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The past
has condemned us. Only the future can save us
We live in
extraordinary times. Poised between the past and the future, never has the
present been so uncertain. But, when certainty comes, it will be in the form
of a scythe and ducking will be the only option.
In March 2007, when
I presented my analysis of the US and global economy, How To Survive The
Crisis And Prosper In The Process, to Marshall Thurber’s Positive
Deviant Network, I predicted real estate prices would fall 40-70 %, stocks
would fall 70-90 %, and another depression was coming.
At the time, the
global economy was still expanding. It is no longer. Today, the opposite is
true, the global economy is contracting. But the predicted crisis, decades
long in the making, is now underway and has entered a new and different
phase, one far more dangerous than that which preceded it.
The world economy is
now on the verge of a total systemic breakdown. The mechanism underlying the
present credit-based system is now broken; for its two critical
underpinnings, banks and government are not just broken—far more
importantly, both are now literally flat broke.
I'm broke, no bread, I mean like nothing,
from Busted, lyrics by Ray Charles
Prior to the Great
Depression, the collapse of the 1920s bubble unleashed a cascade of
defaulting debt that buried lenders and borrowers alike. Then, governments were
not bankrupt; today, governments are as broke as those they are attempting to
save.
The siren’s
call of credit lured both the innocent and greedy alike to wager what instead
should have put aside for a rainy day.
This is the
conundrum central bankers cannot solve. Deflation, the collapse of demand
that follows in the wake of defaulting debt has been loosed from its shackles
and, soon, the conundrum of bankers will become the nightmare of all—a
deflationary depression worse than the 1930s.
After the Great
Depression, mainstream economists, monetary poseurs who graduated from
Harvard, Princeton, the University of Chicago, etc. (schools where the dark
arts of “I” finance are taught), convinced themselves that they
had solved the problems that had plagued fiat systems in the past.
They were wrong and
society is about to pay the price for their hubris. The so-called great
moderation, i.e. the apparent containment of inflation, turned out to be but
a monetary abnormality that led not to inflation but to enormously
destructive asset bubbles that have now collapsed.
Central bankers have
revealed themselves to be not masters of finance but the co-conspirators of
investment bankers who looted government treasuries for the benefit of Wall
Street’s parasitic plundering.
Today, the
banker’s plundering of productivity is almost at an end, but not
because of societal awareness, resistance and opposition but because
governments today are as broke as the banks; and, their collective bankruptcy
will hopefully prevent both from destroying what little savings and few
freedoms are left.
No matter how
respectable their appearance, the greatest enemies of society and freedom
today are central banking and centralized government—the twin towers of
monetary Mordor.
THE GOAT
RODEO OF THE BROKE
Today, we are
witness to a most absurd spectacle: Bankrupt nations with collapsing and
contracting economies planning to re-spend themselves back into prosperity on
borrowed money—at least, that’s the plan.
The US, England,
Japan and others are trapped in a sinkhole of defaulting debt and deflating
demand, the combination of which broke global economies in the 1930s and is
in the process of doing so again today.
It is ironic and
appropriate that England, the US, and Japan are following the same path at
the same time; for the three together comprise the historical lineage of
credit and power in this epoch, credit which built and whose consequent debt
is now about to destroy all three.
LEAD INTO
GOLD
PAPER
INTO MONEY
The medieval dream
of alchemy turning base metals into gold was achieved in principle in England in 1694 when base motives instead accomplished almost the same, the transformation
of paper coupons into money, or at least legal tender.
Issued by a central
bank, the Bank of England’s credit-based paper money quickly turned
into debt forever indebting the people of England and ultimately requiring
the establishment of the world’s first income tax to pay for ever
expanding government expenditures made possible by bankers’ now
unlimited credit.
England’s
credit-based money gave it an advantage over other nations resulting in
global dominion called imperialism. But when the gaping maw of England’s ambition could no longer absorb more nations, England’s global thuggery came
to an end.
GLOBALIZATION—IMPERIALISM
IN THE 20TH CENTURY
The next iteration
of global dominion was called globalization, an economic hegemony shared by England and the US, their central banks, the Bank of England and the US Federal Reserve and their
progeny, investment banks headquartered on Wall Street and in The City.
The ability to print
fiat currencies accepted everywhere as real money gave Western banks and
corporations the same advantage in the 20th century as did England’s navy in the 18th and 19th centuries.
By the late 1900s,
credit-fueled Western multi-national corporations and banks had established
increasing control and power over global commerce—the one exception
being Japan.
Japan had
escaped the intended noose of Western domination after WWII by a combination
of well-deserved insular paranoia and fate. Unexpectedly, in 1949 the
Japanese adopted the revolutionary teachings of W. Edwards Deming, an
American quality control expert whose humanistic philosophy of quality
transformed Japan into an industrial power.
What profiteth a
corporation should it increase shareholder value at the cost of market share
and product quality?
Western corporations
are focused not on the long term but on the short term, not on quality but on
profits, a fundamentally flawed bias that allowed Japan to overtake the West
and become the 2nd largest economy in the world and the
predominant economic power in Asia.
MEIJI
MOOLA
The Japanese not
only learned to manufacture better products than the West, they also learned
the secrets of the West’s extraordinary banking alchemy. When Japan invaded Hong Kong in 1941, they went directly to the English banks, put guns to the heads of
the bank managers and forcibly extracted the secrets of England’s immense power, the power to create money out of thin air, credit and debt.
After WWII, knowing
the extraordinary advantage that control over credit gives the West, the
Japanese built a financial firewall around Japanese corporations, thus
preventing foreign takeovers and disabling the built-in advantage that the
“free-market” flow of currencies gave Western bankers.
The Japanese created
interlocking ownership of Japanese corporations by Zaibatsu, Japanese
industrial and financial conglomerates; and allowed the shares of these giant
corporations to be included on bank balance sheets, enabling an even greater
leverage of credit in Japanese banks than in the West.
As insular as China
but far more adoptive, the Japanese addition of even more bank leverage,
however, was to contribute to the destruction of the Japanese economy; for,
now, in the 21st century, leverage is about to destroy what credit
built in the 20th, both in Japan and in the rest of the world.
The addition of more
bank leverage was a fatal mistake as the scythe of credit ultimately cuts
down both its victims and those who wield it; for the handle on unlimited
credit is only ephemeral and is as sharp as the blade itself; and, in the
end, both the ignorant and sophisticated will suffer for succumbing to the
temptation neither can control.
The pejorative view
of subprime borrowers avoids the fact that sophisticated borrowers were
equally guilty when feeding at the apparently free trough of credit made
available by central banks (investment banks borrowed at 0 % from
Japan)—and whereas poor people lost their impossible chance at homeownership,
sophisticated bankers lost the savings of entire nations.
When the dust
clears, lenders and borrowers alike will be buried beneath the rubble that
credit created. The origins of credit resemble the present variant of swine
flu, now possibly believed to be created by man, not nature, see
http://www.bloomberg.com/apps/news?pid=20601087&sid=afrdATVXPEAk&refer=worldwide--the
spread of credit and paper money being no less virulent or dangerous than the
spread of a deadly flu is now about to take its toll on all who drank from
the bankers’ diseased cup.
DEBT
DESCENT & DISASTER
Leveraged bank
credit temporarily catapulted Japan into the forefront of world economies by
1980; and, when combined with enormous positive trade imbalances—made
possible by the free flow of US fiat money—created a large speculative
bubble that culminated in the collapse of the Japanese stock market in 1990.
The collapse of the
Japanese bubble was staggering. The built-in bank leverage used in its
economic ascent turned into a noose on the way down and reawakened
deflationary forces that central bankers believed had been vanquished after
the 1930s.
The staggering
amount of defaulting debt sank Japanese banks. Prior to 1990, buoyed by their
built-in leverage, Japanese banks were among the world’s largest; but
when the Nikkei collapsed in 1990, so, too, did Japanese banks and the
Japanese economy.
What happened to Japan in the 1990s is now happening to the West, e.g. the US, the UK and other credit-based
economies. The current hope is that because Japan survived deflation in the
1990s, so, too, will the US, the UK, and others.
Such hopes are
futile as Japan’s survival was only temporary. This time Japan
won’t survive because today it’s deflation is far more virulent;
and, this time Japan will be joined by others also trapped by a collapse in
demand, defaulting debt, insolvency of banks and endemic unemployment—a
replay of the 1930s Great Depression but joined this time by a global
monetary pandemic.
THE
COMING PANDEMIC OF PAPER MONEY
This time the
deflationary depression will be accompanied by an extraordinary global
currency crisis. Government attempts to reflate their deflating economies
will instead give rise to additional massive economic distress.
Just as low 1 %
interest rates reflated economies in 2002 but also caused property prices to
balloon then collapse in 2006, today’s even lower 0.25 % rates coupled
with today’s unprecedented monetary creation will create an unmitigated
global currency disaster that will destroy money as we know it.
To stimulate
deflating economies, so much fiat money is being printed that money will
eventually become worthless. Throughout history this is how all fiat
currencies have ended, in the uncontrolled printing and circulation of
increasing amounts of increasingly worthless paper.
