Thursday, June 16, 2011

A Weak Currency is Good for Exports? Not!

Posted by bionic mosquito on 06/16/11 11:57 PM

"When the FED adds to the money supply through QEs, it cheapens the USD/FRN and makes U.S. products more competitive in world markets."

This mercantilist strategy is not so cut and dry. Japan has had one of the strongest currencies in the last several decades, and still runs a trade surplus. Germany as well, first with the Mark, now with the Euro. Meanwhile, the US has had a relatively weak currency over the same time, and has also seen its balance of trade grow worse during this same time.

It is often said: in order to consume one must produce. True as it is, the opposite is true as well: in order to produce, one must consume. In order to manufacture, one must buy raw materials.

What good is it to an exporting firm to have a week currency, when most of the inputs to production (commodities) have global prices? One might consider that the reason Japan is so competitive is that the strong yen has kept oil, steel and other raw materials needed for manufacture at much lower yen prices than what the US has realized with the dollar. As material and energy is often a majority of the cost of any manufactured good, it would seem a strong currency is of more benefit to an exporting nation than a weaker currency.

Posted by bionic mosquito on 06/17/11 12:13 AM

I will add, this idea of weakening a currency to improve exports gets even nuttier. Most manufacturers produce more for their home market than for export - this is especially true for small businesses, but consider even US auto manufacturers.

So, for the majority of sales, a weaker currency is devastating, as it inherently increases the costs of commodities that are priced globally - again, likely a majority of the COGS.

Nuttier still, big business can often work around this - it is easier for General Electric to locate a factory in China or Vietnam than it is for Joe's machine shop. This is true for countless reasons.

So the small guy gets fried, and the big guy can get around it by relocating manufacturing overseas AND pick up market share in the home market after the small guy files bankruptcy.

And we wonder why the US continues to lose manufacturing to foreign firms.

Ultimately one must conclude that this idea of a weak currency helping exports is only a Trojan horse; it is the advertised idea to make palatable for the masses that which is only good for big business. Just one more illogical theory in a long list of theories taught at the school for the economically gullible.

Wednesday, June 15, 2011

Hugo Salinas-Price and Free Coinage

HSP: If silver is currently $36 dollars an ounce, a one-ounce silver coin can be successfully placed in circulation with a monetary, numeric face value of $60 dollars, which overvalues the silver contained in the coin.

These coins would be very useful to the population and would be eagerly snapped up in vast quantities. The population would save these coins and use paper money for transactions - Gresham's Law; individuals would dispose of their silver money only in situations of great need.

BM: I must not be reading this correctly, because it seems absolutely backwards to me. If I have a coin with one ounce of silver content, and on it is stamped “$60”, while an ounce of silver trades at $36, WHY would I NOT trade the coin in for 1 2/3 ounces of silver?

Additionally, the definition of Gresham’s Law is incomplete (and therefore applied incorrectly), as it often is when used by people who write on this subject. The law, more accurately stated:

“Gresham's law is an economic principle "which states that when government compulsorily overvalues one money and undervalues another, the undervalued money will leave the country or disappear into hoards, while the overvalued money will flood into circulation."[1] It is commonly stated as: "Bad money drives out good", but is more accurately stated: "Bad money drives out good if their exchange rate is set by law."”

(from Wikipedia)

Gresham’s Law will result in exactly the opposite of what HSP suggests. The overvalued $60 coin will be eagerly driven into circulation, driving out other forms of money that are artificially undervalued by government decree. The undervalued money will be hoarded or driven underground.

HSP: How can we return to such a sound and realistic economy, where precious metals become once again money itself, because people think in terms of quantities of precious metal, either silver or gold?

First, we do not believe any change can be effected by a decree of any sort. The change must come in a roundabout way, insensibly. The problem of an overnight change, from the whole world's way of economic calculation by simple numbers, to calculation by quantity of precious metal is simply overwhelming.

BM: HSP states “First, we do not believe any change can be effected by a decree of any sort.” Then he goes on to make a decree. In fact, he makes a very bold statement: “There is only one way to achieve this.”


Please, just leave it to the markets. All that is necessary is to remove legal tender laws, remove tax consequences based solely on the type of money used in a transaction, and do not classify currency gains and losses as taxable events. The market is quite capable to figure this out in a manner and time far more efficiently than anyone person can imagine or decree.

Tuesday, June 14, 2011

All the Monetary Pixie Dust in One Place

Posted by bionic mosquito on 06/14/11 09:41 AM

"Anything that confuses people about money and banking is probably helpful to Anglosphere elites in their quest to keep their Money Power franchise intact - which in turn funds their quest for a new world order."

Quite true. We will see many of the confusing (and false) theories posted here today:

1) There is not enough gold to fund modern production

2) Money is created for the principal, but not for the interest

3) A gold standard won't work, as the elite have all of the gold

4) Politicians can control the money supply better than central bankers can

5) The money supply must grow with the size of the economy

6) The source of commercial credit is not saving but consumption

7) Gold and silver should be the only money, but the state must operate the mint

8) Why limit the growth of the economy to the growth in gold?

9) Access to credit needn't be contingent on someone else's agreement to give it up

10) The growth of the money supply doesn't matter, as long as prices are stable

It should be a fun day.

In the end, free-market competition in money and credit is the only proper answer, as DB often suggests. No legal tender laws, no government monopoly of money, no adverse tax consequences based solely on the type of money chosen for use.

The (relatively) free market has solved "money" in the past; the (relatively) free market has solved the problem of the production and distribution of far more complex goods than money today.

"Money" is a relatively simple problem for a free market to solve. Leave it to the market.

Sunday, June 12, 2011

Mark Skousen Part II

DB: Are we headed toward a double dip recession for the world and America?

MS: Only if the US government blunders more than they have already.

BM: The US never left the first dip. The government doesn’t have to blunder anymore, continued recession / depression is baked in the pie. If the government stopped any additional spending, the current programs (both military and social) are unsustainable and enough to bring the economy and the dollar down.

MS: Both have risen so much in the past ten years that I'd be surprised if they keep going. There's got to be a major pullback, and if the US gets its act together, we could see a significant correction. We've already seen it in silver. But as long as the Fed keeps pumping cheap money into the monetary system, and keeps interest rates artificially low, commodities like gold and silver should do well. Oil too.

BM: Enough hedging and contradiction in this statement to make any outcome be the predicted outcome.

“There's got to be a major pullback, and if the US gets its act together, we could see a significant correction.”

The US getting its act together is a political impossibility, but Skousen is theoretically correct.

“We've already seen it in silver.”

Hard to call what happened in silver a major correction. Viewed from the perspective of even a year ago, silver is significantly higher.

MS: I'm very bullish on high-income dividend-paying stocks and funds.

BM: He can only be high on these if he believes that “the Fed keeps pumping cheap money into the monetary system, and keeps interest rates artificially low….” So he must also believe that gold and silver are going higher. But wait, he hedged that comment earlier.

MS: [The dollar is] in a bear market, that's for sure, but once the Fed reverses course and raises rates, and the government stops spending like a drunken sailor, I see the dollar recovering.

BM: Another greatly hedged statement. When does he see this reversal of course for the Fed and the government? It seems the only possibility of a reversal of course is if the Fed decide saving the dollar is more important than supporting Congress, Then, Congress will take over Fed activities (likely incorporate the Fed into the Treasury). A greenbackers dream, and the certainty of a hyper-inflationary nightmare.

Saturday, June 4, 2011

Real Bills One More Time (part II)

Posted by bionic mosquito on 06/04/11 09:38 PM

(In further reply to Bischoff)

You continue to argue that inflation is not inflation because of some legal distinction or some accounting principle, as if some legislation or FASB decree can change the economic nature of the event.

There certainly is a legal and contractual difference between credit and receivables. There is also an accounting difference - each has its own place in the balance sheet. There is different treatment in the case of bankruptcy.

But economically there is no difference. Both capture the deferment of final payment for goods received today, albeit under different legal/contractual principles. All of your goings on about standard accounting principles and the difference of governing law do not change this economic fact.

Now here is where you say "I don't understand the difference" and I say "I don't know how to explain it better." You are one who is convinced that legislative action can change economic reality. You likely will never understand the difference.

Now, in any form (credit or receivable), the economic issue is the same. As Wimpy would say "I will gladly pay you on Tuesday for a hamburger today." It matters not to Wimpy how the seller books the transaction.

Why is it inflationary? Because it is fractional reserve. Why is it fractional reserve? You answered the question yourself. You say there is not enough gold (if you recall, gold = money, money = gold) to support production. (Not enough gold: another false concept, but not important to this discussion).

Not enough money (gold), but somehow through the magic of pixie dust man create some. Just like Bernanke and B of A.

Don't tell me (but I know you will anyway) that it is backed by gold. If the gold was there, then there would be enough gold to support production. But you say there isn't enough gold to support production. There either is enough gold or there isn't. You cannot argue both to be true at the same time.

Real Bills One More Time

Posted by bionic mosquito on 06/04/11 11:06 AM

(In reply to Bischoff)

"Money = Gold

"Gold = Money

"However, with the greater demand for products, the amount of gold used as currency was insufficient to also pay for each of the production steps in bringing an item to market. Unless there was a way to finance the production steps without the use of gold, the gold tied up to finance production would leave no gold with which to make purchases.

"The answer to the shortage of gold to finance both production and trade, lay in the development of a "redeemable" currency. Producers within a production chain for items in immediate demand by the consumer were financed by producers each other by drawing "Real Bills". These "Real Bills" were settled at the end of ninty days, after the end product had been sold.


While recognizing the possible utility offered by real bills, I will suggest that I could not have written a better description of the fractional reserve and inflationary nature of this credit instrument. (Yes, it is credit).

Thank you, Ingo. As in our dialogue yesterday, I find in your words a better statement than any argument I might make on my own. I could save myself much trouble if you would only agree to take my part in our disagreements.

Friday, June 3, 2011

A Further View on Centralized Government

Posted by bionic mosquito on 06/03/11 04:56 PM

While we are waiting for Ingo to gather his thoughts, I would like to expand further regarding my comments about Lincoln's War and the loss of the states' voice.

Declaration of Independence

When, in the course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the laws of nature and of nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness.

Thomas Jefferson makes clear that the people have the right to disband government if the people believe that government is not serving its proper role. Was the South doing something beyond this such that Ingo feels compelled to applaud Lincoln's use of utter devastation? Jefferson makes clear that people are justified to disband the Union, yet Ingo argues that Lincoln was justified to maintain the Union under all circumstances (as he has previously stated). Does Ingo suggest that it is 'just' that a government can compel obedience by such force, even when the people decide that a change in government is in order? What would Jefferson say?

Ninth Amendment: The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people.

Tenth Amendment: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

The Ninth and Tenth Amendments make clear that Federal powers are limited only to those enumerated, and those not enumerated are retained by the states or the people.

Kentucky Resolution (penned by Jefferson): That the several states composing the United States of America are not united on the principle of unlimited submission to their general government; but that, by compact, under the style and title of a Constitution for the United States, and of amendments thereto, they constituted a general government for special purposes, delegated to that government certain definite powers, reserving, each state to itself, the residuary mass of right to their own self-government; and that whensoever the general government assumes undelegated powers, its acts are unauthoritative, void, and of no force; that to this compact each state acceded as a state, and is an integral party, its co-States forming, as to itself, the other party; that this government, created by this compact, was not made the exclusive or final judge of the extent of the powers delegated to itself, since that would have made its discretion, and not the Constitution, the measure of its powers; but that, as in all other cases of compact among powers having no common judge, each party has an equal right to judge for itself, as well of infractions as of the mode and measure of redress.

We see from Jefferson's words that the states did not assume a position of unlimited subservience to the federal government, and that acts of the federal government that go beyond the enumerated powers are null and void.

Virginia Resolution (penned by Madison): That the Constitution of the United States, having delegated to Congress a power to punish treason, counterfeiting the securities and current coin of the United States, piracies, and felonies committed on the high seas, and offenses against the law of nations, and no other crimes, whatsoever; and it being true as a general principle, and one of the amendments to the Constitution having also declared, that "the powers not delegated to the United States by the Constitution, not prohibited by it to the States, are reserved to the States respectively, or to the people," therefore the act of Congress, passed on the 14th day of July, 1798, and intitled "An Act in addition to the act intitled An Act for the punishment of certain crimes against the United States," as also the act passed by them on the -- day of June, 1798, intitled "An Act to punish frauds committed on the bank of the United States," (and all their other acts which assume to create, define, or punish crimes, other than those so enumerated in the Constitution,) are altogether void, and of no force.

We see from Madison's words that the federal government has authority to punish only a very limited set of crimes, also specifically citing the Tenth Amendment.

Finally, is it likely that those wise men who sat in Philadelphia during that hot summer of 1787 would have supported the document if they knew it came with the right of the Federal government to declare war on their home State if there was some disagreement, or even, in fact, if the State later decided to secede? Would the States have ratified the document if they knew that, to enforce the Union under all circumstances, the Federal government would consider as acceptable the type of devastation that was ultimately unleashed on the South - both the military and civilian devastation?

Of course, the answer to both questions is no. Yet Ingo clings to the notion that Lincoln's actions were justified. It is damnable, and it is irrational to conclude that somehow the 17th Amendment carried more weight in diminishing the voice of the States than Lincoln's war did.

Wednesday, June 1, 2011

Global Government, Part II

Posted by bionic mosquito on 06/01/11 02:25 PM

Ingo, one question mark per question will suffice. I get it.

"How can you overcome central control when local culture, will, norms and self-reliance is checked and subject to central control now."

Just because it is so in some places doesn't make it so everyplace. Just because it is so at a specific times doesn't make it so at all times.

How can you overcome central control? Central control cannot last; this has been proven countless times. The Soviet Union is gone, now made up of a dozen separate states. Czechoslovakia is gone, broke in two. Yugoslavia is gone, with a half-dozen states standing in its place.

There will be more. As Cat Writer suggests, the EU will not stand as currently configured, it will break. Iraq will break in three. Afghanistan never was one, and will not be anytime soon despite having a central government in name only. Look at the Caucasus, a cauldron of factions.

It is not so difficult to envision that this will be true for the US as well. Yes, the central government might remain in form, but the power will be removed once the checks bounce (literally or figuratively, it won't matter). People will look to local solutions, as the national ones will fail, as they most definitely will.

A few hundred cannot contain a few million or a few billion by any means - force or otherwise - if the protection racket no longer is functioning.

I have mentioned before Jacques Barzun "From Dawn to Decadence" and Martin Van Creveld "The Rise and Decline of the State." Neither could be described as a radical; both come to a similar conclusion from different approaches. The centralized and all-powerful state is coming to an end, and we are living it.

"Do you advocate violent overthrow of the controlling elite...???"

Violence only in self defense.

"If not, then why hasn't central control been eliminated already...???"

It will likely never be eliminated, but it can be greatly diminished, and certainly decentralized. It has been decentralized where the promises failed. It will be decentralized where promises are yet to fail but will fail, as they must.

Too many non-productive supported by too few productive, with the ratio getting worse (BTW, IMHO this is why they opened the door to China and India - try to suck in a couple billion productive people to change the math. It isn't working, but that is a different subject). This cannot continue. The use of force, a new currency, the UN, the ECB, the IMF, the elite - none of them can change the very basic laws of economics.

When it fails, we will see Human Action. In some places, the new boss might be just like the old boss. In other places, less control will be the rule. In any case, decentralization will offer people more choices.

Global Government

Posted by bionic mosquito on 06/01/11 09:52 AM
"One of the main tenets of Money Power is centralization. This is in fact its most important dominant social theme. The world needs global government. A New World Order. Western elites are not far from their goal actually."

DB is quite astute in pointing out that "Western elites are not far from their goal actually."

Global government is not in our future; it was implemented in our past. All the structures were put in place post WWII. The UN, IMF, and the World Bank are such structures. NATO is another. The US Dollar is another.

A legislative / executive body in the UN. A central bank in the IMF. A lending arm in the World Bank. NATO as the military arm. And the dollar as the world's currency.

The tumult of the first half of the 20th century was the revolution. With central banking and fiat money in force, two world wars to consolidate power and initiate the institutions necessary.

And post 1945? A continued consolidation via an "enemy" - first the Soviets, then the Muslims (consider the foresight of establishing Israel in 1948, a full forty years before it was needed. Consider the work needed to bring the world's support to the Jews, such that this action would be taken.). Wars fought via the US military (the anchor of NATO), authorized solely by the UN, with the congress sheepishly going along.

Consider instigating a financial crisis to bring the IMF and World Bank back to prominence, when (over the previous 10 - 20 years these institutions grew to be despised wherever they entered, even irrelevant).

World government is here. Much work was done before 1945 to make it so. Events since then can be understood simply as further consolidation of power - as DB often says, for control. Nothing more.

The region from Vietnam to the Caucasus was one of the last holdouts to this control. And consider where the physical battles have been fought, almost continuously, throughout this region.

It seems a few holdouts exist: Iran, Libya, and perhaps a few others. And what of powers such as China and Russia? It strikes me that they play the game, do the dance. Leaders there also have a lust for power, and take actions that keep their power in place. Many times these actions align with the desires of those behind global government, it seems.

World government is here, increasing its consolidation and control since 1945. It is a testament to the strength of the machine that the population of the west for the most part continues to fear that world government is a risk of the future, when in fact it has occurred in the past.

Fortunately, it will not work; centralization never can. There are too many vested interests for their own little kingdom of power; these won't go along so easily. Even more important: as force increasingly becomes the only tool left available to the elite, more people will rebel. As the promises of increased security in exchange for less liberty are broken, more people will rebel. When control relies on force instead of passive compliance, enough people will withdraw consent.

Unfortunately, it will be a painful transition.