Debt: The first five thousand years

Moderators: Elvis, DrVolin, Jeff

Re: Debt: The first five thousand years

Postby compared2what? » Sat Dec 08, 2012 5:03 pm

compared2what? wrote:As usual, the Austrian school holds that everyone else is completely wrong, because: (a) the problem is inflation, whether there is any or not; (b) the cause is government interference with markets; and (c) the solution is to just let everybody slug it out privately in one great big nature-red-in-tooth-and-claw free-for-all that's somehow ultimately good for the people who would obviously lose it.


On consideration, that's probably misleading and/or wrong, in that it suggests that Austrian school economists wouldn't think that chart was a sign of the same catastrophic collapse everyone else thought it was. Because (I think, at least) they would. They just wouldn't think it was a bad thing to be avoided as much as it was a step in the right direction.
“If someone comes out of a liquor store with a weapon and 50 dollars in cash I don’t care if a Drone kills him or a policeman kills him.” -- Rand Paul
User avatar
compared2what?
 
Posts: 8383
Joined: Sun Oct 21, 2007 6:31 am
Blog: View Blog (0)

Re: Debt: The first five thousand years

Postby bluenoseclaret » Wed Dec 12, 2012 11:08 am

Episode 377

Every week Max Keiser looks at all the scandal behind the financial news headlines.

In this episode, Max Keiser and Stacy Herbert look at how Hollywood-style accounting has turned the global financial system into a place where money and wealth melt like so much congealed snow. And so from Pontiac, Michigan to the Australian outback, zero percent interest rates and jobs that never materialize are the new normal. In the second half of the show, Max Keiser talks to Matt Taibbi of Rolling Stone about banksters who can’t recall a single thing about their crimes, including everything from Libor rigging to defrauding monoline insurers.


http://rt.com/programs/keiser-report/ep ... ax-keiser/

Kro
bluenoseclaret
 
Posts: 199
Joined: Wed Mar 03, 2010 4:21 pm
Blog: View Blog (0)

Re: Debt: The first five thousand years

Postby bluenoseclaret » Wed Dec 12, 2012 12:52 pm

Episode 378

Max Keiser looks at all the scandal behind the financial news headlines.

In this episode, Max Keiser and Stacy Herbert look at the latest BIS warning of a global credit bubble caused by zero percent interest rate policies meant to appease the angry hidden people in the shadow banking system. In the second half, Max Keiser talks to David Smith of GenevaBusinessInsider.blogspot.com about the Swiss currency peg, the global game of honesty limbo in the financial sector and hoping that midnight never comes for Alice in Switzer-land.


http://rt.com/programs/keiser-report/ep ... ax-keiser/

Kro
bluenoseclaret
 
Posts: 199
Joined: Wed Mar 03, 2010 4:21 pm
Blog: View Blog (0)

Re: Debt: The first five thousand years

Postby Wombaticus Rex » Wed Dec 12, 2012 2:40 pm

Yeah, that BIS report made big waves at work, of course.

A good summary here:

As if we needed telling, the Bank of International Settlements (BIS) – virtually the only organisation to foresee the 2007 financial crash – has warned that global asset prices have yet again risen to giddy highs and may be losing touch with economic reality.

“Unusually, equity and fixed income gains coincided with a weakening of the global economic outlook,” said the bank in its quarterly report, reminding us that “in the past, falling growth forecasts have usually been associated with rising expected default rates and higher bond yields”.

Yet even more of a concern is the fact corporate bonds have reached levels comparable with those of late-2007, despite the default rate of those bonds running at 3% today as opposed to around 1% in late-2007. Yields on mortgaged-backed bonds, meanwhile have fallen to the lowest level ever recorded.

All this comes against moves by the International Monetary Fund and the OECD earlier this year to downgrade their outlooks for 2012 and 2013 for much of Europe and emerging markets including China, India and Brazil.

Looser monetary policy by governments has brought another tidal wave of cheap credit, meaning bond investors are seeing lesser returns for risk today than in the past. Consequently, with rates on bank deposits close to zero, some are seeking out better short-term returns on riskier products much like in the years preceding the financial crash.

So we’re very nearly full circle. Still there has been no concrete structural readjustment to the global economy, and little to nothing has been done about the fundamental problems of the banking system. Basel III is a step in the right direction, but no more a solution than a dose of ibuprofen is to a fractured skull.

As it is it must be hoped that this time insurance companies and pension funds are able to show restraint in the face of pressure to add an extra few points of yield to their portfolios. But I won’t be holding my breath.


Via Strategic Risk ... which reminds me I sure do miss having free WSJ and FT, because I bet there are better articles there. C'est la vie and shit.
User avatar
Wombaticus Rex
 
Posts: 10896
Joined: Wed Nov 08, 2006 6:33 pm
Location: Vermontistan
Blog: View Blog (0)

Re: Debt: The first five thousand years

Postby justdrew » Wed Dec 12, 2012 4:11 pm

sounds like the people with all the money have no idea what to do with it all.

we really need an eDitch for people to iDig.
By 1964 there were 1.5 million mobile phone users in the US
User avatar
justdrew
 
Posts: 11966
Joined: Tue May 24, 2005 7:57 pm
Location: unknown
Blog: View Blog (11)

Re: Debt: The first five thousand years

Postby Wombaticus Rex » Wed Dec 12, 2012 6:51 pm

justdrew wrote:sounds like the people with all the money have no idea what to do with it all.

we really need an eDitch for people to iDig.


Quite so. Have a buddy who works for China's SWF and he says it's non-stop LULZ because the back-stabbing and desperation for YIELD is the craziest he's ever seen it. He says they listen to a lot of desperate pitches out of sheer inscrutable schadenfreude but nobody is taking JP Morgan's offers seriously these days.

