalized thought in passing.
As far as Ben Bernake goes. If you look at what the Fed appears to be doing (which might be 12 or 24 different things) it appears as though some sort of joint operation amounts to purchasing or repurchasing outstanding Treasury security assets, which is normally the way the Fed increases the money supply.
So it could raise the question, that if that’s the case then what are these banks using as reserve assets? Is it the new recycled plastic? The more pertinent question is what will they use or be allowed to use. It could be perceived that the Fed itself is facilitating the denationalization of money but since it’s a government controlled enterprise, it’s doubtful it would be doing that without Congressional authority. It could also be perceived that it’s attempting to manage the National Debt with whatever means it has at it’s disposal
The thing, is, the Reagan Revolution was a sort of National lobotomy where fiscal policy was relegated to Satan and that anything and everything having to do with Federal use of money was forever and ever unto ages and ages to be handled exclusively by the Federal Reserve and the “elite” Banksters - i.e., supply side economics/monetarism, which has now led to denationalization of money. So in that regard you can’t place all of the blame on the Fed, because it is Chartered to serve in a coordinated fashion with fiscal policy and under the Lord God Reagan, the unanimous republican party and all of their CSA Democratic brethren - fiscal policy is relegated to tax cuts, and that this fiat order of government supplants all other laws on earth except those criminalizing abortion, same sex marriage and various naturally occurring plants, words, as well as human nudity. All I can say is the US Constitution has seldom stopped them before, after all, it’s just paper, right?
September 10, 2012
Prt 6 - Intermezzo - the right to do wrong: Value vs. Price.