American Funny Money

Curious isn’t it that the U$ Treasury suddenly decided to renovate and redesign our entire paper currency system? I mean they sure were slow to react to counterfeiting threats (how long have laser printers been around?). And the new money doesn’t even seem like a very competent response. Fundamentally they haven’t changed any part of the appearance that would make it difficult to copy, the plastic thread strip was already in it before. Of course the texture which is the same can’t be copied easily. So the only addition that is counterfeit resistant is the watermarks like the ghost portraits. But how many tellers can actually see the watermarks before they stuff the bills into the cash register?

If anti-counterfeiting is really the goal why not put in a hologram or something difficulty to print-copy like reflective foil, gold thread or something like that? If that had been done, a minor adjustment with an unmistakable quality such as reflective metal, vending machines, ATM’s and all the other money machines wouldn’t necessarily have to be reprogrammed much to the inconvenience of the public.

Whatever one thinks of the new money a certain benefit of this program seems unmistakable but hasn’t been mentioned by anyone else that I know of. By designing new bills the Treasury* created a golden opportunity to easily inject new money into the economy i.e. massively inflate the money supply. It would make sense that the easiest way to inject this new money into the economy would be through government loans, federal projects etc. You know building a new highway in Oklahoma or a new airport in Pennsylvania that type of thing. The banks would then use the new cash to pay salaries contractors and other expenses on the project dribbling it down to you and me.

Think about it, most paper money lasts several years under normal wear and tear before it becomes unusable and is turned in to be recycled by the banks (hundreds should last the longest given that they're treated the best). But the new bills sure did show up fast now didn’t they, almost instantly in fact. Not only that but the old currency has no expiration date, in other words we can use the old style bills forever. This is especially convenient for the treasury because they don’t have to replace the old money on a one-to-one basis. They can print up as many billions as they need and pump it into the economy where it will not replace anything but merely add to the supply! And what of M2 eh?

I don’t have the budgets for the past four years but I know that federal government spending has been rapidly increasing lately (yeah I know I’m going out on a limb with that one). The IRS has reported significant declines in tax revenue recently due to fewer agents and a new soft glove approach. Federal spending is breaking records, set-limits are regularly circumvented. Yet at the same time the Budget office reports a ‘balanced budget’. Can social security taxes really be covering that big of a financial gap to create the illusion of a balanced budget?

I have to seriously doubt the ease with which the federal government has miraculously become financially solvent despite ever more egregious over-spending and waste. This federal spending would support my previous hypotheses that the treasury is, well essentially using it’s own manufactured cash to pay itself indirectly. The benefits are anything but intangible.

Why would a government want to water down it currency like this? Well for one the trade deficit keeps increasing to the point where the U$A loses 30 billion dollars a month. For that and other reasons it would be desirous to have a weaker dollar, it would help to balance trade levels by decreasing imports and increasing exports. This is the same reason Japan generally wants a weak Yen. Besides that having lots of money for the government to spend means influencing votes in key locations and generally keeping the economy out of recession (always advantageous to the incumbent). A fluid and plentiful money supply keeps interest rates low and loans cheap, that is until inflation sets in and the inevitable reactionary recession rains on the party.

Interestingly our economic boom has neatly paralleled the introduction of this new money. You know the 100-dollar bills were the first ones pumped into the system which would more quickly create the strongest effect. And wasn’t that done around election time 1996? Damn right it was, the first new hundred's started circulating in late March of that Presidential election year.

Certainly I would never put a plot this insidious beyond the limits of the Clinton administration or our friendly Jewish financier Robert Rubin who ran the Treasury department. I say ran because he now has a very cushy job with a mega-mergered bank conglomerate, Citigroup I believe. Of course it must have been purely coincidental that new banking legislation was passed (right before he retired) thanks to Rubin’s influence repealing depression era laws now allowing these banks to branch out into other operations like insurance. But I digress.

Am I being paranoid? Possibly but something like that meshes well with Clinton behaviour, the politicization of everything and the credo that the ends justify the means. Inflating the money supply is a very pragmatic move with unmistakable near term benefits. Everything is an election and everything that matters is election. The ride should continue until at least after the 2000 election because the Clinton administration logically wants Gore or at least a friendly democrat in office to smoothly continue implementation of favored policy. The best way to guarantee that is to keep the economy red-hot and as many voters happy as possible. The big question is can the party last that long? 19.12.99

* For simplification when I say 'Treasury' in this essay I mean to include the Federal Reserve which actually makes the paper currency.

 Exporting Inflation

The U$ economy has avoided inflationary pressures largely due to the large scale exporting of our problems. Selling bonds to foreign creditors is one way, devalued foreign currencies keep imported consumer products cheap as well. Trade agreements have minimized trans-national business at about the same time our domestic economy is expanding. Meanwhile technological advances have worked to keep prices low – everything from home electronics to more productive genetically modified foodstuffs. And besides all those factors the fundamental components of industrial manufacturing have continued to decline in cost. As commodity prices fall it creates a trickle down effect, cheaper inputs mean cheaper outputs. About the only thing left is the cost of labor, which is kept fairly low through large-scale immigration. Microsoft, for example, has been a leader in this area importing Indian computer scientists or exporting the projects themselves. Either way they pay a fraction of standard wage.

It almost sounds like everything is just fine the way it is, right? Mainstream economists certainly feel that way and a superficial analysis could easily lead one to believe the same thing. Nothing is really new about the ‘new’ economy. The tactics being used are the oldest tricks in the book. Soon we will see that every action has a reaction and the benefits of our ‘new economy’ are no exception. These consequences are being manifest first in the less insulated economies of the developing world. Lower commodity prices are wreaking havoc throughout the globe. Countries like Ecuador or South Africa are having serious economic difficulties as plummeting commodity prices dry up their few sources of income. Oil has leveled off, but foodstuffs and especially metals like gold are reaching points where it's no longer profitable to even mine the stuff!

The new economy is glaringly evil because it's making the rich richer and the poor even poorer; the new structure is taking the form of a giant pyramid with the U$A at the top and hordes of the destitute at the bottom.

Go back and look at the stock market. When did it start acting crazy? Try around 1996 the same time the funny-munny started hitting the streets. Now we’ve reached the point where NASDAQ is doubling every 10 months down to two months to.....?! An exponential curve if ever one existed. The FED and treasury can’t simply stop the money growth; our economy is a runaway freight train. Hopefully there aren’t any pennies on the rail ahead that could derail it before it can be slowed down through interest rates. Unfortunately it seems Greenspan and crew may be deluding themselves into thinking everything will be fine at least until after the 2000 elections.

Either way this entire new economy is built on a rapidly growing supply of cheap credit, something that simply cannot be sustained indefinitely. It must either be shut down preferably with interests rates or it will continue to accelerate until it runs out of fuel and the Dollar hyperinflates into oblivion like a burned out, dying star. 26.12.99

Could it be said that the fundamental soundness of an economy can be judged by it's speed of response to economic mal-investments. In a free-market the developer will usually stop as soon as he realizes he wont turn a profit. The centrally planned economy will continue to hammer away until collapse! Hence the Soviet system simultaneously producing 5 classes of tanks with 4 of them obsolete at the same time! (T-55, T-62, T-72, T-80, T-90).

Anybody checked NASDAQ recently?

This is insane, the past two months and it’s gone from less than 2700 to over 3700! Can anyone explain this other than as a system of massive financial imbalances? And decent stocks are dying because the lucky dozen index stocks are soaking up all the money. New money - where is it all coming from? Doesn’t anyone sell anymore? Evidently not.

Could it be foreign investor cash, the Japanese? Well not all of it. Most of it has to be domestic money, but that brings us back to the original question. Some speculation has centered on the Federal Reserves emergency paper printed up for Y2K but according to them it’s purely a special fund only to be drawn in crisis. Is it possible this slush fund is further decreasing the cost of money in the short term making loans easier and more plentiful? In other words are financial institutions actually utilizing this fund already?

Or could it be a more benign answer, that investors are band-wagoning onto the Yahoo! and Microsoft stocks blasting the index upwards but everything else downwards as they sell out? But the DOW hasn’t collapsed, most everything else is either doing pretty well too or simply anemic not appreciably falling. I mean Yahoo! isn’t cheap stock to buy, one would have to sell large volumes of low-interest stocks like say Citigroup to get into the big names. If this hypothesis was sound I think the effects would be more than obvious.

So whatever it is something very serious is going on, but neither does it make much sense superficially. The only answer that seems reasonable is that our money supply is ballooning and probably foreign supplies too (certainly Japan’s is). This sudden cash growth could be due to Y2K effects such as the Treasury printing extra greenbacks, or other reasons too. Certainly the record end of year consumer spending frenzy seems to add credence to this idea.

Is inflation, even hyper-inflation, possible to be masked for a short term? In other words can seriously detrimental monetary effects occur without consumers and investors being aware of it? I’m no expert on hyperinflation but what the Japanese government has been doing is an enlightening example. It appears that in large economies monetary inflation can go on for long periods often with little if any apparent signs of it happening. Japan has been printing money like mad for years, decades even, yet according to Keynesian economic theory the economy is strongly anti-inflationary (deflation). Money growth has also been caused by ‘safer’ means, good old deficit spending. Japan’s debt is now a startling 120% of gross domestic product and rapidly accumulating. According to Reuters 43% of Japan's budget this year is funded by new bonds, interpreted this means Japan is spending nearly twice as much as it earns!

Finally here’s a dilemma for traditional economic theory, the latest figures from December17 show that Japan has registered its first ever decline in national income, national wealth is shrinking. Increasing the money supply doesn’t increase wealth, in fact if anything the opposite occurs. Real value declines as the economy inflates. So to answer the question I think it is possible to have long-term inflation and a contra-indicative near term economy. 18.12.99

Note:Tokyo's M2 supply is increasing about 4% per year.

Which Way?

The FED’s most recent interest rate raise is in response to the rapidly inflating trade deficit, or so they say. Fears that this imbalanced spending pattern will create inflation is the primary concern for central economic planners. But also a fear exists that foreign investment will soon reach unsustainable levels, in other words foreigners will cease to buy up American debt at the present charitable levels. In effect this is what the trade defunct represents; it is a switch - our money in the form of promises of payment in exchange for goods like TV’s and shoes. The growth and health of the U$ economy creates a good credit record, one that is barely exceeded by any other national economy. That coupled with the hegemonic dominance of our currency creates a custom made system for exchanging dollars for foreign products. The problem is that this system is quickly becoming grossly imbalanced. Partly because of the high-flying domestic economy and partly due to the decline and certain export oriented structural elements within foreign economies.

Another more recent indicator which is of interest to this equation is the sudden drop in orders for durable goods such as appliances, cars etc. While the FED claims that overall economic demand is outstripping supply, statistics seem to propose the exact opposite in that demand is faltering. Also if demand is so high, why are prices so stable? Indeed inflationary signs are quite muted in pricing which must mean that demand is at least equal to supply.

I think the FED like most other economic commentators are reading yesterdays news and using it to base today’s decisions. Serious analysis points to the fact that if anything, demand is falling. We are at the far side of a high peak and rapidly heading downhill. Demand will continue to decrease and prices for manufactured products will fall to meet this change. SOP dictates that the proper prescription is a rate cut not an increase!

We already know that spending is beyond maximumt, actually going into negative savings levels. And we also know that banks are even cutting back on the number and quantity of loans they make in anticipation of this demand decline and the repercussions that will follow like bankruptcies and lay-offs. Many corporate entities are at very unsustainable levels mostly through rampant M&A actions but also due to the mountains of debt accumulated over the past 8 year boom.

Still much of this looming trend is masked by the labor market, which continues to remain very tight. In the current market I think many employers are reluctant to lay-off anybody for fear of not being able to get them back if things change and not because future business looks murky.

Soon foreign investors will require higher premiums before they take any more U$ debt. Actually that trend is occurring as I write; the 30 year treasury is in a steady climb. The FED will reciprocate with higher rates to appease foreign investors and mitigate the trade deficit. But at the same moment the domestic economy will need the reverse, a rate cut because both consumer and corporate demand is sinking. This crux could well be the trigger for a serious, exacerbated economic downturn. 23.11.99

Deposit Insurance & TBTF

The Savings and Loan bailout/scandal is a distant memory in the minds of most but the fundamental causes of that debacle have still barely been addressed. Over $200 billion dollars was thrown away in the rush to save bad investments, crooked bankers, and sweep an unpleasant political situation under the rug.

While the number of small, poorly run banks has certainly improved from ten years ago the present situation is actually much worse. While the S&L's were busy being auctioned off to larger financial institutions the same errors that brought the S&L's down are just as prevalent if not more so in the parent banks So instead of having many fly-by-night banks we now have a few huge multi-national banks with multiple fly-by-night sub-divisions. Poor investments, shady high risk deals, questionable derivative investments - you name it. By stimulating mega-mergers and banking conglomerations the errors have been compounded not eliminated. And with the Too-big-to-Fail ideology that pervades banking insurance now the cost of insuring private deposit's far exceeds a mere $100,000 per account.

Of course most banks are very secure institutions that are careful to manage financial risk but no one is completely safe from it; all investing is fraught with some level of peril. Rapid changes in currency exchange rates, stock prices, bond rates or any of innumerable factors thanks to derivative risks opens up the possibility of sudden, unavoidable, large-scale failures.

This is what happened with Long Term Capital Management run by some of the 'smartest investment wizards in the world'. The case is still shrouded in mystery as to why the Fed needed to bail them out although most speculation points to a pattern of massively leveraged global investments using cheap loans from short sale gold contracts. Sudden severe market swings led to those two most dreaded words - margin call! The fundamental fact is that LTCM was simply another TBTF institution that had to be saved, and LTCM wasn't even a bank! The insurance issue has gone beyond mere banks, now it doesn't matter whether it's a thrift or a brokerage firm, anything big enough is guaranteed a bail-out because of the potentially disastrous repercussions on the world economy. The banks know this and the Fed knows this, but the fear of bank runs and loss in confidence in the American banking system is so great that no one truly wants any policy change. And the Fed has good reason for concern given historical trends in American banking. Panics and collapses are, unfortunately, not uncommon.