Alpha has always been a zero sum game, but now it's more like Too Many Rats in The Same Shinking Cage.

Everything clicked for me when I saw a chart showing the velocity of money vs. corporate profits. Captialism has always been about extraction but the strip-mining in 2012 is sheer stupid cannibalism. These guys are gutting themselves to make quarterly calls knowing there is no possible way they can last another year...at least, not without eating someone else.
User avatar
Wombaticus Rex
 
Posts: 10896
Joined: Wed Nov 08, 2006 6:33 pm
Location: Vermontistan
Blog: View Blog (0)

Re: Debt: The first five thousand years

Postby justdrew » Wed Dec 12, 2012 7:10 pm

Wombaticus Rex wrote:
justdrew wrote:sounds like the people with all the money have no idea what to do with it all.

we really need an eDitch for people to iDig.


Quite so. Have a buddy who works for China's SWF and he says it's non-stop LULZ because the back-stabbing and desperation for YIELD is the craziest he's ever seen it. He says they listen to a lot of desperate pitches out of sheer inscrutable schadenfreude but nobody is taking JP Morgan's offers seriously these days.

Alpha has always been a zero sum game, but now it's more like Too Many Rats in The Same Shinking Cage.

Everything clicked for me when I saw a chart showing the velocity of money vs. corporate profits. Captialism has always been about extraction but the strip-mining in 2012 is sheer stupid cannibalism. These guys are gutting themselves to make quarterly calls knowing there is no possible way they can last another year...at least, not without eating someone else.


this just looks like a disaster...
Image
By 1964 there were 1.5 million mobile phone users in the US
User avatar
justdrew
 
Posts: 11966
Joined: Tue May 24, 2005 7:57 pm
Location: unknown
Blog: View Blog (11)

Re: Debt: The first five thousand years

Postby slimmouse » Sat Dec 15, 2012 4:58 pm

Keeping it very simple.

Remember Iceland? That which the MSM has magically decided to forget?

Image

Yes, its true that a few pension and investment funds suffered from this attitude.

But of course democratic govts. coulda guaranteed those funds instead of the banksters, at half the price, in a sane world ruled by normal people ?

Keep the message simple.
slimmouse
 
Posts: 6129
Joined: Fri May 20, 2005 7:41 am
Location: Just outside of you.
Blog: View Blog (3)

Re: Debt: The first five thousand years

Postby MacCruiskeen » Tue Mar 05, 2013 1:50 pm

Bump.

Today I (finally, belatedly) bought Graeber's book. Came on here to see if anyone here had written anything about it and, sure enough, I found a forgotten twelve-page thread! I shouldn't really say "thank you" (much less "much obliged") because Graeber has kindly informed me how all that rigmarole came about and where it eventually led, but, y'know, what else are you gonna say in the absence of any better words, so thank you all and much obliged.

Since I've just started the book -- or rather,since I've just been dipping into it all afternoon, practically at random -- I can't say much about it yet, except that Graeber's writing style is quite amazingly lucid and engaging when you consider what a dense and knotty topic it is and how widely he ranges while discussing it. He must be a fantastic teacher.
"Ich kann gar nicht so viel fressen, wie ich kotzen möchte." - Max Liebermann,, Berlin, 1933

"Science is the belief in the ignorance of experts." - Richard Feynman, NYC, 1966

TESTDEMIC ➝ "CASE"DEMIC
User avatar
MacCruiskeen
 
Posts: 10558
Joined: Thu Nov 16, 2006 6:47 pm
Blog: View Blog (0)

Re: Debt: The first five thousand years

Postby JackRiddler » Tue Mar 05, 2013 3:26 pm

Huh, I see I never reposted about my encounter with Graeber on this thread (link's been on another).

Follow link to see embedded cites:


http://alternativebanking.nycga.net/201 ... and-magic/

Money and Magic

Posted on August 26, 2012 by Nicholas Levis


What is money? How did it arise? Most people, if they’ve thought about the question at all, will tell you the story they heard in school, the story still found in economics textbooks: Money arose as a means of exchange to solve the problems inherent in the barter systems that originally prevailed in primitive societies. Credit money eventually followed as relations of exchange and trade became more complex. The modern-day financial economy is the ultimate, natural consequence.

The only problem is that nothing in the historical record or in anthropological studies supports this story of Original Barter, which is a product of classical economics dating back only to the time of Adam Smith.

David Graeber:

[T]here’s a standard story we’re all taught, a ‘once upon a time’ — it’s a fairy tale.

It really deserves no other introduction: according to this theory all transactions were by barter. “Tell you what, I’ll give you twenty chickens for that cow.” Or three arrow-heads for that beaver pelt or what-have-you. This created inconveniences, because maybe your neighbor doesn’t need chickens right now, so you have to invent money.

The story goes back at least to Adam Smith and in its own way it’s the founding myth of economics. Now, I’m an anthropologist and we anthropologists have long known this is a myth simply because if there were places where everyday transactions took the form of: “I’ll give you twenty chickens for that cow,” we’d have found one or two by now. After all people have been looking since 1776, when The Wealth of Nations first came out. But if you think about it for just a second, it’s hardly surprising that we haven’t found anything.

Think about what they’re saying here – basically: that a bunch of Neolithic farmers in a village somewhere, or Native Americans or whatever, will be engaging in transactions only through the spot trade. So, if your neighbor doesn’t have what you want right now, no [deal]. Obviously what would really happen, and this is what anthropologists observe when neighbors do engage in something like exchange with each other, if you want your neighbor’s cow, you’d say, “wow, nice cow” and he’d say “you like it? Take it!” – and now you owe him one. Quite often people don’t even engage in exchange at all – if they were real Iroquois or other Native Americans, for example, all such things would probably be allocated by women’s councils.

