Wednesday, May 6, 2009

Economic Mass Psychosis… (EMS)

While I’m not a psychiatrist, I did stay at a Holiday Inn Express last night… and with the help of math I can spot a bad case of EMS a mile away! Yes, dear. I know it's that time again, no need to apologize.

Wasn’t it Albert Einstein who defined insanity as “doing the same thing over and over again but expecting different results?”

Lindsey Buckingham - Go Insane:

There are people who actually believe that “stimulus” spending and ramming more “credit” into the system is going to fix our economy? Huh? What utter and complete nonsense – wait, that’s too polite… I want to just say its bullshit, because that’s exactly what it is.

And while we spend more and more, our tax revenues are falling off a cliff. Sure, there’s a recovery in there... for those who do not live in the world of the sane. And never mind that debts have grown to numbers that are absolutely beyond the tipping point, so huge that there is NO HOPE to ever pay them back. No, that doesn’t make me negative, it makes the majority of people incompetent at math and a large part of the mass psychosis that has befallen the globe.

I’ve been harping on the unworkable math for quite some time, Death by Numbers. And while that article is now out of date number wise, revising it would be utterly pointless as the numbers did not work then and they certainly don’t work now.

While the pontificators bullshit about this and that on the teledistractor and in the halls of Congress, the math just continues to get worse and no one, save Ron Paul, is willing to get up in front of a mic and talk about the real issues and how our system led to this mass psychosis. I’ve been pinning the blame on our Interest Bearing Fractional Reserve Money by Fiat… Which is run by the PRIVATE/ CRIMINAL central bankers, but very few people can see this as a primary root cause.

Today Mish stepped up to the plate and called that spade what it is, good on him. While I know he’s been an advocate of abolishing the Fed, he is going a big step further towards the ROOTS with this article, it’s a good one that I suggest everyone follow the link to read in its entirety, this is just the outline below:
Case Against the Fed and Fractional Reserve Lending.

Fractional Reserve Lending (FRL) is fraudulent. Indeed, FRL in conjunction with micro-mismanagement of interest rates by the Fed is the root cause of the financial crisis we are in.

Unfortunately many do not see FRL for the fraudulent scheme that it is. Here are the most common defenses against the allegation of fraud.

Five Arguments Used To Defend FRL

1. FRL is not fraud because the lending is backed by assets.
2. FRL is not fraud because it is allowed by law.
3. Eliminating FRL would require unwarranted "regulation".
4. No one is harmed by FRL.
5. People have a legal right to make agreements with banks allowing their money to be lent with no reserves

1R. To those who claim credit extended by fractional reserve lending is not fraudulent because it's backed by assets, I ask: "What assets?" The answer of course is ....
Fannie Mae and Freddie Mac debt that would be worthless were it not for taxpayer bailouts.

Asset backed commercial paper that has ceased to trade.

Toggle bonds and other such nonsense where debt is paid back with more debt.
Loans to hedge funds for speculation in credit default swaps and commodities.

Commercial real estate boondoggles including scores of condo towers now sitting empty.
A whole array of other silly loans that should never have been made.

Close analysis shows the "backed by assets" claim only holds true as long as asset prices are rising. When asset prices are falling as they are now, the true state of the non-existent backing is plain to see.

Credit extended via FRL is backed by nothing more than thin air and promises. Those promises are currently worth pennies on the dollar, and the entire global banking system is insolvent as a result.

2R. Some claim that fractional reserve lending cannot be fraud because it is legal. However, Just because something is legal does not make it right. For example: Slavery was once legal. It certainly never was right. Government decree cannot make slavery right, but it can and did make it legal. By the same token, government decree alone cannot change the fact that fractional reserve lending is fraudulent. Proof of fraudulence will be offered in the rebuttal to point number 4.

3R. Some claim that FRL cannot be eliminated because that would require regulation and such regulation would in and of itself be against free market principles. The fact of the matter is that a free market would quickly shut down any bank lending out more money than it had in the vault. No one would possibly trust such a bank. It is only government decree (regulation) that allows banks to get away with such obvious fraud.

Furthermore, people are confused by what "libertarian" means. Libertarian does not mean anarchy. There are laws against murder, theft, fraud, and slavery that no libertarian I know would argue against.

Indeed, for any society to function, there must be certain laws (regulations) in place. Here are the basic tenants of valid laws.
Protection of property rights
Protection of civil rights
Freedom of religion
Equal protection under the law regardless of race, creed, color, sex, nationality, wealth, etc.

4R. Proponents of FRL claim no one is harmed by it. In practice, everyone is harmed by it. Here is how it starts. Those with first access to money accumulate assets and those with later access to money bid up those assets. Consider housing. GSE creation of credit out of thin air is a perfect example of what happens. By the time credit was available to those of lower economic status, the bubble was already formed and ripe for a collapse. Even the non-participants were harmed. How so? Via rising property taxes and rising prices of goods and services without the benefit of rising wages.

Ironically, even those with first access to money (the banks and wealthy) ultimately did not fare well because they were greedy. When the bubble popped (as all debt bubbles eventually do) the only winners were the few who made timely bets on the demise of the bubble.

FRL is the enabler for credit bubbles. Given enough time, credit bubbles are guaranteed to implode in deflationary fashion. History is replete with examples. The South Seas bubble, the John Law Mississippi bubble, and tulip mania are prime examples.

5R. People have no such right to agree to commit fraud. Here are more things people have no right to do: Shout fire in a movie theatre, conspire to steal someone's money, agree to start a toxic waste dump in a location where it would poison every water source in the neighborhood. There is an infinite number of things two people cannot agree to do. The right of people to do things ends when it affects the property rights of everyone else. And as noted in 4R, everyone is affected by fraudulent agreements that allow more credit to be extended than there is money in the bank.

Mish is definitely onto the rational and sane truth here. The leverage created by the fractional reserve system has gotten higher and higher as the required real reserves have declined. Today the banks have NO REAL RESERVES and thus our system has gone to an INFINITE Fractional Reserve Lending system.

Never ending growth is not possible in the real world, only insane or very uneducated people would make that a goal, and our Fed has, while scores of people buy into that mantra as a possibility. They have never Spent some Time with the Good Dr. Bartlett…

Albert Einstein and Dr. Bartlett would have gotten along, I can imagine, as they both understood the limits of math. Einstein said it best when he said, "Two things are infinite: the universe and human stupidity; and I'm not sure about the universe."

Our entire PONZI economy has been brought to you via one little Keynesian lie and distortion after another. The central bankers continue to buy the politicians and the politicians continue to spread and implant their little lies that distort reality and lead to mass psychosis. They are telling you that they need your money to ensure the flow of credit (debt) to get the system running again. It’s up to you whether you wish to believe their not so little lies.

Fleetwood Mac-Little Lies: