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Globalisation debt & banking

Old 23rd Sep 2011, 18:44
  #121 (permalink)  
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On the eve of a financial meltdown.

One bird to another.
My excuse is that I'm a goose.
Been force fed all this b/s for years.
Wiser now but the ole liver is stuffed.

So you're a big bird.
Surely a turkey!
Good luck, you're going to be hung strung and quartered.
 
Old 24th Sep 2011, 01:43
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Like The Phoenix Rising

When the dust eventually clears the world economic system will be more robust and most likley more regulated since the banks can't be trusted to manage their own affairs with integrity.The obscene bonuses paid will hopefelly be a blot on histoys time line.
In the mean time buying opportunities abound.Prices on just about everything are falling.Unfortunately short term pain in the form of rising unemployment will hurt some economies.
Life goes on~groceries need to be bought,cars repaired,fuel bought and then we begin all over again.When the memory of this lesson learnt dims a future generation of financial hostshots will make the same mistakes all over again.Greed and overconfidence assign humanity to the curse of the financial crisis ground hog day.
Aviation is held hostage to the same deja vu
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Old 24th Sep 2011, 09:21
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I've been following this thread with interest (pardon the...). One of the glaring conclusions is that gold (and a gun) is the go. Could you gold pundits comment, then, on this article:

What is wrong with gold?

$6500 in 12 months verses $68?
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Old 24th Sep 2011, 13:38
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Capn Bloggs - What is wrong with gold, is that 600 economists world-wide are telling the world that gold is a useless, barbaric relic, and of no use in any modern monetary system.
Unfortunately 6,000,000,000 people disagree with those economists, and continue to buy gold, and see gold for what is - a store of value, no matter what the economists may say, or what the treasury depts do.

I find it interesting that your linked article makes no mention whatsoever of the gold holdings, and the love of gold, by the Chinese and the Indians.
Both those countries form 1/3rd of the worlds population, and both of those countries are presently buying gold on a big scale.
To omit those countries, and their gold figures, from ones story and figures, leads one to believe that the gold story was written by an economist, for the benefit of other economists.

There's no way in the world that every gold-holding country in the world would dump their entire gold stocks on the open market in one go. Only the foolish countries dispose of any substantial amount of their gold holdings.
The shrewd countries such as China buy gold to keep value in their wealth, when that wealth is threatened by a declining value in any monetary (fiat) currencies they hold.

The US$ shows signs of rapidly becoming the US Lira, as billions of US$'s are printed daily with no asset backing to match. Thus, the shrewd Chinese are exchanging their US$'s for gold, while the US$ still has some buying power.
Gold is one of the worlds unique metals, in that is exceptionally rare (in comparison to base metals)... it has a historically unique position in the financial operations of any country in history... and its wealth-retention abilities are recognised and revered world-wide... and it has always been that way. Nothing that I, and 5,999,999,999 other people, can see, will ever change that fact.

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Old 24th Sep 2011, 14:42
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Bubble.

Just like tulips....and Aussie house prices. Those that are in on the bubbles would strongly disagree. Just watch and see over the next few years.
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Old 24th Sep 2011, 16:13
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The swiss franc, was regarded as being a safe hedge.
Look what happened there.

Gold is fine, provided it is not confiscated by the government, as was done by the Roosevelt Government.
Presidential Executive Order no. 6102.
5th April, 1933.

You've got to come up with some better ideas!
 
Old 24th Sep 2011, 19:51
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I find it interesting that your linked article makes no mention whatsoever of the gold holdings, and the love of gold, by the Chinese and the Indians.
Both those countries form 1/3rd of the worlds population, and both of those countries are presently buying gold on a big scale.
Too true. A few weeks ago, changing planes at Dubai, 0100 local time, the airport gold shops where crowded with Indians buying gold. A frenzy the like of I've never seen before. Thought it quite amusing at the time.

Difficult to predict the future, short, medium or long term with stocks, gold, cash, etc. Have some of everything is about the best I can come up with. Diversify your assets.

One thing is for sure, the top 0.00005 % of the worlds population, the super rich, WILL profit and get richer. They will make it so, at your expense, and mine.

Lid
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Old 24th Sep 2011, 23:22
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I wouldn't necessarily trust anything economist from the IMF or UN are saying about anything at the moment as 1. they don't really know anyway, and 2. they may have ulterior motives.

There is obviously some sort of value in gold if central banks are loading up on it. South Korea bought 25 tonnes in a purchase two months ago.

So if professional money mangers who are running countries are buying gold why would economists then suggest that average joes at least have a small Gold holding? Given that money is so volatile at the moment, and the chance that the Euro could sink and the greenback will be under some serious pressure in 2012 why wouldn't you hold at least a small proportions of your savings in gold?

Central banks return as gold buyers - FT.com

Emerging central banks boost gold holdings in July
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Old 25th Sep 2011, 02:00
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Bubble.

Just like tulips....and Aussie house prices. Those that are in on the bubbles would strongly disagree. Just watch and see over the next few years.
Australian house prices will come off but considering the rises in the last decade you would have to expect it. How much will they come off their highs? I don't think it will be as bad as many doomsayers like to predict.

High interest rates can come off and cushion a disorderly adjustment of Australian housing prices- and I believe the RBA will do this as anything disorderly will seize up consumer confidence and affect the wider economy adversely.

The $AUD will come off quickly in the above scenario and there is a lot of money abroad waiting to move into Australian property.
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Old 25th Sep 2011, 06:38
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http://brontecapital.********.com/2011/0....

Models for a Greek Sovereign Default
I am on a plane - long-haul over the Pacific - and someone asked me to spell out what I thought would happen with a Greek sovereign default. As this is drafted on a plane it is designed to outline extreme views (you know the ones after two glasses of wine). If people want to explore more modest views that is for the comments. Still all options look bad.

I see two broad variants - both of course stick most of the losses on Germany and France. Some variants are totally disastrous.

Variant 1 - the Argentine option: Default and de-peg the currency.

When Argentina defaulted not only did the government default but they forced a private default. If you had a debt in US Dollars in Argentina prior to the default you were forced to pay it back in Peso. Indeed it was illegal to make payment in US dollars.

Likewise if you had a US dollar asset you got back Peso. A dollar deposit in Citigroup in Buenos Aires became a peso deposit. If you really wanted to keep your dollars you needed to make your Citigroup deposit in New York.


The forced private sector default was necessary for Argentina. The Argentine banks all had lots of US dollar funding. If you devalued without forcing their default then they would all have uncontrolled defaults (a true disaster) and the country would lose its institutions. Telefonica Argentina would have failed too - failing to replay USD debts.

The same applies in Greece. If the Greek Government were to devalue the new Drachma (to perhaps a third the value of the Euro) then the banks (which are loaded with Greek Sovereign paper) would default. Even Hellenic Telecom would default because they would be forced to repay their billions of Euro borrowings whilst collecting only Drachma phone bills.

The Argentine economy was doing quite nicely after the devaluation. The lesson was that devaluation worked - provided you simultaneously forced private sector default.

If you were Greece you would take this option without hesitation.

However this option has explosive implications for Europe. You see a bank deposit in Athens is going to turn your Euros into Drachma. Overnight it will lose 70 percent of its valuation.

So it has to be done quickly and with an element of surprise (as per Argentina when most people did not get their dollars over the border). Without surprise people will rush their money to Deutsche Bank in Munich.

One weekend we will just find that the Greeks have done it.

But now suppose Greece does pull this trick. The day after we have a Drachma - deposits are in Drachma. We might print a single 10 drachma note and allow it to settle against the Euro - then over time print more. This should work for Greece.

Now if you are Irish or Italian or Portuguese (or even Spanish) you know the rules. You get to get your Euro out of the PIGS and into the core (Germany) as fast as possible. So max all your credit cards (for cash), draw all your bank deposits and load them in the boot of your car and make the drive to Switzerland or Germany. Somewhere safe. Otherwise you are going to lose half the value the day that the rest of the PIGS do a Greece.

And this bank run – a run including tens of thousands of Italians driving their Fiats - will surely blow apart every Italian bank. And their Euro-skeloritic compatriots will sign the death knell for for all their banks too.

If you are going to go the devaluation route you are going to have to do it all at once. Like the big-bank weekend (maybe coinciding with a week long bank holiday) in which all core European countries get their own currency back.

There is a precedent. It is not a pretty one. When the Austro-Hungarian empire collapsed there was a single currency over a huge area covering much of what is now Euroland. In this case the rather Germanic Austrians were in charge (or rather were in charge until their empire collapsed).

What they did was put troops on all the borders and made it illegal to take cash (or wire cash!) across borders. Then all Austro-Marks in each country was stamped - converted to Drachma for Greece, Marks for Germany, Peseta for Spain or whatever the currencies of the day were [If someone remembers the 1918 border splits better than me they are welcome to say...]

In this conception all Spanish debts become Peseta debts. All German debts become Mark debts. All Greek debts become Drachma debts. Unstamped currency goes worthless.

If you are going to split the currency I see no alternative to a big bang - and if you do that I see no alternative to troops at the border stopping transfers (and wire transfers) because shifting cash North looks so profitable against a sudden devaluation. Suddenly – and against all historic hope – its time again to guard the French-German (and every other European border) with troops for a week whilst the money is stamped.

Note however almost every country borrowed in hard currency (Marks) and got to repay in soft currency (Drachma). This is a scheme which shifts the loss home to Germany and with little compensating benefit except that they get their beloved Mark back. Its a scheme that is way better for the periphery because they get to keep their institutions. In two years they should bounce back like Argentina bounced back after their default.

Unilateral Greek default and devaluation without planning for the periphery to do the same - well that is a true mess. Too ugly almost to think about - and it would be unilateral for less than a week. The rest of Europe falls into that abyss with maximum movement of deposits and cash in the meantime.

The second variant on Greek default. Greece defaults and stays in the Euro

The second variant on Greek default is the one that Germany prefers – Greece defaults and stays on the Euro. (Credit Agricole also prefers this.*)

In the second variant Greece has a huge problem after the default - which is that its banks are insolvent. They own a whole lot of Greek Paper. Moreover Hellenic Telecom does not look that great either.

The recession goes from bad to worse and the government deficit goes from bad to worse. The Germans wind up owning the banks and the telephone company as partial offset to their losses lending to them. The Greek Institutions are captured by the Germans. (All your base are belong to us.)

They also wind up getting paid a little more as Greek austerity - as long as it lasts and that might be a long time - partially reduces German losses but at huge social costs.

The Eurozone becomes really dysfunctional - with the whole periphery totally unable to work their way out and having lost all their key institutions to the Germans who neither know how to run them nor really want them.

Moreover Greece stays expensive and unproductive and becomes more socially fractious. The likelihood of them staying the the Eurozone would be pretty low. (After all what have the Germans ever done for me!)

Europe would be held together by a massive and compulsory German aid budget. If they can't get that agreed on on day dot (and Merkel and the German constitutional court are not of that mind) then my guess is that is is in Greece's interest to go the Argentine route and let the rest of Europe fend for themselves.

And for that Europe will need troops on borders. Armed and dangerous.

Bring out the guns.
 
Old 25th Sep 2011, 06:57
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I've been following this thread with interest (pardon the...). One of the glaring conclusions is that gold (and a gun) is the go. Could you gold pundits comment, then, on this article:
What is wrong with gold?
Gold can't be copied, gold is real, paper money if fiat. Paper is printed off a machine. The more they print means the higher inflation rises and the more you pay for electricity/gas/bread/everything. It is cyclic and tweaked/controlled by a countries economosits. Problem is when debt exceeds income, hence the USA dilemma, tonnes of money is going out of one hand and little is coming in through the other hand.
Both the USA and Europe are finished, simple as that. Neither can pay off their debts.

People keep asking 'why are the politicians sitting on this and doing nothing' ? Ha! What can they do? The game is up thats why they can't fix it, it is unfixable and the point of no return has been exceeded.
If you want to really know where it will all end, research German economy 1920-1923 and you will see the answer, propserity one day and hyperinflation and bankrupt the next. The same fate awaits the USD and probably the Euro. The Germans are the only ones with money and even that is not enough to dig their neighbors out of this hole.
The USD currency will be scrapped and a new one introduced, with the Germans that still didn't resolve all their issues, but what they did mirrors what the USA will have to do. China already know it, they know that America's merely printing off more money is feeding the inevitable default, in fact last week the Chinese actually came out and said it, that 'America was going to default by stealth'. Printing more money is a desperate measure and only putting off the inevitable conclusion, they will default and when they do it will be a global pandemic, plus the Chinese won't be too happy about losing the $2.3 trillion the Yanks owe them..Do your research friends.
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Old 25th Sep 2011, 07:18
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IT'S A RECESSION. SO WHAT?

Balstrode has it right:
Life goes on~groceries need to be bought,cars repaired,fuel bought and then we begin all over again.
Look, the last recession in Australia began in 1991, so it is obvious that anyone younger than about 35 could not have been in the workforce back then. And interestingly, most screen jockeys at financial trading houses would be younger than 35, so probably would have no personal experience of a recession. They are basing their decisions on a fear of the unknown. Buying US Treasuries as a 'safe haven'. Is that logical? Is it a herd thing?

Let us say economic activity in Australia declines by 3% year on year next year. That means that 97% of economic activity continues unchanged. You'll hardly see any change in traffic in your local Woolies or at your Shell station. In fact, because the price of fuel most likely will fall steeply, fuel sales by volume might increase. Generally, the wild consumption of resources and manufactured goods will decline a bit. Overall, pollution will reduce a bit, the amount of junk going to landfill might reduce a bit. Is any of that necessarily bad?

Some job descriptions are more vulnerable to recession than others. For example, if you are an architect or a real estate agent, expect some very quiet times as new construction dries up and house sales drop. [That's already happening]. Ditto for builders - get a job building infrastrucure. And ditto for merchant bankers, as it happens.

In general terms, in case you are unlucky and become one of the additional 5% or so of the workforce [not the population] who will join the ranks of the unemployed you should already be:
Building up your cash reserves.
Getting in front on your mortgage repayments.
Reducing other forms of debt as much as possible.
If you are leveraged [big mortgage or geared into shares, for example] you may be about to feel the pain. And it will hurt. Sorry, you might lose your house, if you lose your income. Hope your conservative Mum and Dad will find room for you at their place.
So what happens to pilots? Generally, if past recessions are any guide [and they are the only guide we have], not a lot happens in fact. Most passengers stay in work, so most flying continues. People tend to go on holidays to closer destinations, like the Gold Coast, Fiji or Bali. Good for you if those destinations are on your roster and your company is fleet of foot to exploit the new demand. Not so good for longhaul, but as the AUD declines, inbound tourism picks up.

Recessions weed out weak or poorly managed companies in all industries. I think Australia has one major airline group in each of those categories, so that could be a wild card.

Where are the safe jobs to weather the storm? Well, stacking shelves at Woolies is obvious. Working for a utility [driving a tram, bus or train, reading water meters] another fairly safe haven.

Most of all: you won't need a gun [except to shoot rabbits, maybe] , you won't need gold. Even in the Great Depression, the fabric of society did not unravel. In fact, it was quite common for people to start helping strangers. The closest thing we have in modern times to give you the idea is the outbreak of community spirit in New York after 9/11. Did I see someone mention cannibalism earlier on this thread? Not going to happen.

If you are too young for your parents to have told you from their personal experience about the 1930s then watch these three video clips. In the first clip the woman is in fact describing general daily life for women in the 1930s, with or without a Depression, in my opinion. My mother and grandmother were still working much like this when I was growing up in the 1950s, except that electricity had by then arrived. Look closely at the other two clips. Does anyone look malnourished? Do you see Mad Max in the background, plundering and pillaging?

Don't underestimate the power of people to overcome advertisity and hard times. A little off topic, but read Henry Lawson's poem 'On the Wallaby'. Send a copy to Leigh and Alan. They'll appreciate the heads up. Google 'on the wallaby' if you don't know what the expression means.

Last edited by Captain Gidday; 26th Sep 2011 at 11:02.
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Old 25th Sep 2011, 07:31
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Onetrack mentioned -

"Only the foolish countries dispose of any substantial amount of their gold holdings."

Like this clown!

Worth its weight in gold - The Drum (Australian Broadcasting Corporation)

In November 1997 the then Treasurer, Peter Costello, shocked some people when he announced he'd signed off on the sale of $2 billion worth of Australian bullion. On the day he announced the sale the price was around $US306.00 an ounce. At the time, according to Mr Costello, gold "no longer plays a significant role in the international financial system

Sure Swan is a goose........but Costello certainly wasn't any better
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Old 25th Sep 2011, 09:28
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Captain Gidday, I admire your optimism, but the maths of this article "sealed the deal" for me when I read it in March 2010. Read the article carefully (re-read if necessary it to get your head around it) and think about what he is driving at. The implications are profound.


SATURDAY, MARCH 20, 2010
THE Most Important Chart of the CENTURY

The latest U.S. Treasury Z1 Flow of Funds report was released on March 11, 2010, bringing the data current through the end of 2009. What follows is the most important chart of your lifetime. It relegates almost all modern economists and economic theory to the dustbin of history. Any economic theory, formula, or relationship that does not consider this non-linear relationship of DEBT and phase transition is destined to fail.


It explains the "jobless" recoveries of the past and how each recent economic cycle produces higher money figures, yet lower employment. It explains why we are seeing debt driven events that circle the globe. It explains the psychological uneasiness that underpins this point in history, the elephant in the room that nobody sees or can describe.





This is a very simple chart. It takes the change in GDP and divides it by the change in Debt. What it shows is how much productivity is gained by infusing $1 of debt into our debt backed money system.


Back in the early 1960s a dollar of new debt added almost a dollar to the nation’s output of goods and services. As more debt enters the system the productivity gained by new debt diminishes. This produced a path that was following a diminishing line targeting ZERO in the year 2015. This meant that we could expect that each new dollar of debt added in the year 2015 would add NOTHING to our productivity.


Then a funny thing happened along the way. Macroeconomic DEBT SATURATION occurred causing a phase transition with our debt relationship. This is because total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!


This is mathematical PROOF that debt saturation has occurred. Continuing to add debt into a saturated system, where all money is debt, leads only to future defaults and to higher unemployment.


This is the dilemma created by our top down debt backed money structure. Because all money is backed by a liability, and carries interest, it guarantees mathematically that there will be losers and that the system will eventually reach the natural limits, the ability of incomes to service debt.


The data for the diminishing productivity of debt chart comes from the U.S. Treasury’s latest Z1 data, the complete report is posted below: [NOT SHOWN see original article BreakfastBurrito]


On page two of that report is the following table showing the Growth of Non Financial Debt:




I included Financial debt onto the end of the table, that data comes from page 14 of the Z1 report.

This table makes clear what is happening. Business, household, and financial debt is trying to cleanse itself, to bring the level of debt back within the ability of incomes to support it. Our governments, armed with people who cannot explain the common sense behind debt saturation, are attempting to compensate by producing prolific amounts of Governmental debt.

They feel they must do this because if they do not, then debt and money – since debt backs our money – would both decrease and that would cause the economy to slow. But by adding money, and debt, they have created a sovereign issue where our nation’s income cannot possibly service our nation’s debt. In just the month of February, for example, our nation took in $107 billion, but spent $328 billion, a $221 billion shortfall. That one month shortfall exceeds all the combined shortfalls of the entire Nixon Administration – one month.

This is like an individual earning $5,000 but spending $15,000 a month. Would you lend your money to such an individual?

Last year we spent just under $400 billion on interest on our current debt, plus we spend another $1.5 Trillion buying down rates via Freddie, Fannie, and Quantitative Easing. That’s $1.9 Trillion spent on interest, most of which wound up in the hands of the central banks and their surrogates. Compared to our $2.2 Trillion in income, interest expense last year nearly took it all. That means that nearly all your productive effort used to pay Federal taxes last year were transferred to the central banks.

Modern monetary theory does not understand, nor does it correctly describe the debt backed money world in which we live. Velocity, for example, slows as debt saturation occurs. This is only common sense, and yet the formulas do not account for the bad math of debt, nor its non linear function. Velocity is blamed partially on the psychology of “consumers.” What nonsense. It is as mechanical as the engine in your car, it was designed that way. Once people, businesses, and governments become saturated with debt, new money/ debt when introduced can only be used to service prior existing debt.

Thus money creation at the saturation point stops adding to productive efforts and becomes a roll-over affair with only the financial services industry profiting via interest and fees. In other words, money goes out and circles right back around to the banks instead of rippling through a healthy non saturated economy. If you cannot follow that most simple logic, then going to Harvard will not help you.

Below is a chart of the Gross Federal Debt, it is now $12.6 Trillion dollars and headed straight up, a classic parabolic rise:



Below is a chart of the Gross Federal Debt expressed in year-over-year change in billions of dollars. The same phase transition of debt saturation is clear as a bell.



Below is a chart of Federal Net Outlays, parabolic and again headed straight up:




Clearly this is not sustainable and that means that change to our monetary system is rapidly approaching. No, it will not be left to your children or your grandchildren. It is an immediate problem and fortunately there is an immediate solution. That solution is called “Freedom’s Vision.” It can be found at swarmusa.com.


That chart of diminishing returns is the window to understanding why humankind is trapped in a central banker debt backed money box. No money for NASA manned space flight – NASA’s total budget a puny $18 billion in comparison to the $1.9 Trillion that went to service the bankers last year. One half the schools closing in Kansas City, states whose debts and budget deficits seem insurmountable all pale in comparison to how much money went to service the use of our own money system.


It doesn’t have to be like that, in fact it’s a ridiculous notion that the people of the United States, or any country, should pay private individuals for the use of their money system. Ridiculous!


It’s difficult to see this from inside the box, so let’s look at what happened to Iceland to illustrate. The central banks of the world created financial engineered products and brought them to the banks of Iceland. These products created a boom in the amount of credit. Prices of everything rose, and the people of Iceland then had no choice but to go along for the bubble ride. Then with incomes no longer able to service the bubble debt, the bubble collapsed.


To “save the day,” the IMF and central bankers around the world rushed in to “rescue” the people, banks, and government of Iceland. They did this by offering loans... documents that create money simply by signing a contract of debt servitude. That contract demanded ownership of Iceland’s infrastructure such as their geothermal electrical generating plants. It also demanded the future productivity of the people of Iceland in that they should work and pay high taxes for decades to pay back this “debt.” Debt that they did not create or agree to service in the first place!


There were some wise people who saw through this central banker game and started a movement. They DEMANDED that the President of Iceland put the debt servitude to a vote and the people wisely said, “Central Bankers Pound Sand!”


Thus they now control their own destiny, their future productive efforts still belong to them.


It’s easy to see from the outside looking in, but it’s not so easy to see that it's EXACTLY the same thing occurring in the United States and no one is rising up to stop it. No one, that is, except the movement of people at SwarmUSA.com.


To all the naysayers who think the people do not have the power to make the change, I say take a look at history and how humankind has overcome its obstacles to progress with each new step. Mankind is now teetering between the brink and the dawn of a new renaissance. A new renaissance is coming because mankind is about to free itself from the chains of needless debt that are holding humanity back.
THE Most Important Chart of the CENTURY


==============================================


Capt Bloggs,from page 2 of this thread:

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.his is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
Gold and Economic Freedom - Alan Greenspan 1966
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Old 25th Sep 2011, 12:49
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Who are the ones that we kept in charge?
Killers, thieves and lawyers...
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Old 26th Sep 2011, 08:00
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What have the Greeks done for us?........
Well lamb souvlakis, purple valiants, changed the architecture of our 'burbs with concreted columnular villas, of course philosophy, poetry, civility and all that stuff,.... sanitation... Well that was the Romans, pizzas, alphas, duccatis, straight roads and syphyillis, of course the aquaduct.
The Poms,... well that was warm beer and cold pies, hot Xmas luncheons, cricket, god save the queen at school every monday morning, morrys and rangies, and the Vickers Viscount!
The Americans,.. KFC, maccas, the Simpsons, AIDs, the internet and of course the Boeings!
The Chinese,... Well.... dim sims, fried rice and everything else that we buy!
Apart from electric cars, what else will they give us?.. A repressed rigidly closed society?.
I guess when the money runs out we'll find out!
 
Old 26th Sep 2011, 09:21
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Breakfastburrito.
Reading your article reminds me of watching so called 'World Series Baseball'. Just as the Yanks organise a series of games between a team from Texas and a team from San Francisco and call it a "World Series", so the author of the article continually says humanity has a problem, just because the USA has been living way beyond its means. The World does not have a problem. The USA does.
Luckily for Australia, Mr Costello [though he might have sold off some gold too cheaply] did a great job paying off just about all Federal Government debt during his tenure as Treasurer. That would seem to mean, following along with the logic of the article, that if [when] the chill winds blow again soon, the present Australian Government can stimulate the economy again by going mildly into deficit, hopefully temporarily. The stimulus injected into the economy should have a very positive effect on economic activity, as it did during the 2008 crisis. We are much further back up the curve, perhaps where the US was in the 1960s, so that seems a reasonable prediction. Just so long as the stupid baying hounds of the media learn a little economic theory in the meantime and stop banging on about returning to surplus by 2012 [wrong in the circumstances that are unfolding].

China, most of Asia and some of the emerging economies like Brazil are also nicely placed on the curve and though their exports might slow for a while, are also nicely placed to stimulate domestic demand.

That assumes the graph is actually telling us anything useful. I spent quite some time studying stats at Uni, a lot of it a waste of time, it must be said, but it did teach me to be suspicious around zealots with numbers. Can you see any intuitive relationship between the concepts of productivity and deficit spending? I don't find it easy to link productivity, i.e. working harder and/or smarter, with how much debt a government is getting into. Though it churns out a sweet looking chart, does it actually mean anything? I mean, you could chart souvlaki consumption in Greece against total Greek government debt and come up with some pretty chart, but what have you achieved?

Swarm USA only has 186 members, according to their website, so unless Bill Gates or Warren Buffet are on their mailing list, we are way out on the fringe here.

Last edited by Captain Gidday; 26th Sep 2011 at 10:52.
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Old 26th Sep 2011, 12:51
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Capt Gidday, a few bits of housekeeping
US Centric (World series analogy) - Fully agree that this article is US centric, as is (unfortunately) a significant body of work, in print & internet. This is a function of the reserve currency system (Bretton Woods I & II). Under this system, whatever happens to the reserve currency affects everyone. Almost everything is traded through US dollars in some way shape or form. Therefore, unfortunately for us, what happens to the US economy is critical to almost every economy that is tied into the reserve currency system (basically everyone).

Swarm USA - I visited that site incidently in preparing the formatting of the article. I make no representation for or against that site. I preserved the links merely for completeness. Even if it only has 1 member, does this detract from the message if it is a cogent argument?
=========================================

Though it churns out a sweet looking chart, does it actually mean anything?
Money in our current monetary system is actually debt - Money is loaned into existence (Government sells a bond to the Central Bank, the Central Bank then creates money out of thin air - holding government the bond as collateral - an IOU backed by governments ability to tax citizens. Government then spends money into the general circulation). Notice that the principle is loaned into existence, but not the interest. This is the fatal flaw in our current system. More money must be continuously loaned into existence to pay the interest on the previously created money. In other words, the money supply must continuously increase.

Consumers can only borrow so much. In theory, they can borrow so their entire income is spent on interest payments - debt saturation. Debt saturation for most people occurs before it reaches 100%, probably around 30~40% of their disposable income. But our system mathematically requires more money to be continuously loaned into existence to pay the interest on previously created money.