So the real question is not how does barter generate some sort of medium of exchange, that then becomes money, but rather, how does that broad sense of ‘I owe you one’ turn into a precise system of measurement – that is: money as a unit of account?

By the time the curtain goes up on the historical record in ancient Mesopotamia, around 3200 BC, it’s already happened. There’s an elaborate system of money of account and complex credit systems. (Money as medium of exchange or as a standardized circulating units of gold, silver, bronze or whatever, only comes much later.)

So really, rather than the standard story – first there’s barter, then money, then finally credit comes out of that – if anything it’s precisely the other way around. Credit and debt comes first, then coinage emerges thousands of years later and then, when you do find “I’ll give you twenty chickens for that cow” type of barter systems, it’s usually when there used to be cash markets, but for some reason – as in Russia, for example, in 1998 – the currency collapses or disappears.[1]


On first reading passages like the above, I felt as though Graeber was proposing some kind of epochal paradigmatic shift. The facts however are uncontroversial; they were not even foreign to me. I simply hadn’t before made the connection that the real history of money has never figured in the non-empirical, reigning models of economics.

If Graeber is suddenly not just in the blogosphere but on C-SPAN and in the likes of Business Week,[2] and if his Debt: The First 5000 Years has met with an oversize reception for a book by an anarchist anthropologist, it’s not entirely thanks to the clarity and brilliance of how he presents things. It’s the timing. The crisis of economics has reached a point where its fairy tales are becoming impossible to sustain.

As Graeber outlines, the original forms of money, which preceded the concept itself, were local systems of unenumerated credit based on reputation. In other words, money originates as social convention, and as such is negotiable. As more complex societies arose they evolved enumerated credit money with units of account such as wheat or silver, but this was still long before any standard physical means of exchange were used. The commodity moneys (and later coins) that subsequently appeared seem to have been first invented as means for settling disputes, damages or dowries, and ultimately were imposed most often by emerging states and empires as ways to raise armies and levy taxes. States asserted power by circulating currency that belonged to the state (and demanding it back for the payment of taxes and tributes). A couple of thousand years later, finally, modern economists invented the myth of primitive barter. In doing so, they transported their ideal of the rational, calculating, wealth-maximizing Homo economicus – a “sociopath,” in Graeber’s words – back into the Garden of Eden, reversing the actual historical order of credit to coin to barter.

Graeber has also become known for his part in planning the first Occupy Wall Street protests last September and in the adoption of the slogan, “We are the 99%.” Last week a group from the OWS Alternative Banking committee packed into an NYU lecture hall with about 200 other people to see him, along with authors Charles Eisenstein and Daniel Pinchbeck, at an event sponsored by the magazine Reality Sandwich. After greetings and introductions, Eisenstein kicked off the round with the observation that money is a form of magic, imagining how we moderns would react if a cave painter told us that by manipulating the symbols on the wall, he could cause changes in the real world, and land himself an elk in tomorrow’s hunt. Today we manipulate symbols on a screen, if we are so empowered, and cause a delivery truck to appear outside the door. Graeber followed by describing what he called a “general tradition among economists” to deemphasize the importance of money – defining it as a means of “facilitated barter” – and reviewed the historical misconceptions, pointing out that “coins pop up in 600 BC to pay soldiers but compound interest was already around 2000 years before that.” The Mesopotamians understood the mathematics of infinite-growth debt, which is why they also appear to have been the first to invent the Debt Jubilee – an incomprehensible option to most of our present-day mainstream economists. Graeber contends that debt accumulation was the central factor in the rise of prostitution, slavery, and more repressive forms of patriachy.

The discussion turns to politics as a different form of symbolism, an attempt to convince people of things that become true only once enough people believe in them, such as that there is a King of France. Eisenstein points out that one symptom of the current systemic breakdown is in the intense awareness that people have developed of politics as symbolism. For example, reports on a candidate’s speech are likelier to analyze the quality of the messaging or the staging of the photo op than to care about what was actually said. Eisenstein holds that politics and economics alike are located on a continuum between poetry and fraud. The spectators ironically pretend to believe, as if to show how much smarter they are than those who really do believe. (All true enough, but I also think a visit to a daytime talk-show audience, a Tea Party rally, or a sales convention would reveal that a lot of people still prefer to take things entirely at face value.)

In the role of the moderator, Pinchbeck asks the evening’s star performers what kind of solutions they imagine beyond a systemic collapse. Eisenstein agrees that a collapse is inevitable in a system centered on the perpetual growth of debt, and expresses optimism that the usual post-apocalyptic visions of general chaos and rapine will prove exaggerated. He expects people will be inventive in figuring out how to facilitate “the flow of gifts.” Much as we plan and prepare and spread the word, he believes the alternatives he advances in his book, Sacred Economics and The Ascent of Humanity, such as debt-free public money (greenbacks) or a citizens’ dividend to all, will require a collapse for any implementation. The transition must involve debt forgiveness, but the cultural barriers – the belief systems that uphold debt as a form of moral obligation, right alongside the sanctity of work for income – are formidable. He puts forth the ideas of re-denominating debt in a negative interest currency and a liquidity tax on reserves as tools for making debt forgiveness more acceptable. Then he asks, “What if the Federal Reserve simply purchases all student loans and unilaterally forgives the debt?”