Last month, M-2, the
monetary aggregate in Japan increased at a rate even greater than 100 %
annually. The printing presses are now being run as never before in the US, the UK and Japan in the desperate hope that it will save them from the overwhelming
gravitational pull of deflation, an economic black hole of immense inertia.
The borrowing,
printing and circulating of excessive amounts of fiat money has been done
before and does not work. Doing so is a recipe for disaster; albeit a
time-honored recipe that has been tried in the past always with the same
result.
It will be no
different this time. If you think otherwise, just wait and see.
QUANTITATIVE
EASING INTO ECONOMIC DEATH
The term
quantitative easing disguises the incredible absurdity of governments
borrowing from themselves. The practice first emerged in the 1990s when
deflation forced the Japanese to do so in order to keep its vulnerable
economy afloat.
It is no coincidence
that quantitative easing is now being adopted by the US and UK nor is it a good sign that it is being done. Quantitative easing is a sign that deflation has
reached a level where governments cannot survive unless extreme measures are
implemented.
…when a
government resorts to quantitative easing, it shows that it has run out of
other means to finance its endeavors. It has reached the end of the line.
The Meaning of
Quantitative Easing, Michael S. Rozeff
We are now witness
to otherwise bankrupt nations with contracting economies planning to re-spend
themselves back into prosperity on borrowed money—money to be
borrowed from themselves.
The US, the UK and
Japan—the economic troika of the living dead—are all
engaged in quantitative easing and are now in the last stages of capital
destruction and economic collapse.
THE END
OF THE LINE
Banks and
governments—especially the US, the UK and Japan—have reached the
end of the line; indeed, we have all reached the end of an era. The
bankers’ game of debt-based capital masquerading as money in order to
indebt and profit from the productivity of others is now in its final stage.
The bankers’
resultant debts are now so large, they can no longer be retired, serviced,
sold, or even rolled over. That governments have announced they will
guarantee all bank deposits and increasing amounts of public and private
sector debt when they themselves are broke is a sign of the times—the
end times.
Two weeks after the
historic August 2007 credit contraction froze global credit markets, I spoke
at Session II of Professor Fekete’s Gold Standard University Live in Hungary. The last segment of my speech was titled, “The Path To The Future Is A
Cliff”.
In May 2009, it is
clear that we have now fallen off that cliff. The recent rebound in global
stock markets indicates only that we have not yet hit the bottom. We will.
Just wait and see.
INVESTING
ON THE WAY DOWN
Whether this year is
the death watch of the US dollar or next year or perhaps the year after is as
yet unknown; but, what is known, is that all fiat currencies eventually
succumb to the ever-increasing pressures placed upon them by government.
When the only
constraint on monetary creation is paper and ink or a keystroke, as is true
today, the temptation to do so is greater than any bureaucrat’s limited
ability to withstand, especially if that bureaucrat is Ben Bernanke, the head
of the US Federal Reserve who has a known weakness for monetary excesses.
Investing in the end
times is very different than investing in times precedent. What worked before
will not work now, at least not in the long run. While powerful bear market
rallies are common, such rallies are either an opportunity to exit the
markets, a trap for the hopeful or a playing field for those adroit and
knowledgeable enough to know what assets rise and fall in such times and when
they will do so.
However, few can
dance fast enough to outwit the scimitar’s edge, the exact time when
paper assets turn into dust and the slippered fantasies of fools are revealed
for what they are—and aren’t. But while few such expert advisors
do exist; all such experts understand the transitive nature of the game they
play.
Central banker, John
Exter, clearly understood the fraudulent game of central banking. Exter
called the US dollar and other fiat currencies “I-owe-you-nothing-money”.
Exter’s inverted pyramid denoted the flight of paper money in such
times, at the bottom of Exter’s pyramid is gold, the asset of last
resort.
Gold, a barbarous
relic, Lord Keynes? I think not. Gold and silver are today as they always
have been, the refuge of freedom and safety in times of chaos and tyranny,
times such as today.
THE LAST
DAYS
You can
feel it in the air
There’s
a stirring everywhere
An end is
coming soon
An end to
this cocoon
An end to
all we know
An end to
what’s been so
An end to
funny money
An end
that’s not so funny
I wonder
what will be
What
tomorrow we shall see
And may
the grace that brought us here
Transform
our every fear
Buy gold, buy
silver, have faith.
Darryl Robert Schoon
www.survivethecrisis.com
www.drschoon.com
Read
all the other essays written by Darryl Robert Schoon
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