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While
often wrong, Bernanke is right about the recession. It’s almost over.
But a depression is about to replace it.
There has been
much discussion about this recovery, whether it will be a “U”,
“V” or a “W” shaped recovery. The answer is none of
the above. It is going to be “C -shaped” recovery, but not as in
the letter “C” but as in coffin.
The Coffin-Shaped
Recovery
It would be a
miracle if trillions of dollars of debt could be wiped out with one stock
market crash and be succeeded by a new bull market driven by another large
offering of credit by the Fed.
But such a
central bank-engineered miracle today is impossible. Capitalism’s
natural cycles derive from central banker’s unnatural infusion of
credit into previously free markets. The subsequent distortion causes market
demand to expand (which everybody loves) only to be followed by the
inevitable contraction—which everybody hates.
Usually, central
banks wait until previous levels of excess credit have been absorbed in an
economic downturn before embarking on a fresh round of credit creation. This
time, however, it is different.
This time, the
cumulative buildup of debt over previous cycles where contractions were cut
short to minimize economic pain and attendant political consequences is now
so large that any contraction is sufficient to bring down the extraordinary
backlog of debt built up over previous cycles.
The current
contraction is more than sufficient to do so as it is more severe than any
downturn since the 1930s; and despite the frantic attempts of central banks
to contain the cumulative forces unleashed by previous cycles of credit and
debt, the enormous but fragile paper-based economy built by central
bankers’ paper money is now collapsing.
To hopefully
prevent the collapse from reaching its catastrophic end, central bankers have
now intervened far earlier and with far more credit hoping to prevent the day
of reckoning, a reckoning soon to be evidenced by an historic deflationary
depression that will wipe out all accumulated unpayble debts, albeit at the
cost of a functioning world economy.
Such is Ben
Bernanke’s considerable task. Despite his outwardly positive demeanor,
Bernanke is well aware that his desperate gamble hasn’t worked.
In these times,
the last thing you want to be is Ben Bernanke’s sphincter.
(note: Martha
declined to produce my relevant cartoon)
KEYNESIAN COPS,
FRIEDMAN’S FOLLIES
AND THE FLAWED
THEORY BEHIND THE RECOVERY
The current
chairman of the US
central bank is Ben Bernanke, a self-described student of the Great Depression;
but, learning is limited by what is taught and regarding the Great
Depression, Bernanke’s teacher unfortunately was Milton Friedman.
The reason why
central bankers (and Ben Bernanke in particular) are flooding the global
economy with money, i.e. borrowed, printed, or monetized out of thin air with
such abandon (who would have thought bankers could act with abandon except,
of course, when believing risk is non-existent and they’re betting
someone else’s money), is because of Milton Friedman’s theory, to
wit that economic contractions can be reversed by sufficient monetary
expansion.
Laid bare,
Freidman’s theory is another iteration of the Keynesian belief in the
power of government intervention, albeit an intervention cloaked in
Friedman’s more palatable—at least to those on the
right—conservative garb.
Friedman argued
that if the Fed had aggressively expanded the money supply in the 1930s, it
would have then counteracted deflationary forces and prevented the Great
Depression, an argument unfortunately as flawed as another of
Friedman’s pet theories, i.e. that floating exchange
rates would naturally over time bring global trade deficits into balance.
Note: When
exchange rates were allowed to float in 1974 as encouraged by Friedman who
also encouraged Nixon to abandon the gold standard in 1971, the US
had a positive balance of trade. Thirty five years later, the US
trade deficit is well over $800 billion and is growing over $20 billion each
month (Hey, Milton,
how much more time will it take to balance the trade deficit?).
Professor Antal
Fekete warned several years ago that Friedman would someday be proved wrong
and that we would collectively suffer the consequences; and, that just as
during the Great Depression when banks hoarded the government’s cheap
money instead of lending it, they would do so again when Friedman’s
theory of monetary expansion was tried during another contraction.
Professor
Fekete’s warnings have now come true. Today, US
bank lending growth has entered negative territory at the same time cash
reserves at US
banks increased by 1,460 %.
Frank Shostak in Does
A Liquidity Trap Pose A Threat, 9/23/09, on mises.org writes:
The latest data
for lending in the eurozone the United Kingdom,
and the United States
display a visible weakening. In the eurozone, the yearly rate of growth of
bank lending to the private sector fell to 0.6% this July from 9.3% in July
last year. In the United
Kingdom, the yearly rate of growth of
lending to the private sector fell to 2.2% in July 2009 from 10.1% in July
2008. In the United States, the rate of growth of lending plunged to minus
3.8% in August 2009 from a positive figure of 8.6% in August 2008…At
the end of July this year, [however], US
banks were sitting on $729 billion of cash against $1.9 billion in July last
year.
http://mises.org/story/3697
[bracketed words, mine]
Friedman’s
theory is flawed and as suspect as the paper money Friedman and Keynes both
promoted. Central banks can print all the money they want but that will not
necessarily increase the money supply as central bankers are discovering.
Severe monetary
contractions that cause deflationary depressions are so powerful they, like
monetary black holes, can destroy money faster than central banks can create
it.
The on-going
monetary contraction is now clearly evident. Ambrose Evans-Pritchard,
columnist for The Telegraph UK, points out the glaring truth that Bernanke
and most of his paper-weight brethren would like to avoid:
The US
money supply has experienced the sharpest contraction in modern history,
heightening the risk of a Wall Street crunch and a severe economic slowdown
in coming months... the M3 ''broad money" aggregates fell by almost
$50bn (£26.8bn) in July, the biggest one-month fall since modern
records began in 1959.
“Monthly
data for July show that the broad money growth has almost collapsed,"
said Gabriel Stein, the group's leading monetary economist.
On a
three-month basis, the M3 growth rate has fallen from almost 19pc earlier
this year to just 2.1pc (annualised) for the period from May to July. This is
below the rate of inflation, implying a shrinkage in real terms.
The growth
in bank loans has turned negative to a halt since March.... shifts
in M3 are a lead indicator of asset prices moves, typically six months or so
ahead. If so, the latest collapse points to a grim autumn for Wall Street and
for the American property market. As a rule of thumb, the data gives a
one-year advance signal on economic growth, and a two-year signal on future
inflation.
http://www.telegraph.co.uk/finance/economics/2795017/Sharp-US-money-supply-contraction-points-to-Wall-Street-crunch-ahead.html
This is not your
mother’s contraction. Instead, this is the mother of all contractions,
a contraction far greater than even that which sent the world into the Great
Depression in the 1930s.
This time, the
amounts owed are exponentially greater than what was owed in the 1930s; and,
the greater the debts, the farther the fall. Debt does not just disappear
without consequences, nor can it be outrun, sic outgrown, as
economists are desperately hoping, especially today when economies are
contracting, not expanding.
Economic
contractions cannot be reversed by expanding the money supply any more than
wishful thinking by itself will change the world. Despite the best efforts of
central bankers like Ben Bernanke, Friedman’s flawed theory cannot save
the world from what is now about to happen—the mother of all
depressions that may be capitalism’s last.
Keynes and Friedman,
both brilliant, were both believers in paper money. Paper money has many
powers, not the least of which is the power to mislead and delude.
Milton
Friedman thought a lot
Of
paper money and more
Like
Keynes and others who thought the same
Milton
showed gold the door
And
now our gold is spent and gone
And so
is Milton
too
And
now we’re left bereft and broke
Not
knowing what to do
But
Ben Bernanke’s at the helm
Of the
sinking ship we’re on
And
soon like Milton
and our gold
We,
too, will soon be gone
So
let’s make a toast while we’re still here
To
those who caused our ruin
To
those convinced that they were right
But
didn’t know what they were doing
WHO BENEFITS FROM
THE FRAUD OF PAPER MONEY
The substitution
of paper money for gold and silver has always been imposed by those who
govern upon those governed; and, in the US
it was done so illegally. The US Constitution explicitly defines the US
dollar in silver, not paper money. The current regime of fiat money in the US
is not only a monetary abomination, it is de jure unconstitutional.
The imposition of
fiat money in the US
was done without the consent of the governed. However, those who govern
approved it. This is because the advantages of paper money accrue to those
who rule; and it is in their interests, not society’s, that paper fiat
money becomes the coin of the realm.
The disadvantages
of paper money are borne by society-at-large, i.e. entrepreneurs, workers,
businesses, retirees, savers, etc. who pay retail for the credit dispensed
wholesale to those better connected, e.g. are you able to leverage your
investments 50:1 as can JP Morgan Chase, Goldman Sachs, etc.; and, can you to
carry your underwater investments at full book value and borrow against them
as it does Wall Street? And were you bailed out last year as were the banks?
I have always
been amazed at those who identify with a system that primarily serves the
needs of others and only incidentally theirs. I can only conclude that such
identification is symptomatic of low self-esteem, as self-interest alone
would dictate otherwise.
We are now headed
towards a rendering so extreme that such divisions will become clear and
perhaps the many will finally cease identifying with a system that benefits
the few closest to the fountainhead of credit while penalizing the many
farther downstream which usually includes them.
Modern economics
is a sophisticated Ponzi-scheme cross-pollinated with a shell game designed
for the advantage of government, banks and those at the front of the line
wherein money is created out of thin air to be loaned to others who will in
the end be indebted beyond their means to repay and whose economic futures
will be destroyed by the inevitable confluence of the bankers’
compounding interest and their constant inflation of the money supply.
If you doubt this
is so, an article The Event by Eric Andrews,
is a must read, especially the areas directly concerned with money and its
creation. If you already believe this is so, Eric Andrew’s article is
even more important. Clear, concise, and conclusive, it points out the
inherent problems with our debt-based system of paper money, a system that
contains its own seeds of destruction, seeds which are now flowering, www.financialsense.com/fsu/editorials/2009/0921.html.
Andrews also
points out where we are and perhaps headed without guessing when we will
arrive. We face a minefield of possible scenarios as deflation, inflation,
hyperinflation, or a combination thereof may soon be in our future as the
bankers’ paper money is now about to self-destruct.
THE
BARRICKADE TO GOLD CRUMBLES
We are in the
final stage of the paper-boys’ efforts to preserve their crumbling
fiefdoms against gold’s advance. In truth, gold is not advancing at
all. It is standing still. It is the constant decline in the value of paper
money that makes it appear that gold is rising. Extant virtue needs no
movement.
While I am in
deep admiration of Professor Fekete’s insights on gold and money, I do
not envy the price he paid for his learning. Professor Fekete’s
understanding of monetary chaos derives from a childhood in Hungary
beset by a hyperinflation more severe than even that of the Weimar
Republic or Zimbabwe.
Professor Fekete
then escaped communist oppression in Hungary
to make his way to Canada
where he received a front-seat look at the central bank and corporate
collusion underpinning capitalism’s fraudulent paper-money scheme.
Upon retirement,
Professor Fekete had invested his savings in Barrick Gold Corporation, a
Canadian gold mining company. But instead of an expected return on his
savings, the professor got an unexpected education in how Barrick assisted
central banks in suppressing gold.
Barrick’s
forward selling of unmined gold from 1988 to 2003 put thousands of ounces of
paper gold on the market which forced down the price of physical gold. For
years, the forwards sales of Barrick and Anglo-Gold Ashanti were responsible
for the downward spiral of gold’s price, a goal desired by investment
banks doing the bidding of central bankers.
Professor Fekete,
as a shareholder, clearly understood that Barrick’s forward selling (or
so-called hedging operations) came at the expense of shareholders. It did,
however, directly benefit the central banks who wanted to cap the price of
gold. Today, the “Barrick-cap”, a major “Barrickade”
against gold’s rise is no more.
This month, on
September 8, 2009, Barrick Gold Corporation announced it was taking a $5.9
billion charge against 3rd quarter earnings in order to buy back
all its forward contracts, a considerable sum to pay for succumbing to the
wishes of those in power.
Once again,
Professor Antal Fekete was right. Sponsored by the Gold Standard Institute,
Professor Fekete will be in Canberra,
Australia,
November 2-5 speaking on “The World Financial Crisis and the Vanishing
Gold Basis”, see www.professorfekete.com. I consider the Professor to
be a light in these dark times. I and others will also be speaking.
It is absurd to
discuss the price of gold without discussing central bank or government
efforts to force the price of gold down, an effort that may soon be ending
due to the imminent advent of the end-game.
In my Youtube
video, http://www.youtube.com/watch?v=5o36Dj-ukPo, I discuss the possibility
of whether or not the US
will again confiscate gold. I wish the possibility were not so.
But, today,
governments cannot see an alternative to that offered by central bankers, the
merchants of debt who have enslaved nations with their fraudulent debt-based
paper money. As yet, there are no alternatives to the bankers’
offerings. But after bankers and governments fall—and they
will—alternatives will then become clear
Buy gold, buy
silver, have faith.
Darryl Robert
Schoon
www.survivethecrisis.com
www.drschoon.com
Also
by Darryl Robert Schoon
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