Graeber responds by saying that during the present crisis the idea of printing enough money to buy all underwater mortgages and selling these back to the homeowners at a fraction on the dollar was actually floated within the Federal Reserve, only to be shot down by the administration as political suicide. (The total cost of this idea wouldn’t have been out of line with the trillions committed in the actual banking bailouts, and the money and greatest benefit would have gone to the banks just the same.) “But all they do is print money and give it to the banks,” he says, without producing the hoped-for flow of credit to the productive economy. The last year has brought him in unexpected contact with a few powerful people, albeit not within the halls of power. He estimates that 10 to 15 percent of the ruling elite really do see the urgency of the situation and agree with the need for debt forgiveness; but the idea remains politically isolated and culturally anathema, again because of the “morality of debt.” This morality applies to everyone but the rich, who have no trouble amongst themselves as necessary in renegotiating and disappearing debts into the billions and more recently trillions. The idea of having a vision has become completely alien to the ruling class. Graeber sees Obama as the greatest embodiment of this; he got into office by playing a guy who has a vision.

How did this happen? In Graeber’s view, the elites have fallen victim to their own obsession with the danger of social movements. Capitalism is no longer delivering, so the only argument left is that nothing else is even possible – other than the “hell on earth” of the exemplary totalitarian regimes – and so they focus on attacking social movements. The precarity of labor and ever-increasing working hours of the neoliberal program are not the best method for organizing capital, according to Graeber, but they are a great way of demobilizing potential resistance. No one can think in long-term perspectives or worry about the fate of the earth when they’re worrying about what will happen next week, and with crisis now constant this is equally true of the more enlightened among the elites. Eisenstein adds that the first step in overcoming this will be that people must lose the illusion that normal is ever coming back. He envisions an enlargened movement of debt strikes and sharing arrangements, citing examples like “couch-surfing” and car sharing as means both to reduce anxiety and to hasten the demise of the money system. He points out the way in which the Internet (contrary to the still-periodic outbursts of IT mania) is actually acting as a “giant suck on the GDP” by replacing formerly paid services with free ones. People need to “unplug and reskill” and “escape the void of total monetization.” “Apolitical sharing will have a political effect,” Eisenstein concludes. (In principle, all true; I couldn’t help thinking about how much this is all still a minority phenomenon.)

The talk turned to the Occupy movement and its attempt to “show why the enemy is superfluous” by exhibiting an alternative form of organization in public spaces, and by making “aggressive displays of mutual love and support” that, however, tend to provoke the elites. This, in Graeber’s view, is why the attack on Occupy was so relentless. Pinchbeck pointed out the limits into which Occupy necessarily ran after its own success in “expanding the horizons of the possible.” Those who are excited later find they’re still trapped within the same “insane society” as before, and many feel a sense of betrayal precisely because of their transformed expectations. Yet the history of revolutions, Graeber points out, is one of quick, unpredictable switches.

During the questions period, Graeber doubted the effectiveness of the “move your money” campaign. Besides that those of us on the lower rungs have only relatively small volumes to move, it’s not really depositors’ money that the banks lend; they just “zap new money into existence.” He backed off the point when he saw it had caused a bit of a downer, but I surely wasn’t alone in wishing the event had not ended so abruptly soon after.

This is one question on which the paradigm-busting professor seems not to have strayed beyond convention. The talk of magic at the beginning should have tipped him off about the real power of “move your money” – assuming, of course, that the example of the three or four million who have already done it can inspire tens of millions more to do the same. “Move your money” is one of our means of painting the cave to change the reality. People who take the effort to close accounts at the Wall Street banks are awakening to new possibilities. They are organizing themselves as a movement. Ideally, they’ve done their research and are opening their new accounts with banks or credit unions that do not inflate the speculative bubbles of FIRE, that invest wisely and locally, and that do not slap their customers with arbitrary and exorbitant fees. Regardless, moving accounts robs the too-big-to-fail wizards of a bit of their magic. As additional millions close their accounts with Citigroup, BoA, JPM Chase and Wells Fargo, the illusion the big bankers have created fades. How will they maintain the credibility to just zap more credit into existence, once everyone knows that no one’s got an account with them any more?

Graeber’s seeming inside knowledge of doings at the Fed reminded me of a story that “the central bankers” of the New York Federal Reserve had supposedly invited him “to talk to them, where he told them about the need for debt relief” and that they were “receptive to his message.”[3] It turns out to be apocryphal, however. When I asked him about it after the talk, Graeber said he merely made the acquaintance of an economist who works at the Fed, and his story of it had been garbled. If the “Vatican of capital” had really called in an OWS anarchist for a consultation, it would have been one of the clearest portents yet that, verily, the End is Near.

Notes

[1] “What is debt? An Interview with economic anthropologist David Graeber,” Naked Capitalism, August 2011.

[2] Drake Bennett, “David Graeber, the Anti-Leader of Occupy Wall Street,” Business Week, October 26, 2011.

[3] LBO News, May 31, 2012.

References

“Debt: The first five thousand years,” essay version, Long Now, April 22nd, 02010.

David Graeber and Jamie Stern-Weiner, “Debt, Slavery and Our Idea of Freedom,” Z Communications, Sept. 12, 2011.

Graeber vs. The Austrians: “On the Invention of Money – Notes on Sex, Adventure, Monomaniacal Sociopathy and the True Function of Economics,” Naked Capitalism, Sept. 2011.

We meet at the borders of our being, we dream something of each others reality. - Harvey of R.I.

To Justice my maker from on high did incline:
I am by virtue of its might divine,
The highest Wisdom and the first Love.

TopSecret WallSt. Iraq & more
User avatar
JackRiddler
 
Posts: 16007
Joined: Wed Jan 02, 2008 2:59 pm
Location: New York City
Blog: View Blog (0)

Re: Debt: The first five thousand years

Postby seemslikeadream » Tue Mar 05, 2013 3:56 pm

Engagez-vous!




Time for Outrage! author, Stéphane Hessel, dies, aged 95


Stéphane Hessel with the Dalai Lama, with whom he published a book declaring "Let's declare peace!"
Reuters/Jean-Philippe Arles
By Tony Cross
French President François Hollande has hailed the “exceptional life” of Stéphane Hessel, the former resistance fighter and diplomat who summoned today’s youth to revolt in his 2010 best-selling pamphlet Indignez-vous! (Time for Outrage!). Hessel died in Paris overnight at the age of 95.

“I learn of the death of Stéphane Hessel with sorrow,” Hollande said in a statement Wednesday. “He was a great figure whose exceptional life was devoted to the defence of human dignity.”

STÉPHANE HESSEL SPEAKS TO RFI

Hessel’s pamphlet, which he followed up with Engagez-vous! (Get involved!) in 2011, served as an inspiration to youth protest movements, such as Spain’s Indignados, which in turn influenced the worldwide Occupy movement and the revolts in the Arab-speaking world.

“His capacity for indignation was without limits, apart from that of his own life,” Hollande said. “At the moment of his death he leaves us a lesson – to never resign ourselves to any injustice.”

Born in Germany to Jewish parents, who served as an inspiration for François Truffaut’s film Jules et Jim, Hessel came to France as a child and went on to join the French resistance to German occupation.

After World War II he became a diplomat and worked on the left of politics, as well as helping draft the UN’s declaration of human rights and working to aid decolonisation.

His support for Palestinian national rights won him criticism from supporters of Israel and Indignez-vous! made him an unlikely hero to young protesters in the 21st century.

Hessel wrote an introduction to the book Un Etat pour la Palestine (A state for Palestine), which presents the findings of the Russell Tribunal on Palestine and will be published in 20 March and published a book of interviews with the Dalai Lama last year.

Among other tributes:

“I’d like us all to have such freshness of mind and capacity for indignation as he had at 95,” hard-left former presidential candidate Jean-Luc Mélenchon, who, nevertheless, regretted that Hessel had supported Hollande in last year’s presidential election.
Hessel was “a great Frenchman, whose courageous past as in the resistance, as a committed activist for causes that I did not always agree with is remembered by all”, Jean-François Copé, the president of the right-wing UMP;
“Our country will sorely miss the authentic humanist, the indomitable resistance fighter and the generous thinker,” Paris Mayor Bertrand Delanoë.
Hessel was a "master of not thinking" obsessed with making "Gaza the epicentre of injustice in this world and Hamas a peaceful movement", Richard Prasquier, president of the French Jewish council, Crif.
Stéphane Hessel, a life in dates:

1917: Born in Berlin to Franz and Helen Hessel (née Grund) ;
1925: Family moves to France;
1937: Acquires French nationality;
1939: Enrols at élite university, Normale Sup, marries Vita, with whom he will have three children, conscripted when war declared.
1940: Taken prisoner, escapes, joins resistance, works with US consulate in the escape of about 2,000 intellectuals;
1941: Joins General Charles De Gaulle in London;
1944: Sent to France on resistance mission, captured, sent to Buchenwald concentration camp, escapes execution by concealing identity;
1945: Sent to Dora concentration camp after failed escape attempt, successfully escapes while being transferred to Bergen-Belsen, becomes diplomat after liberation;
1946: Takes part in the drafting of the UN’s universal declaration of human rights;
1951: Becomes French human rights representative on international bodies;
1954: Joins prime minister Pierre Mendes-France’s office;
1955-57: In Vietnam to prepare independence from France
1958-63: Joins education ministry;
1963-69: Works as diplomat in Algeria;
1970-72: Works at UNDP in New York;
1972-76: Various foreign relations jobs, notably in Africa;
1977: Appointed France’s UN ambassador in Geneva;
1981-82: Under the presidency of François Mitterrand works on reform of France’s aid policy and relations with overseas possessions;
1982: Joins France’s broadcasting authority;
1986: Vitia dies;
1987: Marries Christiane Chabry;
1990-93: Appointed by prime minister Michel Rocard to committee on immigration, criticises “clientelism” in relations with African leaders in a report that is not published;
1993: Represents France at the UN human rights conference in Vienna;
2010: Publishes Indignez-vous, which sells 4.5 million copies worldwide;
2013: Dies in Paris.
Mazars and Deutsche Bank could have ended this nightmare before it started.
They could still get him out of office.
But instead, they want mass death.
Don’t forget that.
User avatar
seemslikeadream
 
Posts: 32090
Joined: Wed Apr 27, 2005 11:28 pm
Location: into the black
Blog: View Blog (83)

Re: Debt: The first five thousand years

Postby seemslikeadream » Fri Mar 29, 2013 12:10 am

MARCH 28, 2013

It Can Happen Here
The Confiscation Scheme Planned for US and UK Depositors
by ELLEN BROWN
Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few Eurozone “troika” officials scrambling to salvage their balance sheets. A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here); and that the result will be to deliver clear title to the banks of depositor funds.

New Zealand has a similar directive, discussed in my last article here, indicating that this isn’t just an emergency measure for troubled Eurozone countries. New Zealand’s Voxy reported on March 19th:

The National Government [is] pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts . . . .

Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.

Can They Do That?

Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay. (See here and here.) But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into “bank equity.” The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.

The 15-page FDIC-BOE document is called “Resolving Globally Active, Systemically Important, Financial Institutions.” It begins by explaining that the 2008 banking crisis has made it clear that some other way besides taxpayer bailouts is needed to maintain “financial stability.” Evidently anticipating that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite, the authors state:

An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S., the new equity would become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itself—thus, the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country, the new equity holders would take on the corresponding risk of being shareholders in a financial institution.

No exception is indicated for “insured deposits” in the U.S., meaning those under $250,000, the deposits we thought were protected by FDIC insurance. This can hardly be an oversight, since it is the FDIC that is issuing the directive. The FDIC is an insurance company funded by premiums paid by private banks. The directive is called a “resolution process,” defined elsewhere as a plan that “would be triggered in the event of the failure of an insurer . . . .” The only mention of “insured deposits” is in connection with existing UK legislation, which the FDIC-BOE directive goes on to say is inadequate, implying that it needs to be modified or overridden.

An Imminent Risk

If our IOUs are converted to bank stock, they will no longer be subject to insurance protection but will be “at risk” and vulnerable to being wiped out, just as the Lehman Brothers shareholders were in 2008. That this dire scenario could actually materialize was underscored by Yves Smith in a March 19th post titled When You Weren’t Looking, Democrat Bank Stooges Launch Bills to Permit Bailouts, Deregulate Derivatives. She writes:

In the US, depositors have actually been put in a worse position than Cyprus deposit-holders, at least if they are at the big banks that play in the derivatives casino. The regulators have turned a blind eye as banks use their depositaries to fund derivatives exposures. And as bad as that is, the depositors, unlike their Cypriot confreres, aren’t even senior creditors. Remember Lehman? When the investment bank failed, unsecured creditors (and remember, depositors are unsecured creditors) got eight cents on the dollar. One big reason was that derivatives counterparties require collateral for any exposures, meaning they are secured creditors. The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders.

One might wonder why the posting of collateral by a derivative counterparty, at some percentage of full exposure, makes the creditor “secured,” while the depositor who puts up 100 cents on the dollar is “unsecured.” But moving on – Smith writes:

Lehman had only two itty bitty banking subsidiaries, and to my knowledge, was not gathering retail deposits. But as readers may recall, Bank of America moved most of its derivatives from its Merrill Lynch operation [to] its depositary in late 2011.

Its “depositary” is the arm of the bank that takes deposits; and at B of A, that means lots and lots of deposits. The deposits are now subject to being wiped out by a major derivatives loss. How bad could that be? Smith quotes Bloomberg:

. . . Bank of America’s holding company . . . held almost $75 trillion of derivatives at the end of June . . . .

That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.

$75 trillion and $79 trillion in derivatives! These two mega-banks alone hold more in notional derivatives each than the entire global GDP (at $70 trillion). The “notional value” of derivatives is not the same as cash at risk, but according to a cross-post on Smith’s site:

By at least one estimate, in 2010 there was a total of $12 trillion in cash tied up (at risk) in derivatives . . . .

$12 trillion is close to the US GDP. Smith goes on:

. . . Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs. . . . Lehman failed over a weekend after JP Morgan grabbed collateral.

But it’s even worse than that. During the savings & loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors.

Perhaps, but Congress has already been burned and is liable to balk a second time. Section 716 of the Dodd-Frank Act specifically prohibits public support for speculative derivatives activities. And in the Eurozone, while the European Stability Mechanism committed Eurozone countries to bail out failed banks, they are apparently having second thoughts there as well. On March 25th, Dutch Finance Minister Jeroen Dijsselbloem, who played a leading role in imposing the deposit confiscation plan on Cyprus, told reporters that it would be the template for any future bank bailouts, and that “the aim is for the ESM never to have to be used.”

That explains the need for the FDIC-BOE resolution. If the anticipated enabling legislation is passed, the FDIC will no longer need to protect depositor funds; it can just confiscate them.

Worse Than a Tax

An FDIC confiscation of deposits to recapitalize the banks is far different from a simple tax on taxpayers to pay government expenses. The government’s debt is at least arguably the people’s debt, since the government is there to provide services for the people. But when the banks get into trouble with their derivative schemes, they are not serving depositors, who are not getting a cut of the profits. Taking depositor funds is simply theft.

What should be done is to raise FDIC insurance premiums and make the banks pay to keep their depositors whole, but premiums are already high; and the FDIC, like other government regulatory agencies, is subject to regulatory capture. Deposit insurance has failed, and so has the private banking system that has depended on it for the trust that makes banking work.

The Cyprus haircut on depositors was called a “wealth tax” and was written off by commentators as “deserved,” because much of the money in Cypriot accounts belongs to foreign oligarchs, tax dodgers and money launderers. But if that template is applied in the US, it will be a tax on the poor and middle class. Wealthy Americans don’t keep most of their money in bank accounts. They keep it in the stock market, in real estate, in over-the-counter derivatives, in gold and silver, and so forth.

Are you safe, then, if your money is in gold and silver? Apparently not – if it’s stored in a safety deposit box in the bank. Homeland Security has reportedly told banks that it has authority to seize the contents of safety deposit boxes without a warrant when it’s a matter of “national security,” which a major bank crisis no doubt will be.

The Swedish Alternative: Nationalize the Banks

Another alternative was considered but rejected by President Obama in 2009: nationalize mega-banks that fail. In a February 2009 article titled “Are Uninsured Bank Depositors in Danger?“, Felix Salmon discussed a newsletter by Asia-based investment strategist Christopher Wood, in which Wood wrote:

It is . . . amazing that Obama does not understand the political appeal of the nationalization option. . . . [D]espite this latest setback nationalization of the banks is coming sooner or later because the realities of the situation will demand it. The result will be shareholders wiped out and bondholders forced to take debt-for-equity swaps, if not hopefully depositors.

On whether depositors could indeed be forced to become equity holders, Salmon commented:

It’s worth remembering that depositors are unsecured creditors of any bank; usually, indeed, they’re by far the largest class of unsecured creditors.

President Obama acknowledged that bank nationalization had worked in Sweden, and that the course pursued by the US Fed had not worked in Japan, which wound up instead in a “lost decade.” But Obama opted for the Japanese approach because, according to Ed Harrison, “Americans will not tolerate nationalization.”

But that was four years ago. When Americans realize that the alternative is to have their ready cash transformed into “bank stock” of questionable marketability, moving failed mega-banks into the public sector may start to have more appeal.

ELLEN BROWN is an attorney and president of the Public Banking Institute. In Web of Debt, her latest of eleven books, she shows how a private banking oligarchy has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://WebofDebt.com, http://EllenBrown.com, and http://PublicBankingInstitute.org.
Mazars and Deutsche Bank could have ended this nightmare before it started.
They could still get him out of office.
But instead, they want mass death.
Don’t forget that.
User avatar
seemslikeadream
 
Posts: 32090
Joined: Wed Apr 27, 2005 11:28 pm
Location: into the black
Blog: View Blog (83)

Re: Debt: The first five thousand years

Postby Bruce Dazzling » Mon Apr 15, 2013 3:26 pm

A Radical Anthropologist Finds Himself in Academic 'Exile'
By Christopher Shea
The Chronicle of Higher Education
April 15, 2013


Who's afraid of David Graeber? Not the dozens of D.C.-area residents who showed up on a recent night at the Martin Luther King Jr. Memorial Library to hear the anthropologist and radical activist talk about his new book, The Democracy Project: A History, a Crisis, a Movement (Spiegel & Grau). Aimed at the mainstream, the book discusses Mr. Graeber's involvement in the Occupy Wall Street movement and the idea that principles drawn from anarchist theory—a wholesale rejection of current electoral politics, for starters, in favor of groups operating on the basis of consensus—offer an alternative to our present polity, which he calls "organized bribery" (or "mafia capitalism").

On this warm spring evening the rumpled scholar was interviewed by a friendly and more conventionally telegenic writer, Thomas Frank. Graying lefties and young liberals and radicals in the crowd alike seemed impressed. Even the token skeptical economist in the audience framed her question respectfully, and C-Span broadcast live.

Mr. Graeber is a star in the left-academic world. Indeed, it's possible that, given his activism and his writings, he is the most influential anthropologist in the world. He played a part in establishing the nonhierarchical "organization" of the Occupy movement, in its early days in Manhattan, and his 500-plus-page Debt: The First 5,000 Years (Melville House, 2011) struck scholars for its verve and sweep. It made the case that lending and borrowing evolved out of humane, communitarian impulses in premodern societies—out of a free-floating interest in the common weal—and only later became institutionalized actions spawning moral guilt and legal punishment.

The book ranged from discussions of ancient Sumerian economics to analyses of how Nambikwara tribesmen in Brazil settle their affairs to the international monetary system. "An argument of Debt's scope hasn't been made by a professional anthropologist for the best part of a century, certainly not one with as much contemporary relevance," wrote the British anthropologist Keith Hart, of Goldsmiths College, University of London, in a review on his Web site last year. The book won a prize for best book in anthropology from the Society for Cultural Anthropology in 2012 and according to his agent has sold nearly 100,000 copies in English alone.

But strikingly, Mr. Graeber, 52, has been unable to get an academic job in the United States. In an incident that drew national attention, Yale University, in 2005, told him it would not renew his contract (which would have promoted him from assistant professor to "term associate" professor). After a fight, he won a reprieve—but only for two years. He never came up for tenure.

Foreign universities immediately sent out feelers, he says. From 2008 through this spring, Mr. Graeber was a lecturer and then a reader at Goldsmiths College and, just last month, he accepted a professorship at the London School of Economics and Political Science.

But no American universities approached him, he says, and nearly 20 job applications in this country (or Canada) have borne no fruit. The applications came in two waves: directly after the Yale brouhaha and a couple of years later, when he concluded he wanted to return to the States for reasons that were partly personal (a long-distance romantic relationship, the death of his mother and older brother).

His academic "exile," as he calls it, has not gone unnoticed. "It is possible to view the fact that Graeber has not secured a permanent academic position in the United States after his controversial departure from Yale University as evidence of U.S. anthropology's intolerance of political outspokenness," writes Jeff Maskovsky, an associate professor of anthropology at the Graduate Center of the City University of New York, in the March issue of American Anthropologist.

That charge might seem paradoxical, given anthropology's reputation as a leftist redoubt, but some of Mr. Graeber's champions see that leftism as shallower than it might first appear. Anthropology "is radical in the abstract," says Laura Nader, a professor in the field at the University of California at Berkeley. "You can quote Foucault and Gramsci, but if you tell it like it is," it's a different story, she says.

Mr. Graeber "talks about possibilities, and God, if there's anything we need now it's possibilities," she says. "We are in tunnels. We are turned in. We are more ethnocentric than ever. We've turned the United States into a military zone. And into this move-to-the-right country comes David Graeber."

When he applied to Berkeley in the early 2000s and the department failed to hire him, "we really missed the boat," she says.

Jonathan Marks, a professor of anthropology at the University of North Carolina at Charlotte, who had no direct experience with any Graeber job search, agrees: "Whoever had a chance to hire him and didn't missed out on having the author of one of the most important books in recent memory on their faculty," he wrote in an e-mail.

'Incredibly Conformist'
Mr. Graeber was at first reluctant to talk about his failed job searches, for fear of coming across as bitter and souring future chances, but he decided to open up after the LSE job became official. As he recalled, the places to which he applied twice were the City University of New York Graduate Center, the New School, Cornell University, and the University of Chicago. The others were Hunter College, Emory, Duke, Columbia, Stanford, and Johns Hopkins—as well as the University of Toronto. He heard indirectly of colleagues at other universities trying to secure him a position, to no avail.

Responding to anthropologists' frequent claim that they embrace activist scholarship, he echoes Ms. Nader: "They don't mean it"—at least when it comes truly radical activism.

"If I were to generalize," Mr. Graeber says, "I would say that what we see is a university system which mitigates against creativity and any form of daring. It's incredibly conformist and it represents itself as the opposite, and I think this kind of conformism is a result of the bureaucratization of the university."

He and his allies also suspect that false information emanating from his public fight with Yale, garnered secondhand, has hurt him.

When Yale announced it was not renewing his contract, students and some professors rallied behind him, and he gave interviews suggesting that the decision was politically motivated. (The story made The New York Times.) He had spent part of a sabbatical working with the Global Justice Movement, which has mounted protests against such groups as the International Monetary Fund and the World Bank. Perhaps surprisingly, he did not take much part in the heated Yale debate over graduate-student unionization. He was, he likes to say, "a scholar in New Haven and an activist in New York."

During the dispute over his Yale position, he said, he'd been accused of not doing service work (though he did all he was asked, he said), of being late for classes, and of being ill prepared to teach. Yancey Orr, a graduate student in religion at the time who took courses from Mr. Graeber and is now an assistant professor of anthropology at the University of Alberta, says that charge is absurd: "He was easily the most helpful seminar leader you could ask for."

Being denied tenure at Yale is hardly unusual, but not getting rehired at Mr. Graeber's stage is. Some professors Mr. Orr has talked to at institutions that failed to hire Mr. Graeber were under the impression that he went nuclear over a tenure denial, but the situation was more complex, more unorthodox, says Mr. Orr.

The chairs of the departments to which Mr. Graeber applied who could be reached all cited confidentiality in declining to talk about the decisions—or, typically, even to confirm he'd applied. But several denied that politics would affect such decisions. "I can say without hesitation," wrote James Ferguson, the chair of anthropology at Stanford, in an e-mail, "that I personally would not regard Graeber's political orientation as in any way disqualifying, nor would I expect such views to be held by my colleagues."

"As is known throughout the world," wrote Janet Roitman, chair of anthropology at the New School, "the New School prides itself for its longstanding tradition of radical politics; David would not have been the first hire or tenured faculty member to pursue 'radical' political positions or to engage in activism."

Some anthropologists, including Alex Golub, a contributor to the popular blog Savage Minds and an assistant professor at the University of Hawaii-Manoa, suggested that a general dearth of jobs in the field would be enough to explain Mr. Graeber's run of bad luck—especially because the book that brought him fame, Debt, had not been published at the time of the searches. (Though he'd published four others by 2009, as well as a much-read pamphlet, "Fragments of an Anarchist Anthropology," with Prickly Paradigm.) But Mr. Graeber scoffs at that: "Gee, I applied for 17. Somebody got those jobs." Moreover, Britain is not brimming with anthropology jobs, either, yet he's had little problem there.

"I believe it's possible that his politics have helped him in some cases and hurt him in others," says Mr. Maskovksy, of CUNY, who in his American Anthropologist essay raised the issue of what Mr. Graeber's academic exile to England meant for the profession . "He has a huge following among graduate students because of his protest work and because he links his protest work to the kind of anthropology he wants to do. But there's a huge gap between generating that kind of interest and respect, on the one hand, and job-hiring decisions. I don't know what makes people hire and what makes them not."

On Collegiality
One charge that has dogged Mr. Graeber is that he is "difficult," an attribute that's obviously hard to gauge. Ms. Nader says she urged him to soften his rough edges—to send thank-you cards, even, when protocol suggested it. (Mr. Graeber does not recall that counseling session on manners and says he always sends thank-you notes.) But she finds it deplorable that scholars would value superficial clubbability over originality of thought; she decries the "'harmony ideology' that has hit the academy." She also thinks the fact that he "writes in English," eschewing jargon, hasn't helped him.

There is some evidence of Mr. Graeber's contentiousness. During an online seminar about Debt on the blog Crooked Timber, Henry Farrell, an associate professor of political science at George Washington University, said Mr. Graeber had—for example—provided insufficient evidence that in the first Gulf War the United States had attacked Iraq partly because Iraq had stopped using dollars as its reserve currency and turned to the euro. In Mr. Graeber's response, he accused Mr. Farrell of "consummate dishonesty" and said he had failed to engage with the argument and instead sought to show its maker was a "lunatic." Mr. Farrell responded that he was "very unhappy" with Mr. Graeber's charges and tone.

From February to April 1, J. Bradford DeLong, an economist at the University of California at Berkeley, baited Mr. Graeber by setting up an automated Twitter stream that sarcastically recounted dozens of alleged (or actual) errors of fact in Debt. For example: "Learned that 12 Regional Fed Banks not private banks like Citi or Goldman Sachs? Stay away until you do! #Graebererrors." Mr. Graeber responded aggressively. At one point he wrote, on Twitter, referring to Mr. DeLong's work in the Clinton Treasury Department on the North American Free Trade Agreement: "I bet the poor guy had a rough time at 14. Tried to compensate by gaining power, then look—destroyed Mexico's economy."

Mr. Graeber calls some of Mr. DeLong's postings "libelous"—a virtual campaign of harassment. "He has been on a crusade to hurt me in every way," he says, growing angry.

"Yet these guys are considered mainstream and I'm the crazy guy who can't get a job." He adds, "I don't even write negative book reviews."

Mr. