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Modern economics is not rocket science.
In fact, it’s not science at all. It’s a game, a confidence game.
Once paper passed for money, economics became an elaborate shell game
designed to hide the fact paper had been substituted for silver and gold.
Debt ratings are an attempt to quantify confidence in paper assets and are an
essential part of the game. The shell game is called “Where’s The
Money?” The answer is simple, it’s not there.
The question “where did the money go during
the Great Depression?” has now been answered to my satisfaction. During
the Great Depression, money essentially disappeared and, as a consequence,
consumer and business demand collapsed as did prices, beginning a downward coreolis-like spiral that was to suck the global economy
into an economic black hole.
My study of the Great Depression began in the 1990s
and the subsequent collapse of the dot.com bubble provided a real-time
corroboration of assumptions about the connection between loose credit,
excessive speculation, and financial bubbles; and, now, in 2008, one of my
most troubling questions about the depression has been answered—where
did the money go during the Great Depression?
Plunge In US Commercial Property, an article by
Daniel Pimlott posted on FT.com (Financial Times)
May 21, 2008 provided a critical clue:
Commercial property prices
in the US in February saw their sharpest decline since records began nearly
15 years ago as sources of finance for deals has dried up, according to data
from Standard & Poor’s out yesterday.
The value of commercial
buildings fell 1.03 percent between January and February, the largest monthly
decline since at least 1993, when the industry was just emerging from a deep
slump.
The fall in national
property prices comes as banks have retrenched on lending due to credit
crisis and the slowing economy, causing
the volume of deals to slow sharply. The market for commercial
mortgage-backed securities, which until last August was a major route to
cheaper borrowing, has largely ground to a halt.
Sales of commercial
properties were down 71 per cent in the first quarter compared with a year
earlier, according to data from Real Capital Analytics.
The fact that sales of US commercial real estate fell an
astounding 71 % from 1st quarter 2007 to 1st quarter 2008 is shocking and the
implications are quite serious. The cause
of the slowdown, however, provided the very clue I was seeking.
Commercial property prices in the US...saw their sharpest decline…as sources of
finance for deals has dried up… as banks have retrenched on lending due to credit crisis…
DURING
THE GREAT DEPRESSION
MONEY DID NOT DISAPPEAR
CREDIT DID
The answer to: Where did the money go in the Great
Depression? is found in the metaphor of the shell
game. It is now clear that money didn’t disappear during the Great
Depression, credit disappeared.
The money was never there in the first place. Money
had been replaced by credit in the shell game introduced by the Federal
Reserve in 1913 when the Federal Reserve began issuing credit-based Federal
Reserve notes in place of the savings-based money from the US Treasury.
For details on how the shell game is run, Professor Antal E. Fekete’s
description of the check kiting scheme between the US Treasury and Federal
Reserve provides crucial information for those perhaps wishing themselves to
live off the earnings of others.
It is epitomized by an
elaborate check-kiting conspiracy between the U.S: Treasury and the Federal
Reserve. Treasury bonds, contrary to appearances, are no more redeemable than
Federal Reserve notes. It’s all very neat: the notes are backed by the
bonds, and the bonds are redeemable by the notes. Therefore each is valued in
terms of itself, rather than by an independent outside asset. Each is an
irredeemable liability of the U.S: government. The whole scheme boils down to
a farce. It is check-kiting at the highest level. At maturity the bonds are
replaced by another with a more distant maturity date, or they are ostensibly
paid in the form of irredeemable currency. The issuer of either type of debt
is usurping a privilege without accepting the countervailing duty. They issue
obligations without taking any further responsibility for their fate or for
the effect they have on the economy. Moreover, a double standard of justice
is involved. Check-kiting is a crime under the Criminal Code. That is,
provided that it is perpetrated by private individuals. Practiced at the
highest level, check-kiting is the corner-stone of the monetary system.
GOTTERDÄMMERUNG The
Twilight of Irredeemable Debt, Antal E. Fekete,
April 28, 2008
http://www.professorfekete.com/articles%5CAEFGotterdammerung.pdf
THE
STUDY OF MODERN ECONOMICS IS SIMILAR
TO THE STUDY OF RELIGION IN A TIME OF IDOLATRY
In the shell game of modern economics, credit
replaces money and when credit gives rise to speculative bubbles, the
collapse of those bubbles leads to the defaulting
of debt which causes credit to
disappear and the economy to collapse.
The credit based shell game, however, is nearing its
end. The historic credit contraction that began in August 2007 is still in
progress. Despite the efforts of central bankers, credit is still
disappearing and, just as in the Great Depression, the credit contraction is
continuing to spread causing more
and more debt to default.
Credit, the fertilizer of human debt, when no longer
available effectively spells the end of the legalized shell game masquerading
as modern economics; but the kreditmeisters, their global confidence game now
damaged by an unexpected lack of confidence on the part of the marks, sic investors, however, will not give
up their scam easily.
THE
CONUNDRUM OF THE KREDITMEISTERS
Those running the shell game, the central bankers
and their codependent brethren, investment bankers,
are terrified of losing their day jobs, They have lived well for three
hundred years (since the establishment of the Bank of England in 1694)
leveraging the productivity of others and we can be assured they will do everything
in their considerable power to keep their lifestyle intact..
At this time the central bankers are collectively
engaged in financial triage as they attempt to replace the credit that is
rapidly being withdrawn in the face of ever increasing amounts of defaulting debt.
Following the same play book they used in the
aftermath of the dot.com collapse, the Fed has quickly cut rates from 5.25 %
to 2 % but this time they will not ignite a housing bubble as they did the
last time. This time, they will do worse. This time, they will burn down the
house.
BURNING
DOWN THE HOUSE
In the long run, there is no short run
In retrospect it will all be clear, the mistakes,
the reasons, the excuses, the results. Now, however, in the beginning of the
collapse, events appear more problematic, the outcome still unknown.
Nonetheless, even in the fog of unexpected events, certain things can be
known and safely predicted; and, one of them is that we are now on the road
to hyperinflation.
Appointing “Helicopter Ben” Bernanke to head the Federal Reserve now is akin to
sending Sammy the Bull, the mafia hit-man, to negotiate with the Palestinians
and Israelis; and when the news comes back that Sammy the Bull shot and
killed the Palestinians and Israelis at the negotiating table, we should not
be surprised—just as we should not be surprised that Ben “the
printing press” Bernanke is erring on the
side of excess in the current economic crisis by providing even more credit,
by shoving even more debt based paper into now a burning house.
WHEN
A HOUSE OF PAPER MONEY BURNS
Hyperinflation is to inflation like pneumonia is to
a cold. Though similar, the former is much more consequential; and whereas
pneumonia can sometimes kill, hyperinflation is a veritable death sentence.
Hyperinflation always ends in the total destruction of paper money. In
hyperinflation, the value of paper money reverts to its mean—ZERO.
The past is indeed prologue when it comes to
humanity, printing presses, and the recurrent desire of governments to turn
paper into gold; which through the alchemy of central banking is
possible—though only for a limited time.
While central bankers and governments do not intend
to cause hyperinflation anymore
than drunk drivers intend to crash, they are nonetheless responsible for the decisions
that lead to hyperinflation and deflationary depressions.
The United
States has experienced high rates of
inflation in the past and appears to be running the same type of fiscal
policies that engendered hyperinflations in 20 countries over the past
century.
Professor Laurance
Kotlikoff, Federal Reserve Bank Review St Louis July/Aug 2006
The US
is the largest economy in the world and the US dollar is the world’s
reserve currency. Its central bank, the Federal Reserve, is the most influential, and Ben “the printing press” Bernanke is its chairman. We should not be surprised at
what is now going to happen to the US, the US dollar and the world
economy.
As the Fed is busy bailing out international
investment banks with America’s money, we should be more concerned with
what is going to happen to us; because
when the US dollar goes up in smoke, the US economy will go down in flames
and the world economy will stumble badly, if not collapse completely.
Hyperinflation will destroy both the US dollar and the
US
economy and the world will not be unaffected. Professor Kotlikoff’s
warning about a US
hyperinflation was published in 2006; and, now in 2008, US printing presses
under Fed chairman Ben Bernanke are running faster
than they’ve ever been run before.
HYPERINFLATION
IS LIKE STEPPING OFF A CLIFF.
YOU ONLY EXPERIENCE IT AFTER YOU’VE GONE TOO FAR
Friedrich Kessler, a law professor at Harvard and at
Boalt Hall UC Berkeley described the onset of
hyperinflation during the Weimar Republic in Germany.
It was horrible. Horrible! Like lightening it
struck. No one was prepared. You cannot imagine the rapidity with which the
whole thing happened. The shelves in the grocery stores were empty. You could
buy nothing with your paper money.
From Fiat Paper Money, The History And
Evolution of Our Currency $28.50 by Ralph T. Foster, tfdf@pacbell.net (510) 845-3015
This book, a primer on the end game, is everything you wanted to know about
fiat paper money and were too afraid to ask.
At Session III of Professor Fekete’s Gold
Standard University Live in February, I discussed the possibility of a
sequential or simultaneous hyperinflationary deflationary depression, the
economic equivalent of having both a severe heart condition and a possibly
fatal cancer at the same time. Such is not impossible; in fact, it is
increasingly likely.
I highly recommend the thorough and studied analysis
of hyperinflation and concurrent possibilities in John Williams’ Hyperinflation Special Report, Shadow Government
Statistics, Series Issue No. 41, April 8, 2008, http://www.shadowstats.com/article/292. John Williams
also references and recommends Ralph T. Foster’s Fiat Paper Money, The History And Evolution of Our
Currency noted above.
The critical question should now be asked: What can
we do?
THE
PARACHUTE OF GOLD AND SILVER
JUMPING OUT OF UNCLE BEN’S SPUTTERING HELIPCOPTER
The following is from The Nightmare German Inflation, Scientific Market Analysis,
1970, which describes the extreme hyperinflationary conditions during the Weimar Republic in the 1920s:
The ones who fared best were the small minority who
had the foresight to exchange marks into foreign money or gold very early,
before new laws made this difficult and before the mark lost too much value.
The difference between 1920s Germany and
today is that there are no longer any currencies convertible to precious
metals. In the 1920s, when hyperinflation destroyed the German mark, other
currencies were still tied to gold. Today, this is no longer the case. Today,
only gold and silver will offer guaranteed monetary refuge during the coming
crisis.
A hyperinflation is a monetary phenomena caused by the rapid printing of money not
convertible to gold or silver. The inflation of the paper money supply
happens gradually, but hyperinflation is itself a sudden-onset phenomena. Suddenly and unexpectedly,
inflation becomes hyperinflation and unless you are already prepared, it is
already too late.
Today, we are moving closer to the end game, the
resolution of past monetary sins when the banker’s shell game is
exposed for what it is—a monetary abomination, a parasite on the
economic body that over time kills the host on which it feeds.
Be aware. Be careful. Be safe.
Have faith.
Note I: I now have a blog,
Moving Through The Maelstom
with Darryl Robert Schoon. My first blog discusses the underlying reasons for our increasing
series of crises.
see http://www.posdev.net/pdn/index.php?option=com_myblog&blogger=drs&Itemid=106
Note II: I will be speaking at Professor Antal E. Fekete’s Session
IV of Gold Standard University Live (GSUL) July 3-6, 2008 in Szombathely, Hungary.
If you are interested in monetary matters and gold, the opportunity to hear
Professor Fekete should not be missed. A perusal of Professor Fekete’s topics may convince you to attend (see http://www.professorfekete.com/gsul.asp ). Professor
Fekete, in my opinion, is a giant in a time of small men.
Darryl Robert Schoon
www.survivethecrisis.com
www.drschoon.com
blog
www.posdev.net/pdn/index.php?option=com_myblog&blogger=drs&Itemid=81
Darryl
Robert Schoon
www.survivethecrisis.com
www.drschoon.com
Information
contained herein is obtained from sources believed to be reliable, but its
accuracy cannot be guaranteed. It is not intended to constitute individual
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situation. The opinions expressed herein are those of the author and are subject to change without notice.
The information herein may become outdated and there is no obligation to
update any such information. The author,
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