This is why it takes a lot of courage to let the free-market work. Economic central planning and central banking look better in comparison but inevitably they only make simple problems worse. It's better to let the free-market purge itself than to restrict natural economic forces and build up problems into catastrophes. It's foolish to pretend that every bank and every deposit is perfectly safe because it isn't and can never be that way. A much better policy would be to let bad banks fail and let good banks thrive. Instead everyone is heaped together and corrupt or sound they're all insured equally. A traditional insurance system would charge fees based on the risk of who they're insuring. But since deposit insurance is guaranteed by the U$ treasury it doesn't seem to matter that fiscal efficiency is non-existent.

While the Fed is worrying about guaranteeing every bank account to $100,000 they should be worrying about the cost of bailing out everybody at once because that's what the next crisis is shaping up to look like. The Fed claims to have 'a virtually unlimited' capability as lender of last resort, that ability may be put to the test in the not too distant future. 01.11.99 Link to Federal Reserve Board Testimony on LTCM

Your Dollar Bills are Debt

The American monetary system is anything but transparent and most people really don’t even give it any thought. As long as they have green in the wallet that’s good enough. But this is really a terrible mistake because, to put it bluntly, the system we have is designed to screw the taxpayer. Not surprisingly this is a combination ripe for conspiracy theory and misinformation. I won’t claim to know everything about it but I do know enough to point out the basics and hopefully steer clear of the sensationalism of conspiracy to illuminate the fundamental consequences of our monetary system.

The American central banking system is neither simple nor what it seems. Private and Public have very strange meanings in this world. Every greenback is an IOU, a promise of payment, a debt. "This note is legal tender for all debts, public and private." Remember that it has no intrinsic value on its own, at least not since Bretton Woods was cancelled in the early 1970s and the dollar was taken of the gold standard, it is fiat money – totally fungible.

Money in the U$ is printed by 12 primary banks united into one unit known as the Federal Reserve System which has monopoly rights on the production of all U$ paper money since 1913. The chairman and board of the FRS are appointed by the President but serve a term of 14 years, which evidently can even be renewed! The FRS has the power to alter interest rates through loans to commercial banks. They determine what interest fee will be charged for the loans and subsequently every loan that bank makes from there on will be based on the fee they have to pay. In the banking world these loans occur constantly and are usually for short durations such as overnight often to balance payments in and out of the bank.

So now we see the Reserve system which has the power to print money and change interest rates as it sees fit – not as the President or Congress or anybody else wants them. "Any bank can be a ederal reserve member" and member banks exercise joint ownership and consequently control of the FRS through Reserve stock shareholding. But don’t look for the stock on NYSE or NASDAQ it’s not traded at least not in the traditional sense. Although theoretically by buying stock in a member bank a private citizen could have indirect influence in the Federal Reserves actions.

The US mint produces all legal and commemorative coins which are then circulated via the Federal Reserve banks. Yes all those one cent pieces you can’t get rid of come courtesy of the U$ government, but what of the paper money? That’s exclusively from the regional Federal Reserve banks. But the interesting thing is that the coins made by the mint are interest free, whereas the paper currency printed by the FRS is based on federal debt issuance and therefore costs interest to use. Hence the title of my essay Money is Debt. Literally all our paper money is debt and as such requires interest payments for it to be circulated and used by you and I.

The FDIC which insures most banks is called a ‘government agency’ and was created by act of Congress but is simultaneously a private (insurance) corporation. The FDIC has the ability to borrow directly from the U$ treasury. Once again this organization is not what it seems, the FDIC is privately controlled and gets it’s income from insurance fees levied on member banks; it does not answer to government. As such is not a government agency!

But back to the FED. Is it run by foreigners? Probably not, but ultimately that’s a specious and irrelevant argument. Why? Because, the U$ government prints and dumps billions of dollars worth of bond / debt literally every week. Foreigners own between 40-60% of that government debt, the Japanese being the single largest group. Every U$ taxpayer pays dollars directly to the Japanese, the Saudi’s or anyone else who owns U$ debt via the interest on those treasuries! The average person is completely unaware of the fact that the $5, 6 or whatever it’s currently at Trillion dollars the government owes has to be constantly renewed because the principal is not paid off just the interest. So after 10, or 30 years when the bonds expires new debt has to be issued to replace it. If for any reason buyers were unable or unwilling to take these treasuries, interest rates would skyrocket and our economy as we know it would cease to exist literally overnight. So far this has not happened, mainly because the U$ dollar is the standard reserve currency for the world. How much longer this will last is anyone's guess.

So does anything good exist in the FRS? Central banks in America have had a long and colorful history. American’s really have a love / hate relationship with government and banks in general. At one time the government controls all the money and then people complain, so then it gets handed over to a private bank and people complain and back and forth. The FRS does have good qualities to it. The most significant is the ease with which the money supply and interest rates can be altered. This quick reaction has minimized or avoided recessions; the problem is that politics and the well being of the economy go hand in hand. Elections hinge on recession and the temptation to manipulate the economy for political and even short-term economic gains has not gone unused!

