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The size and existence of the modern state is limited only by the ability
to borrow money; an ability dependent on the continuing value of fiat paper money.That
limit has now been reached. Greece is not just a country that overindulged on
the bankers' poisoned candy of cheap credit. Greece is the canary in the coal
mine of the modern state.
When gold was removed from the international monetary system in 1971, US
interest rates were 6%.By 1980, however, US rates rapidly rose to 21.5% in
order to contain virulent inflationary forces unleashed when ties between
paper money and gold were cut. The separation of gold and money was
unprecedented. So, too, would be the consequences.
CROSSING THE RUBICON: FALLING INTEREST RATES, THE DESTRUCTION OF CAPITAL
AND THE END OF FIAT PAPER MONEY
US interest rates have now fallen for 35 years. In the short term, falling
interest rates are viewed as positive, growth is encouraged and investors
leverage ever-cheaper credit to reap ever-larger rewards in ever-expanding
markets.
In the long term, however, continually falling interest rates are a sign
that something is fundamentally amiss; that the requisite balance between
credit and debt necessary for self-sustaining growth is missing. Continually
falling interest rates-like continually falling blood pressure-indicates the
presence of a pathological monetary state that is ultimately fatal.
In his article, Euthanasia
of the Pension Funds, (Part 1) Professor Antal E Fekete pointed out the
dangers of continually falling interest rates:
.a falling interest-rate structure has a deleterious effect on
accumulated capital. Capital is destroyed across the board simultaneously and
stealthily. By the time the damage is discovered, it is too late to do
anything about it and firms go bankrupt in droves. The falling trend of
interest rates is the unrecognized cause of the depression that is presently
devastating the world economy.
.The last vestiges of the gold standard were unilaterally discarded by
the government of the United States in 1971. This event was coincident with
the onset of the greatest gyration in the rate of interest on a world-wide
scale. In a decade interest rates shot up to two-digit figures in the high
teens. Then a slow decline started in the 1980's pushing interest rates
relentlessly towards zero. The first move (rising interest rates) was
accompanied with a great surge of inflation, wiping out a large part of the
value of pension rights. The second move (falling interest rates), which is
still continuing, has brought deflation. It has not yet fully manifested its
corrosive on the pension funds as yet. Even so, the forces that drive
the rate of interest to zero are squarely responsible for the erosion or
destruction of all capital...
CONTINUALLY FALLING RATES AND EXCESSIVE MONETARY GROWTH
Below, I combined a chart of falling interest rates (greshams-law.com)
with a chart of the US money supply (St. Louis Fed), further evidence of the
destruction of capital.
 
Because of the continuing increase in the money supply, the dollars of
today are worth less than yesterday's and those of tomorrow will be worth
less than today's. We are now, all of us, running faster and faster at
unsustainable levels on a treadmill towards inevitable disaster.
pg. 64, Time
of the Vulture: How to Survive the Crisis and Prosper in the Process,
3rd ed. (2012), Darryl Robert Schoon
THE TIME OF THE VULTURE
When the Roman empire collapsed, even slaves feared what would happen
next. It is no different today.
In the 1st edition of my book, Time
of the Vulture: How to Survive the Crisis and Prosper in the Process
(2007), I predicted a financial crisis even more devastating than the Great
Depression was about to happen.
Today's devastation will be even greater, because paper money is no longer
backed by gold. The coming deflationary depression will involve not just the
collapse of capital markets but, in addition, a cataclysmic currency crisis
caused by the global destabilization of money.
When stocks lose their value
That's a terrible thing
When homes lose their value
That's a terrible thing
But when money loses its value
That's the most terrible thing of all
Time
of the Vulture(1st ed. 2007)
When I published Time
of the Vulture, Fed interest rates were 5 ¼ %. When the financial
crisis began in 2008, the Fed slashed rates to almost zero, 0.0-0.25%, to
provide markets with excessive levels of liquidity to offset the sudden and
severe drop in global aggregate demand.
Today, 90% of industrialized economies now have interest rates near zero
or below zero.
In addition to near zero interest rates, central banks created excessive
amounts of money by issuing trillions of dollars of bonds, e.g. QE1, QE2,
QE3, QE4, etc. pushing unprecedented amounts of newly created money into
global markets to contain the growing deflationary threat; and, while it
failed to contain deflation, the excessive liquidity is now circulating in
markets with no place to go, akin to moribund monetary edema.
In capitalism's end game, capital instead of circulating in the economy
accumulates in financial markets. Bubbles are the result, not economic
expansion; and, as aggregate demand fatally slows, so, too, does the velocity
of money.
http://chartramblings.blogspot.com/2014_04_01_archive.html
Capitalism, like a bicycle,
doesn't do well at slow speeds
In the 1930s, when global demand collapsed, countries fought for shares of
a shrinking market by levyingtariffs on imported goods. The US Smoot-Hawley
Tariff imposed surcharges on over 20,000 imported goods to record levels.
Enacted to protect domestic markets from foreign imports, the net effect,
however, was to accelerate the collapse of international trade.
http://www.theautomaticearth.com/2010/07/the-rise-and-fall-of-trade/
As in 1929, international trade fell in 2009; but, this time, countries
moved to protect markets not with tariffs but by debasing their currencies
with excessive money printing, making their exports cheaper in foreign
markets.
Debasing currencies to obtain a trade advantage, however, is akin to the
Chinese proverb, Drinking poison to quench thirst, 飲鴆止渴. While the advantages are
temporary, the consequences are not.
In November 2012, I wrote:
There are only two possibilities left in the bankers' end game. Either
deflation's growing momentum will pull today's faltering economies into the
ever-growing maw of a deflationary collapse or the continued printing of
money to stave off such a collapse will end with the complete debasement of
paper currencies in a hyperinflationary blowoff.
Schoon, The
Tipping Point (2012)
Today's excessive money printing-whether to gain a trade advantage or to
prevent a deflationary collapse-will end in the cataclysmic collapse of
today's fiat currencies and the consequent disarray of global markets and
sovereign states.
GOLD BULLION - A LIFE INSURANCE POLICY ON FIAT PAPER MONEY
When paper money dies, the payout will be spectacular
GOLD IS VOLATILE WHEN CONDITIONS
ARE VOLATILE
GOLD IS STABLE WHEN CONDITIONS
ARE STABLE
That's it, plain and simple. The more chaotic the monetary conditions,
the more chaotic the price of gold. Gold is a barometer of economic
uncertainty. In times when inflation threatens, gold moves up and down. In
times when deflation threatens, gold moves up and down. When both inflation
and deflation threaten, gold moves rapidly up and down.
Pg. 127, Time
of the Vulture, 3rd. ed. 2012, Schoon
After 2001, gold moved upwards, from $250 to $1900 in 2011. Since 2011,
gold has retraced 42 % of those gains. This had a negative effect on many
gold investors. Indeed, that was the purpose of the bankers' war on gold
after 1971.
For those who understand the tremendous financial and geopolitical forces
that today are vying not so much for supremacy as they were previously, but
for survival; gold remains as it always has been-a store of value in times of
monetary chaos and economic distress.
In March 2007, I predicted that an economic crisis would happen. It did.
That crisis has yet to run its course to make way for the better world to
come. In my Dollars & Sense youtube video, Darryl's New Prediction,
see https://youtu.be/qZJCTCO36DM. I make another forecast.
These are interesting times. Get used to it.
Buy gold, buy silver, have faith.
Darryl Robert Schoon
www.drschoon.com
www.survivethecrisis.com
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