How to understand the game of our monetary system?

Knowing the rules to anything in life is important if you want to do well. The goal of our monetary system, is to issue debt and increase more debt. Modern day money is debt. Without continuous debt based issued paper notes by central banks, our monetary system would fall apart. Every paper note has to be borrowed into existence & then every paper note is owed back to whichever nation’s central bank plus interest. Paying down debt is not an objective for banks. To pay off debt is to destroy a nation’s money supply.

The game of our monetary system is like the game of monopoly. Paper money is theoretically unlimited; if the bank runs out of money they can issue more unlimited paper money via printing presses. You see, our whole monetary system is just IOU’s being passed around to pay/buy – goods/services. Banks to governments, governments to citizens. Citizens are sold on a bill of confidence – literally! Our entire monetary system is a confidence game. How does anyone have confidence in debt as money?

Every time a private citizen borrows money or puts something on a credit card “POOF”… modern day counterfeit $ has been created. Citizens get to borrow currency that never existed and then that currency that never existed – is now created & owed back to central banks plus interest. The game of monopoly is named after the economic concept of monopoly, the domination of a market by a single entity. The reason America’s national debt exists is because “The Federal Reserve” a private corporation controls/issues our currency. Ironic thing about our monetary system is that if everyone paid off their debts in our society there would be no money. Meanwhile, banks profit off the interest of citizens paying down debt. The real life game of our monopoly monetary system is different in one aspect there is an unlimited get out of jail free card for central banks!

*Dollars or Federal Reserve Notes are a debt, from a debt used to pay a debt. Ask yourself, how can someone pay a debt with a debt?

If you understand the game our of monetary system you know you can’t pay a debt with a debt. It would be in your best interest to become your own banker rather than pay interest to banks. Get lasting wealth today – Gold & Silver will not inflate away!

Example for fun via USDebtClock.ORG
National Debt = 16 trillion. Unfunded Liabilities120 trillion.
GDP = 15.3 trillion.
U.S could tax everyone 100% for 8 years leaving people no debt paper $ for any goods/services.

Fiat World Everywhere! – Coinhuskers

(When will the world figure it out?)

“Fiat money is an intrinsically useless product, used as a means of payment.”
Source – http://en.wikipedia.org/wiki/Fiat_money

Every nation today is using fiat money backed by debt. Fiat = money by decree some entity has to enforce it via regulation or law. Fiat money can come in different forms. Debt based fiat money is the current form today enforced by central banks around the world. The fiat money model today originated with the Bank of England in 1694. Fiat money is borrowed into existence and then interest is owed back to central banks.

The fiat money model simplified… We find some trees – make some paper – find a printing press – put a nice design on some paper – add some ink – add some #’s – enforce some laws to make fiat money legal.

Fiat money = debt. Debt = borrowing. Borrowing = interest (funny money for banks). No debt/borrowing = no money!

Further explanation of fiat money in action today

Centrals banks are private monopoly perpetual debt machines that lend fiat money to whomever living souls will borrow their debt and pay interest back to them. Continuous debt is the tool to keep economy afloat. Banks must attract as many people as possible to go into debt to borrow fiat money so they can collect interest. This explains why you’ll get a million credit cards offers in the mail. Central banks enhance their wealth by simulating commercial banks to make loans (risky) to collect as much interest as possible. All banks are essentially bankrupt from the first loan they make because they don’t have the 100% reserves to cover the promises they loan out. Fiat money is loaned to banks. Banks only lend promises back by a signed document, without a signed document and loaned deposits to banks there is nothing to lend.

Central banks lower interest rates to simulate as much borrowing to keep the economy afloat. Citizens assume their getting a great deal to buy goods/services when really it is encouraging citizens to borrow and pay interest to banks to keep the fiat money game going. A delay between new loans being created and repayment/interest being collected allows for systematic failure of the system to be postponed. Reason I say postponed is because eventually exponential growth catches up. 2008 was a brief preview when two of the top 5 banks went under: Lehman Brothers & Bear Sterns. Risky loans caught up to these two banks the repayment of interest on loans could not be made.

Propaganda babble informs us to save the system we must bailout the banks. Taxpayer fiat money foots the bill. Central banks must continue to issue/buy their own debt to keep fiat money alive. If the public opts for other forms of payment, fiat money would go to its intrinsic value of zero.

Fiat money throughout history becomes worth-less and worth-less until it is worthless! All have ended up being an ancient artifact. Fiat money should serve as a learning lesson… a lesson not taught in the conventional wisdom arena’s such as old school financiers, public schools & universities. Fiat money value derives solely on trust & confidence which has always eventually faded away.

For examples of different forms of fiat money in the U.S read article below: Rock-Paper-Silver!

http://thesilverschool.blogspot.com/2011/06/rock-paper-silver.html

Bond Vigilantes No More

What happened to all of the bond vigilates in the world of finance? These are the traders that in the past kept the profligate spending of governments in check by selling sovereign debt of 5 + years of maturity. This would take interest rates higher and force fiscal discipline upon governments issuing debt – otherwise forcing the debt issuers into a spiral of insolvency. This was a classical supply and demand force that made sense. If the bonds were sold off too low and the government was still in good standing financially, investors would get paid well to step in and buy the issues.
Fastforward to the present day G-7 central bank actions. The age old forces of supply and demand have been COMPLETELY derailed. What happened? Central banks worldwide have been buying their own government’s debt. That’s right, the low interest rates that you have been told are because of a recession are ARTIFICIALLY low by central bank market manipulation. To put numbers on it the Federal Reserve over the last few years has purchased over $1 trillion in treasuries (now owning a total of about $1.7 trillion) and the ECB (European Central Bank) has handed out over a $1 trillion to European banks to by sovereign debt. According to Bank of America, the FED will own over 50% of 6+ year treasury debt by the end of 2014. This is just a quick snapshot of central bank chenanigans (completely ignoring bank bailouts, private debt purchases, Freddie and Fannie paper, etc) that have completely hamstrung bond market supply demand forces and eliminated the bond market vigilantes. The result? There are no repercussions for government profligate spending. The US has trillion dollar annual deficits as far as the eye can see and the European Union is attempting to strong arm the sovereign nations of Europe into a fiscal union that will allow reckless spending of an even higher order.
Free markets can only be manipulated for so long – then a black swan event breaks the whole system down. How will this translate into our present world financial markets? HUGE currency swings. As long as interest rates are so artificially low and the interest rate markets manipulated, the free markets will express themselves by revaluing currencies. The Japanese Yen is the canary in this coal mine as their sovereing debt DWARFS that of any of the other developed nations. They are embarking on an intentional devaluing of their currency while attempting to keep interest rates low that will spiral into a hyperinflation and billions of people will lose huge portions of their life savings.
The leadership of the “free” world has lied to us, and as long as these “elected” officials have no leash around the neck of their social spending, we will continue down the road to insolvency that will end with the debasement of currencies, the ripping of the social fabric of our societies and likely end in war and huge debt restructurings…

Japan – The Canary in the Coal Mine

Reasonable people from all walks of life can see that the current economic scenario from a macro point of view – basically borrowing and printing to consume – is unsustainable.  However, just because something is unsustainable does not mean its going to crash tomorrow.  So that begs the question, how long can the developed world consume more than it produces, essentially racking up the credit card for future generations to be responsible for the tab? Honestly, it surprises me it has hung on as long as it has – but let’s take a look and see what indicators will warn us that the fiat demise is finally at hand. 

Anything posted in a discussion of this type is likely to be an oversimplification of a terribly complex issue, however I will post a basic premise and back it up with some imperical evidence.

A simplified backdrop of the world’s economic situation looks like this.  The developed world is swimming in an ocean of fiat debt – the depth of which the world has never seen during peacetime.  With sovereign debt over $50 Trillion and total debt more like $200 Trillion the numbers are truly staggering and central banks continue expand their balance sheets. It will soon turn to a Madoffesque macabre if things aren’t changed drastically and quickly. Basically we are 70 years into a debt cycle that is doomed to fail – the only question is when.

I like to use Japan as the proverbial canary in the coal mine.  Betting against the Japanese because of their ludicrous debt situation (sovereign debt close to 250% of GDP) has been dubbed “the widowmaker.” For years, the fundamentals have been out of whack, and not only have the Japanese gotten away with enormous debt, but the have done it with the LOWEST PRICE DEBT IN THE WORLD.  That’s right, the Japanese only pay .72% on their TEN YEAR debt!  Shortsellers have been slaughtered – hence the term “widowmaker!”

The reasons the debt has been so cheap and the yen has been strong are all coming to an end – so shortsellers will soon get their revenge.  Japan has recently turned from an export to an import economy. The catalysts of this have been the import of hydrocarbons for energy as their nuclear plants have been shut down and trade turmoil with the Chinese over worthless islands.

Their citizenry is aging and retiring at an alarming rate – not only will they not be buying government bonds as savings, they will be selling them for living expenses. The Japanese have not allowed for immigration. So the Madoff strategy of new victims entering the game is not being utilized and the average Japanese woman now has about 1.3 children – this is how ponzi schemes end.

Their new prime minister is setting a 2% inflation target rate.  That will scare off bond buyers who have been depending on deflation considering the low interest.

Japan is spending about 25% of their government revenues on debt service right now.  Imagine what happens when interest rates on their debt begin to rise!  Compare this to Italy. The Italians went from  what seemed to be an economic pillar of stability to a veritable dumpster fire IN JUST 100 BASIS POINTS WHEN THEIR TEN YEAR RATE WENT FROM 5% TO 6%.  What happens in Japan when rates come off the floor ?  They have more than twice as much debt to GDP as the Italians and to add more insult to injury their debt is of shorter duration – meaning it is coming due and they will have to refi !!  More and more of their government revenues will be required for debt service payments and the situation will accelerate. Their prime minister has no idea what he is doing pushing for 2% inflation.  That would ignite the debt bomb.

How does this roll out and when?  I don’t know, but the currency will go first.  Meaning, the Japanese yen will weaken significantly from where it is now and then the bonds will sell off sending interest rates higher. Eventually this will end in some sort of debt restructuring – that is inevitable.  How does the debt restructuring of the third largest economy in the world effect the globe?  No one knows, but one thing is for sure – a lot of people will lose a lot of money. When you check the European situation – they are not far behind Japan and the then the US will be on deck. Many parts of the globe will be in trouble, but the Japanese numbers and situation are by far the worst.

So right now, use the Japanese situation as your indicator – if the currency accelerates down and bond yields start to go up REEL IN AS MUCH PORTFOLIO RISK AS YOU CAN!  It will be much more important to get the return OF your money than worry about the return ON your money…

 

Greyson Geiler  

The Fiat World – How long will it last?

The macro-economic environment is now really heating up with all of the paper money printing by the world’s central banks. Fiat financial systems are based on superficial confidence rather than sound business principles – but right now that is working. Today saw new highs worldwide in many indexes and huge multinational stock prices.  HAPPY DAYS ARE HERE AGAIN!!

As long as the world perceives these paper currencies being perpetrated by banking cartels as holding of their value, the game will continue.  But how long can this last?  Many market commentators, myself included, discuss the pending doom of the current “spend all you want we will just print more” central bank montra. History has shown that eventually all fiat currencies fail. But history only rhymes rather than perfectly repeating and the paper printing fiasco that we are entering the final chapter is far bigger than any fiat system ever conceived of. We are 70 years into this paper credit boom that has laden the world economy with about $200 trillion of debt. This is unsustainable – but it is naive to believe that anyone can time the demise of the bubble of all bubbles with any precision.

I want to share with you one of the mechanisms at the disposal of the banking cartels to keep the confidence of this paper wealth system we are currently in. This is a quote from a very reputable investment news company Stansberry and Associates and it is referencing one of our governmental  “regulatory agencies” that the banks have in their back pocket,

– happy reading and don’t be shy to send this to your Congress people and anyone you know that thinks that market “regulation” by our government is the answer to anything…

The Securities and Exchange Commission (SEC) is once again doing something that should make you furious. It’s suing one of the few ratings firms in the country that actually publishes real, useful ratings on insurance companies, banks, and bonds. The firm is called Egan Jones and its founder, Sean Egan, is one of the most trustworthy, earnest, and honest folks I’ve met in finance.

Interestingly, his business model is like mine: The folks using his ratings pay for them, unlike Moody’s and Standard & Poor’s, where the bond-issuing banks (aka, the big banks) pay for the credit rating. SEC rules require every bond sold in the U.S. come with at least two ratings by its approved ratings agencies. These “approved” agencies are the same ones that rated every horrible subprime mortgage as triple-A during the credit bubble. Guess who didn’t? Sean Egan.

Like me and a few others, Egan warned loud and clear that the subprime mortgage market suffered from massive problems. He wouldn’t go along with the charade that was orchestrated by the big banks and their SEC lapdogs. You’ll never guess why the SEC is suing Sean Egan. It’s not because of his ratings – which have always been vastly more accurate than the SEC-sponsored firms. No, it’s because he applied to become SEC-approved. The agency is suing him for civil securities fraud because it alleges he filled out the form incorrectly. I’m not making that up.

Sean Egan is a pioneer in the credit-rating
agencies business. He fought the SEC for decades, simply to be allowed to
pursue a business model that wasn’t inherently corrupt. [Sean Egan’s business
depends upon the buyers of bonds, who pay for his ratings, as opposed to the
major rating agencies who are paid by the sell side.] The lawsuit against Sean
Egan removes the last pillar of any credibility or honesty in our capital
markets.

 
 
 
 

Silver market tightness

One thing that occurs to me when I watch the tightness in the silver market is that the basic functioning of a free market shouldn’t work this way.  Simple supply and demand fix most free market problems – and if Silver were a free market we would have higher prices. Many retail silver shops nation wide are waiting weeks for supplies from their wholesalers and consequently retail demand is not being met.  With higher prices the entire supply chain would be more incentivized to meet this demand, yet that has not happened.  It seems that such a small market with a concentrated price discovery structure (the COMEX) has allowed market manipulation to keep the suppliers relatively complacent about bringing ample supply to market.  When price manipulation occurs on a mass scale like this in any financial market, it usually does not end well – stay tuned…