The real problem lies in the mistaken concept that we can have whatever we want right now with just a little borrowing. That little borrowing has ballooned into the multi-trillions. Indeed the 6 trillion in government debt pales in comparison to the private U$ debt in credit cards, mortgages car loans etc. Smart people and smart governments get rich off the American taxpayer as private citizens spending with plastic and then again as taxpayers through government debt and the reserve currency system! Sucker thy name is U$ taxpayer!

But as ridiculous as it is and as fun as it is to spend today and pay tomorrow the truth is that the American party is nearing the end. The U$ has gotten away with this too-good-to-be-true deal for decades because of its economic, hegemonic dominance of the world economy. Even the USSR didn’t threaten the U$ dollar, they kept the ruble in domestic circulation only.

Debt spending cannot last forever and just in the past two years we have seen the end consequences of it. Countries like Indonesia, Russia, Mexico and Brazil up to their eyeballs in debt simply cannot take anymore and have all been ‘bailed out’ by massive cash infusions from the U$. But the unstated consequences of this are to merely water down the strong American dollar in order to prop up debt-ridden countries for another ten years. It’s merely delaying the inevitable reconciliation. The U$ dollar is rapidly and significantly losing value even as I write. This is often masked by the fact that foreign currencies and foreign nations are in even weaker economic health. So the ratio may stay the same but everyone is on the same boat sinking faster.

...And you’d better believe Alan Greenspan and his friends are sweating bullets trying to figure a way out of this one. 09.10.99

Deflation fuels consumer spending

I'm of the opinion that the current levels of consumer spending at record levels are being supported by deflationary trends. Prices on consumer goods are falling, quite significantly too. This deflation of price values is most notable on imported items such as cars, electronics, and other highly competitive products.

The CPI is not reflecting this trend because it measures staples, which are not in a competitive market, and not imported items - the CPI is misleading.

U$ consumer spending is being sustained at its astronomical levels by these reduced prices on economically important but totally frivolous items. As commodities continue to lose value on the trading markets this trend will continue to supports consumer spending but at a slowly diminishing level as other factors are accounted for over time.

When one studies current economic news stories we have to differentiate between those of strategic importance and the everyday noise that simply confuses the issues. The stock market is irrelevant today but the trend is important. Please keep in mind whether you think things are bad now, good or whatever - 90% of the full effects of current events has not manifested yet. Serious changes take time to implement the apparent portions of their force. Our financial leaders and planers are increasingly focusing on the static and snow of the tactical battle at the expense of the strategic war! A continued failure to create a concerted effort to support economies outside of the U$ will have a permanent and unavoidable negative impact on the domestic economy.

Reiterating the solution - what the global economy needs is liquidity; a massive influx of cash. It's the exacts same problem that faced the US during the 1930s. They had the exact same problems as in Russia now: bank failures a stock market collapse all leading to a vaporization of capital! So what did Keynes do? They created cash, injected liquidity into the marketplace thereby creating the necessary fuel for the machine (albeit at a price). Japan faces the opposite problem and some countries like Brazil are so far in debt already that this option is not open to them on their own.

The problem now is that it may be too late because the amount of liquidity needed is staggeringly high and the number of needy grows weekly. These developing countries don't have the freedoms to inject cash into their markets that debt-free proto-industrailised US had in the 30s. They will need it from Europe and the US but now they both feel pinched and its doubtful they would ever be so generous; even the private sector banks in the west are announcing losses on previously made loans to the 3rd world. 02.09.98

US government Debt

Foreign ownership has roughly doubled from 1992 to 1996, $500 something billion to over 1 trillion. The OECD fulfills a very useful niche in their statistical compilations but it is easy to see self-fulfilling prophecies in statistics. Still it is a good question to ask why this is, numerically speaking. Also US savings on any level from personal to corporate is very low. The stats on US household borrowing 1992: 219.1 billion, 1993: 277.1 billion; must be a total o new borrowing because consumer credit debt is over $4 trillion.

Deregulation of banking, financial computerized revolution in the money industry, daily Mergers and Acquisitions, European (and Mexican?) privatizations, record market levels, low commodity prices, generally low interest rates, stable money... Truly exciting financial times. Does it mean anything?

I can’t attach any value to the current situation but I can state that it is potentially very volatile. The entire system is in uncharted territory, trading and communications are practically instantaneous. This tends to stabilize everything in good conditions because the good news spreads quickly but in bad times this speed works to accentuate collapse by spreading the bad news to every ear. It seems like this situation would make crisis control very difficult - like a nuclear chain reaction. Computer controls like carbon graphite must be 100% reliable to stop a catastrophe. Are we really the master or our monster or do the computers rule us? Which party can do without the other more easily? We invent and create with astonishing speed and ingenuity yet we build and develop for its own sake, we create to create. The tower of Babel complex. With computers it has become necessary and surprisingly easy to speed-up technological progress - the progress society. Now we have the instantaneous ability to annihilate our species with thermonuclear fusion, blind then in war with lasers, manipulate mass opinion instantly, alter genetic codes, etc. etc.