Once consumers are "tapped out", there is only one entity with the ability to continuously spend more than its income - the government through deficits. However, as government debt grows, the proportion of spending devoted to paying the interest continuously increases. In other words, of every additional dollar borrowed a greater proportion is devoted purely to pay interest on previous debt, and thus a smaller proportion enters into circulation. Eventually, for every dollar borrowed, none actually enters the economy - it simply pays the interest bill - this is debt saturation. That is what chart 1 is telling you. This is the point the US is rapidly approaching, and it is our problem because of the currency linkages through the Bretton Woods II system. (Its our currency, but your problem -- Treasury Secretary John Connally)

If you want to see how money is debt, this video explains it:
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Old 26th Sep 2011, 21:25
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Money is loaned into existence (Government sells a bond to the Central Bank, the Central Bank then creates money out of thin air - holding the government bond as collateral - an IOU backed by governments ability to tax citizens. Government then spends money into the general circulation).
So, then, Breakfastburrito, if that is the case, countries such as China and Norway, who have no net Government debt and have huge reserves, therefore should also have no currency in circulation? The argument is not cogent.

But that is not to say the US doesn't have a problem. Which is why Iraq and Libya were trying to move their payment for oil from USD to Euros, I suppose. Which is why Uncle Sam has been so interested in Iraq and Libya lately, I suppose.

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Old 27th Sep 2011, 01:47
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So, then, Breakfastburrito, if that is the case, countries such as China and Norway, who have no net Government debt and have huge reserves, therefore should also have no currency in circulation?
The operative phrase being "no net Government debt". There is also private debt, and I believe if you investigated both China & Norway that there is net total debt- Its just not owed by the government. The government is not the only entity that can create credit, private banks can, they actually create the bulk of credit money in circulation. This is why they have such immense power.

You have inadvertently hit the nail on the head with "should also have no currency in circulation". This is correct, it is the Achilles heel of the system. Without debt, the current money system would cease to exist. Further, without a continuous exponential increase of money & credit in supply to pay back the interest on the money previously created, the system will fail (a series of cascading bankruptcies as interest payments cannot be made, as it has not yet been created).

The argument is not cogent.
Really, did you watch the video? Did you do a google search to test the veracity of my statement?

Here is the US Federal Reserve's (a private bank BTW) own publication: MODERN MONEY MECHANICS

Here's a quote from page 3:
Who Creates Money?
Changes in the quantity of money may originate with actions of the Federal Reserve System (the central bank), depository institutions (principally commercial banks), or the public. The major control, however, rests with the central bank.

The actual process of money creation takes place primarily in banks.(1) As noted earlier, checkable liabilities of banks are money. These liabilities are customers'accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers' accounts.

In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.

It started with goldsmiths. As early bankers, they initially provided safekeeping services, making a profit from vault storage fees for gold and coins deposited with them. People would redeem their "deposit receipts" whenever they needed gold or coins to purchase something, and physically take the gold or coins to the seller who, in turn, would deposit them for safekeeping, often with the same banker. Everyone soon found that it was a lot easier simply to use the deposit receipts directly as a means of payment. These receipts, which became known as notes, were acceptable as money since whoever held them could go to the banker and exchange them for metallic money.

Then, bankers discovered that they could make loans merely by giving their promises to pay, or bank notes, to borrowers. In this way, banks began to create money. More notes could be issued than the gold and coin on hand because only a portion of the notes outstanding would be presented for payment at any one time. Enough metallic money had to be kept on hand, of course, to redeem whatever volume of notes was presented
for payment.

Murray Rothbard provides an excellent explanation of mechanics of money creation in "The Mystery Of Banking" - available for free as a pdf or .epub format, in addition to paper format from amazon.

I haven't just "made up" these arguments. They are extremely well document, and have been well understood by the Bankers for hundreds of years. The fact that you are unaware of this "credit creation" process (as is almost everyone) is because the bankers & governments don't want you to see the fraudulent nature of the system. It is highly unlikely you will read about "fractional reserve banking" in any mainstream media. This does not mean it doesn't exist.

Last edited by breakfastburrito; 27th Sep 2011 at 02:01.
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