Miasma

The Big Short folks have got back together for an update, and here are some points:

• The people who brought us the Crash of 2008 profited from it rather than being punished, a replay of the dot-com bubble and crash. It is always “ the little guy” who pays. At the same time, even the little guy needs to take responsibility for falling for the blandishments of snake oil salesmen.

Exactly!  When the next wipe-out happens, countless will be unemployed and angry.  But the problem was self-inflicted and all unemployment is voluntary.  It is going to be ugly when it could get better.

• The free money ( for Wall St.) interest rate policy  “broke the social contract” that had existed for generations and encouraged people to work and save. There really is no such thing as “ free money.” Somebody always pays, in this case small investors and Main St. businesses. Government is creating the very economic inequality it claims to deplore.

Unfortunately, note he objects to calling it free and not object to calling it money.  It's neither free, since it is enslaving debt, and debt is not money.  How will anyone figure out what is going on, let alone happened, if they do not use proper terms?

• Risk cannot be priced without market interest rates, so the economy is floundering without reliable road markers.

These are capitalists.  As rent-seekers they are always looking for the big short, the main chance.  They believe in risk (a concept pushed in by bankers who had credit to burn). In business, people avoid risk, usually even in capitalism (hence so much insider trading) and always in a free market. They forget the free market has its own sets of signals, called prices.  There is no price signal via interest rate in a free market because there are no interest rates (outside of the unethical).  In a free market all goods and services are accomplished without interest.

This crack-up is going to be a tremendous opportunity.  I recall in Seattle circa 1971, "Last person to leave turn out the lights."  Within a decade it was booming with inflation, pro-big biz.  Back then the right move was to buy real estate.  A buddy of mine cooked in Alaska summers and bought and refurbed houses winters.  He is a multimillionaire, as a fish processors' cook.  He knew what to do. The next 40 will be deflation, pro small biz.

The next move is to replace, rebuild the USA gone.  Small business.  It's the only safe place.

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An Alternative: An Interest-free Economy

In his latest jeremiad, David Stockman has this to say:

In fact, bond defaults will be the transmission channel by which the global deflation pounds the Wall Street casino and brings another recession cycle to main street. In that respect, one of the most egregious evils of ZIRP and financial repression is that they prolong and distend the bad credit cleansing cycle.

So... bonds, that is debt "sold" in the form of credit extended (for if there are assets underlying, then they are no doubt over-valued) is the key.

Bond dealers sell debt, all sorts, that is credit at interest.  Note, again, not money, but credit, that is the nominal tally of what credit the seller is "good for."  For example, bond buyers (your pension) may load up on mass transit bonds, allocating your pension accumulation (which is just digital promises to pay you something someday) to get a light right system built, after which fares repays your bond holdings plus interest.  Sadly, the light rail is 1880s technology which will never generate enough revenue to repay the bond, let alone interest.  See Chicago, Detroit, Stockton, etc.  That's what happens when there is not strict separation of business and state. You are next.

First, there need be no such arrangement, because light transit could be financed as a private enterprise.

Second, private enterprise would not use 1880s technology, it would move to something more, say, 2001.

Third, private enterprise would turn a profit.  See Hong Kong mass transit.  (It's hard to follow Hong Kong machinations, but since owning real estate is not allowed in Hong Kong, you must pretend the government is in charge as you acquire the real estate necessary to achieve your goals.)

Let's here from the time Bill Clinton was elected president, and his response, the child, when he was told how the world works:

According to Bob Woodward's account in The Agenda, Clinton replied to this news in a half whisper: "You mean to tell me that the success of my program and my reelection hinges on the Federal Reserve and a bunch of fucking bond traders?"

Sorry for the bad words, but it's a quote.  His agenda was of course in service of the hegemon, so really that is how most of the world works, but not necessarily all of it.  There are alternatives, like the free market.

But note the simple fact: there is no denying that credit at interest is the game, the great distorter, deformer, malformer, misallocater, malinvester.   Everyone is clear on that.

But is anyone saying "let's not do that"?  We at the same time know it is utterly unnecessary to a thriving economy to have interest bearing instruments at all let alone for finance.  Yet, is anyone saying "let's not do that?"  All major religious systems say "don't do it because it does harm..." but not even the religious folk argue against it (except for some followers of Islam).

But we are in a regime called capitalism, although with dozens of definitions, essentially the idea that capital amassed is gratification delayed, and reward is later wealth.  The main vehicle of this accumulation is usury, charging interest on loans, something once limited to those regnant, then an elite,  and only in the 20th century to the middle class and amazingly now extended to the most impovershed.

That gratification delayed (time preference theory) is raw Calvinism, he who gained popularity for protestantism by unleashing usury as a means to overwhelm and destroy the papacy's hold on rents (the actual motivation for the reformation - reallocation of rents).  As accumulation began to redistribute northward, and accumulation be put in the service of individuals, the very definition of wealth changed to wealth as personal accumulation instead of weal.  As more and more assets were arrogated unto fewer and fewer people, who had less and less ability to make economic decisions, what once went to charities and organic community development now went to industries, the hegemon and war.  The bottom of this was captured by Dickens and the Russian novelists, labor movements resisted and carved out a middle class, temporarily, until the capitalists could figure out a way to ruin the weal again.  They figured it out.

Incidentally, by 1905 this destructive process was conceptualized by Weber as "the protestant work ethic," a halo on despoliation.

Now, 100% of the blame goes to those who will be wiped out in the coming years.  To agree to work for 40 years at a job that cannot possible be real economy, and expect to be paid for another 20 years to continue doing nothing is culpable.  As your mom said, just because everyone else is doing it, doesn't mean you have to.  Further, you can be part of the solution immediately as well, so there is excuse for being "wiped out."  You lost nothing when nothing was there except empty promises. All unemployment is voluntary.

Just start your own business.  Ignore what you "lost" (there is nothing to speak of there anyway) and get going creating weal, correctly defined, as the contributing to the range of goods and services available to an ever widening range of people who can afford them with their own money.  This is the free market, the only true path to peace and prosperity.

Work is self-employment (well, actually, customer-employment), your work is your lifestyle, and your lifestyle is your work, and wealth is something you contribute to, not accumulate for yourself.

When there is a shortage of something, its price goes up.  Given extremely few people will be starting up badly needed businesses, the business you start up will be all the more valuable.

And recall, no entrepreneur takes risks; you need customers, not money, to start up a business.

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Agriculture in USA is Still Small Business

Check this out...

According to the USDA:

• 10 percent of farms have gross sales of more than $250,000 and produce 80 percent of the country’s food

• 30 percent have gross sales between $10,000 and $249,000 and produce 18 percent of US food

• 60 percent have gross sales under $10,000 and produce less than 2 percent of food

Well,  if 80% of ag biz is small biz and produces 20% of our food, 20% produces 80%

Most help is for the 20%.

I focus on the other 80%, who need sales, and cannot effectively access the help that is "free."

One thing people worry about is funding, and I am happy to see there is zero interest (usury free) financing available aplenty:

• Barnraiser 
is for food startups looking for donations to get their product off the ground

• Kiva Zip
 is a free zero-interest loan platform great for early startups with low capital needs (up to $5,000)

• Community Sourced Capital
 is a zero-interest loan platform perfect for a growing business with larger capital needs ($5,000-$50,000)

And of course the real finance is intra-business, with no banks involved, that is vendor financing, at no interest.

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Bad Policies Win Approval

From 1 Samuel 8, Mo Ti to economics today, the powers that be always choose, purposely, bad policies.  

And, the people offering the bad policies usually know good policies, but in time craft what policies the hegemon will approve.  For example, before Keynes wrote todays reigning economic policy regime (which he recommended expressly to Adolf Hitler who implemented it), Keynes knew better:

Thus, monetary debasement and the price inflation that normally accompanies it have served as a method for imposing a “hidden taxation” on the wealth of the citizenry. As John Maynard Keynes insightfully observed in 1919 (before he became a “Keynesian”!):
“By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose.”

Alan Greenspan, the third worst inflationist (Bernanke second, Yellen will be the greatest) was a gold standard devotee before he joined the dark side.

What to do with such a rotten system? Jesus said:

 So you must obey them and do everything they tell you. But do not do what they do, for they do not practice what they preach.

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Money V Credit: I am not Alone!

Here is another blogger who has noticed there is a difference between credit and money.   Just so!

As with our inability to change the nature of the apple to an orange by simply calling it an orange, calling credit 'money' does not change the true nature of credit to money.  And I think this is the key to understanding Mish's response, and in the push to ban cash.  People have gotten so used to referring to credit as if it were money, they actually believe that credit and money are the same thing, especially so if that credit populates their deposit accounts or comes in the form of loans or even, from the Federal Reserve.  That is simply not the case because unlike money, all credit is someone else's debt, it cannot exist otherwise.  For example, the credit that populates your deposit account, is the bank's debt.

and this explanation!

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No Where to Invest?

The purpose of money is, among other things, a medium of exchange and a store of value.  If one has an excess of money, one might lend it in an act of charity.   As a store of value, its job is to be relatively stable, so money is not much of an asset if one is looking for gain.  Since money is gold and silver, looking for gain you would buy equity in a business by making an exchange for gold and silver for stock, and in turn the business you bought into would use the money for some corporate purpose.

Now in our economy, we use nearly no money, since bad money has driven out good, malcredit has driven out benecredit.  We buy and sell on malcredit, that is mere promises to pay, indeed, we are legally obliged to, and so people who accumulate excess credit seek to invest it to gain more.  We are a nation of rentiers who actually own no assets, but expect a return on nothing but putative capital.

When you got paid, you were paid in credit, not money.  You may have invested this credit in assets. There is no money backing your bank accounts.

As to assets backing investments to which you may have some title:

The idea behind asset allocation is simple: when one market struggles, it’s OK because an investor can jump into another that is thriving. Not so in 2015.
In fact, if you judge the past year by which U.S. investment class generated the largest return, a case can be made it was the worst for asset-allocating bulls in almost 80 years, according to data compiled by Bianco Research LLC and Bloomberg.

So the overbidding is peaking out, and we see the ball appearing to hang in the sky for a moment before it comes back down.

You assets are totalled based on the nominal price of your investments.  Bondholders have first claim, although the hegemon has learned he can abrogate rights with impunity.  On top of your claim on the asset base of USA is the political promises, actually a higher priority to the hegemon, on those same assets you putatively own.  The hegemon understands, ultimately, they have first call on your assets in an emergency.

Emergency!

There is one asset class in which you may thrive.  Start your own business and your first asset is a lifestyle you prefer, and next your earnings are protected as you store them not in a bank, but as accounts receivable, credit extended, to your customers.

There it is, the future, if you want it, but all this politic-econ biz talk is with one aim, calming the vast swathe of rentiers in usa, people who have nothing but malcredit, who've never really earned any money because their entire careers were built on a false economy, and expect to have a retirement as well based on, well, nothing.

Don't be like them.  Give up nothing, and build something.

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Stockman's Summary

Therefore pray not thou for this people, neither lift up cry nor prayer for them, neither make intercession to me: for I will not hear thee.  Jeremiah 7-16 

Though these three men, Noah, Daniel, and Job lived in that land, they would only save their own lives on account of their righteousness," declares the Lord GOD.  Ezekial 14-14 

Then said the LORD unto me, Though Moses and Samuel stood before me, yet my mind could not be toward this people: cast them out of my sight, and let them go forth.  Jeremiah 15-1

A priest at a mass prayed for the soldiers overseas who "protect out freedom and rights."  After Mass I asked the priest if he seriously thought soldiers protect our freedom and rights.  "Well who do you think does?" he snapped and his eyes flashed anger. I was surprised by his answer, and I said simply "God almighty."  He shrugged his shoulders with acceptance and mumbled something that was probably Romans 13-ish, and I had no intention to getting into it with him (not the time or place), and I was happy to leave it there when he shot over his shoulder with false deprecation "I fought in a little conflict called Vietnam..." as though that might be before my time and somehow relevant.  I replied, "I know it well, I was declared a conscientious objector during that war."  To which he replied, "Yes, my father wanted me to go to Canada."  Now, what draft dodging had to do with the conversation, I am not sure.  Again, this was not the time or place, so I let him have the last word.

I really don't think his views are unusual.  There is neither much interest let alone reflection on what is done around the world in our name and on our credit.  Easier to just fear Moslems and call it enough. David Stockman has written an excellent  year-end review of how we got here.

The people who understand it best all point to the problem of lending credit at fractional reserve (and yes, in confusing terms), at who it leads to massive malinvestment and misallocation in the form of the wars, destruction, nation-destroying and fast food horrors we have today.  Although they can see and explicate all that, they have no problem with the problem of having legal support for interest (usury) in loan contracts.

But it does not matter.We will not get rid of fractional reserve, let alone usury.    This is not depressing to learn nothing can be done, it is good to know it will soon be over.  Then we can begin to rebuild form the ashes, in fact we can get going before the crash, by starting a business now.  Read Stockman's accurate history.  Would prayers save us?  Who would listen to us?

In fact, the War Party entrenched in the nation’s capital is dedicated to economic interests and ideological perversions that guarantee perpetual war; they ensure endless waste on armaments and the inestimable death and human suffering that stems from 21st century high tech warfare and the terrorist blowback it inherently generates among those upon which the War Party inflicts its violent hegemony.

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Sam Zell Advises Anyone with Ears

With $2.7 trillion and rising at negative interest rates, what is going on?  Better to lose 3% within a couple of years guaranteed than 30-80%.

Mish summarizes a Sam Zell interview, a must read...

If you are breathing now, and think you will ever "retire (based on the idea wealth is defined as accumulation)" then good luck.  Better:

Asked when she plans to retire, Christine Acosta’s answer is emphatic. Never. The Florida resident restarted her career in her fifties after getting a bachelors degree, setting up a business in Tampa called Pedal Power Promoters that advocates for cyclists and provides valet parking for bikes at big events

The reason is the hegemon has no choice but to cut back on promises and accelerate confiscation:

US population in 1971 – 208 million
Total credit card debt 1971 – $8.5 billion ($41 per capita)
Total auto loan debt 1971 – $40.5 billion ($195 per capita)
US population in 2015 – 320 million
Total credit card debt 2015 – $890 billion ($2,781 per capita)
Total auto loan debt 2015 – $1.03 trillion ($3,219 per capita)

Here is the entire game, played by one company, in a nutshell, to help wrap your brain around it...

It borrowed the difference, of course, swelling its net debt load from $14 billion at the end of 2009 to $44 billion at present. And that’s exactly the modus operandi of our entire present regime of Bubble Finance.

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