Our financial monolith is just another aspect of creating as a self fulfilling duty. The folly lies not in the progress itself but progress without a holistic purpose or any all encompassing framework for controlled development. America is a prime example of anti-socialist controlled anarchy. Laissez-Faire may be useful at times but it cant be used as a long range policy. Disorganized short range planning is a symptom of a decaying civilization. The irony is that our world has never been at a point of greater potential for positive change and growth, it just requires a plan and a leader with the force to enact that plan. I think the populous is too fearful that plan will be evil and not fearful enough of the inevitable conclusion we face without a plan! Maybe the world is too complex for a plan and if so our demise is inevitable and ironic. 18.11.96

ABC and The Dow

What kind of a country treats the stock market as headline busting, first story news?! Welcome to U$A 1998. Keynesian economics has really overdone it I think, it really looks like we have a new type of inflation, a cash inflation. So much cash with nowhere else to go but the high speculation markets which are the best investments! That high growth speculation creates mountains of new cash with no where else to go but back into the markets.

Capitalism pervades our culture and society to an unprecedented scale today, it’s unavoidable. Think about it, the stock market is a fantastic creation it can literally make everyone rich, it’s not a zero sum game as some might think; everything is based on perception and inertia. But that same easy money can evaporate just as quickly, it can be triggered by a change in perception or fundamental economic figures but when that happens EVERYONE LOSES, the positive sum game turns wicked in a hurry, that's the mechanics of the great depression of 1929.

But speculative bubbles can’t be stopped just by realizing what’s happening, they’re driven by economic circumstance. Many people realized that the Florida land boom 100 years ago was just a speculative bubble, but that didn’t stop it! It popped and burned a lot of people, many of whom knew it was coming! It’s purified capitalistic greed and it works like a game of musical chairs; the last ones out are the losers. The game is nothing new, the Dutch traded tulip bulbs into a bubble 400 years ago; however the stakes today are much greater than they were 400 years ago. It’s not a single commodity or a single country it’s a one world economy now and small time failure has been officially insured against any negative ramifications by the IMF.

Despite this worldwide FDIC plan global capitalism will become increasingly rugged over the next decades, just like on the microscopic level, the macro level will see many losers with a few huge winners. Japan is the first big loser of the new era; did Moody’s ‘badmouth’ the Japanese economy because they like US treasuries? or because they see a real problem with the fundamentals?

Watch it happen. Japan’s had nearly a decade to pull out of their slump and still haven’t, now their export market is vanishing in Asia and their competition is increasing. Japan doesn’t always appreciate the ultra cheap wages of the Chinese laborers either! Their situation is getting worse and the economic environment has now become fantastically worse; it can only go downhill.

Enter Europe who has to bail out Asia, literally because they buy Asian debt. Can their welfare structure support endemic unemployment forever, especially while trying to cut deficits and create the vaunted EU economy? It’s amazing to me how well they seem to be doing especially with 10% unemployment! Europe has bet everything on the EEU system if it fails nothing exists to replace it. They have proposed a solution and destroyed every potentially competing alternative; everything depends on pooling their welfare debt and structuring it under a singular currency. England, Italy and the rest (except Germany) will collapse otherwise because they aren’t individually viable anymore as welfare states. The EEU is a pipe dream, confederacy never works even when the components are more homogeneously cohesive than the modern Europeans. The EEU only delays the inevitable consequences of irresponsible spending and the mythical panacea of socialist government.

Who’s left? the U$A of course still chugging away with a miracle economy that doesn’t stop and a hopelessly divided population destined for self-destruction. The problem with the U$A is internal and the news media only gloss over our divisions by using the smoke and mirrors of an explosive stock market economy to quantify nonexistent successes.

This state of denial has consequences. No one wants to change anything because it all seems so good, debate gets quashed for the benefit of the status quo and a sanguine economy. Endemic structural deficiencies will continue to be ignored as long as the numerical harmony continues. Like I’ve stated before the system is too big for anyone to control or comprehend, we’re at the mercy of entropy, fate and chance - Alan Greenspan not withstanding. The longer our problems get ignored the greater the repercussions when they inevitably demand a solution. That inevitability could be just ten years away, at maximum 45 years when the US hegemony discontinues.

In the meantime let no one call me a party crasher, on the contrary - I say let the good times roll!

Wealth and Racism

The skinhead phenomenon has a consistent pattern this being that it is based mostly on economic class. In other words I’m not aware of any rich skinheads. Being in a lower class income bracket is intricately related to this type or racism, and all racism in general.

Racism is generally a product of economic class. Although racism is and can be manifest at all economic levels it is most blatant amongst the poor. Not just on the part of whites but all races black, Asian, mestizo etc. The significance of this factor is really overlooked.

Individual wealth and the amount of displayed racism are directly related. Take a rich man and make him poor, over time he will become more racist after living in the dregs. Whether it’s because of the milieu or the harshness of poverty is probably irrelevant. In other words if government really wants to stop racism just pump money into poverty stricken regions; increase the income of the lower class. The second generation will undoubtedly behave much differently! The problem with this plan is that directed funding never works. In order to make one group middle class you have to take money from another group thereby making them poor. Keynes may disagree but it really is a factor of limited resources; it’s impossible to make everyone happy. This is the fundamental flaw of Marxism incidentally; it rationally examines the disparity of wealth and falsely concludes that ‘if we just take from the rich and give to the poor everyone can have enough!’ This might work for a day or too but then economics fails and biology comes into force. All life is competition and I will always want more than you.

Multiracial countries usually do fairly well as long as the money flow is generous. Breakdown always occurs when poverty and economic inequality become prevalent. It’s all about competition . Biologists know exactly what is going on here, in nature different races of animals can get along remarkably well in a season of abundant resources, but when winter or famine hits it’s a different story! Poverty means competition for scarce survival resources. Whenever life gets this brutal instinct kicks in and instinct is racism and xenophobia.

The fantastic wealth of modern America has created a false reality for the majority. Black and white can live in a wonderful fantasy land of joyous unity because competition for bountiful resources is generally unnecessary. In reality the fact that so much interracial hostility still exists given the abundance of money only highlights the intensity of subdued instinct at all levels.

I think most of the global plutocratic puppeteers realize this and are desperately trying to funnel wealth into the 3rd world while keeping as much of it in the west and Japan as possible. Unfortunately for them it really isn’t going well, they are far, far too impatient and too greedy to do things properly. Money really does make the [plastic] world go ‘round, but that plastic world is limited to the graces of the human intellect overriding genetic imperatives. ‘As soon as you stop paying me to pretend I’ll behave the way I want to’. 28.05.98

How Real is Deflation?

Deflation is a popular concept to apply towards modern macro-economic behavior. How much validity does deflation warrant and is it applicable to current trends?

Deflation is over-competition, or too many products chasing too few consumers, the result is lower prices on the products and thus lower profits. Deflation is really a poorly understood macro-economic phenomena simply because it hasn't really been a prominent historical trend; at least that's the conclusion of my analysis. I think deflation is a real phenomena affecting global economics now but it may be difficult to predict the eventual outcome of deflation's effects. A good example is the glut of hard disks on the market which has done severe damage to nearly all the drive manufacturers not just a few. It's doubtful anyone will go bankrupt over it but it just depresses the profit scale, curious eh?

Look at the trends of advertising to pinpoint and saturate markets, the Internet which vastly increases competition among retailers (drives prices down), and even global free trade. Consumer spending is very finite and certainly in this country is at its maximum, especially since wage growth is flat. Marketing and direct sales becomes increasingly efficient but that just allows more retailers and producers to reach the same number of customers! Pretty soon Japanese and Chinese factories will be able to sell electronics or even cars directly to US consumers over the Internet?! What will that do to the competition! 06.01.98
Another consideration; much of the growth in employment is in secondary industries. Retail, re-sales, and services; all these sectors rely on what may be a diminishing role in the wired world.
13.02.98

East Vs. West

It seems odd that the US appears to be in 'never better' economic health while much of the rest of the world is facing severe problems. Is the US feeding off the rest of the planets abundance - the great consumer nation? A good way to quantify this effect is the trade deficit which has hit all time highs. For years now the US has been a black hole sucking up cheap imports from every corner of the globe but as trade barriers disappear it only creates more competition for the finite US consumer market, thus imports only become cheaper as the number of exporting nations increases. How long can such a huge imbalance continue, I mean it's more parasitic than symbiotic? Trade has to be a two way street otherwise it doesn't work! And right now it's definitely not bi-directional.

Even if East Asia recovers they will only have an uphill battle because export profits are increasingly deflationary. China, South Korea, Japan, even Vietnam and Thailand - they all produce the same or similar products, their only difference is labor costs which are all minimal anyway! And now they don't even have to guarantee lifetime employment! I mean who's really the loser here, everyone sees the corporations but hell they can just write off their losses, what about the employees?! A nation of temps all getting paid pennies per hour; truly a venture capitalist fantasy.

So our imports will become unbelievably cheap which will completely destroy the remaining domestic competition. Multi-National Companies (MNCs) will cleanup in the wake and the trade imbalance will increase exponentially. Every action has a reaction and every up has its down; at some point the system will fracture and the cards will be reshuffled. Keep in mind though that at this point the only ones who can (or even HAVE) anything left to lose are the Western workers. The Vietnamese already make a few bucks a day without benefits - their position in the global marketplace is sealed, but the Western proletariat have to compete with the Vietnamese and the system always seeks to minimize costs! 18.01.98

A view of the future economic order

The more I read concerning the issue the more I am convinced that no one has the right idea of where America will be economically in the near future. These predictions can be grouped into three categories:
1. Collapse (usually via debt)
2. Stagnation (cyclical studies)
3. Positive Growth (extrapolating present trends)

Statistically collapse is unlikely, stagnation is blatantly defied by current economic signs, and constant upward growth is an obvious logical fallacy not represented by fact or history.

Major friction is are building rapidly in the US economically and politically. Bankruptcy is endemic in America yet employment is low as are interest rates and voters are not revolutionary but security-seeking. Currently we are at a confluence of multiple cycles that serve to obscure past trend peaks thus predictions such as the above may appear reasonably deduced yet they fail in any test with present circumstances. No one really knows what the hell is going on now or 10 years from now!

As we walk the knifes edge the only solution is to maintain the past methods of ordering society and economy. Everyone realizes they don't work but until fate forces change we glide on inertially.

Our leaders continue to beat a dead horse and will continue until the decomposed mass turns to compost. Habits at this level don't evolve they break; austerity is more costly than perpetuating a dysfunctional system to the point of collapse. Sure we could raise taxes, cut all spending and so on, but what social costs will that incur especially in our multiracial polyglot of fault lines? Current political trends of economic balance are at technical maximums, the new phase will be to limit regression and stay afloat.

Our situation is like cryonics where they know that freezing the person destroys the cell structure but irrationally they believe that future science will be able to fix the problem. America is as dead as Walt Disney in a freezer.

The US is slowly building to a point of total unsustainability. When that point occurs I imagine the markets will be in record territory - the difference between Wall and Main streets will never be greater. 12.11.96

The state of the State economy

With the Dow Jones hitting an all time high over 6200 it seems appropriate to ruminate on the condition of the US economy. It’s amusing to hear so many conflicting predictions of future stock behavior; most seem to be proved wrong because the market just keeps going up even with flat or lackluster corporate earnings.

Wall Street exists in its own reality - literally blocks away from the ghetto. We all know who is the stock market, the insulated few of wealth and privilege. The plutocratic outlook has never appeared better in 1996 especially with the continuation of the political status-quo. Americans and the globe are more willing and complacent towards working for low wages and long hours and the government is unwilling to rock the economic boat by increasing social expenditures. Why not 10,000 or 20,000 on the Dow? Now Bill Gates is worth $20 billion up from $18B in a week... about $4600 per second. [Note: His worth is over $50 billion at the time of this rewrite in 1998].

The stock market and even corporate profits aren’t indicative of fundamental economic health. The US is a cheap labor pool of educated and trained people essentially an educated Mexico for industry. Many workers toil in part-time, un-benefited jobs that work in frivolous sectors. Derivative economies based on fads or other quick money markets, from coffee to antiques. This niche marketing may give ‘employment’ to millions but it has a very unsound economic support in hard times when disposable income falls. Consumer debt is in the multi-trillions and the profits banks get on consumer credit are astounding. Many people couldn’t live without the credit card and they are also finding out they can’t live with them either - witness consumer bankruptcy.

The US economy has three parts 1) the plutocratic investing strata 2) the subsisting workers or consumption strata and 3) the federal government which attempts to keep both parties functional by keeping the corpse alive. Presidents Clinton and Bush have been extremely fortunate because they have managed with the ‘Fed’ to control recessionary trends, despite the constraints of historical precedent.

The governments cant inflate the money supply by monetizing the debt as during the 1970s because the ensuing stagflation would not only increase the deficit by the effect of inflation linked to entitlements but would collapse the banking industry as well! The current method of selling debt (bonds) to foreign investors must have a limit but despite the sale of billions (trillions?) already, none is in sight; yields are falling and bond prices are increasing. When foreign investors question the soundness of the USA and dump their paper, what option will the US government have left? Hyperinflation or bankruptcy! [The technical term for a bankrupt entity is one that has run out of credit] .

Of course Bush and Clinton have been lucky because the economy in GDP has kept pace with the debt level. America has an unbelievable talent for evading fate, but so did Barings bank for 100 years it (BCCI) speculated wildly each time being bailed out until just a few years ago it popped - justice at last?

It seems that all sectors are in the common state of reality denial although the public consumer strata is beginning to wake up. The federal government wants to substitute military might for an absence of economic strength; hegemonic superiority is critical to maintaining the common myth of American exceptionism. The irony is that now more than ever the US is at the mercy of its foreign creditors (mostly the Japanese). The Japanese have a different destiny than the US as do all countries in comparison to each other. The question is when will that divergence take place and will anyone realize it? Perhaps we’ll all wake up one morning and figure out every corporation we work for is foreign owned? 07.11.96

Economists along with their fallible science are the modern equivalent of the sawbones doctors of medicine 150 years ago. Regardless of whether they kill the patient or accidentally save a life the public is compelled to seek their services for lack of a superior alternative.

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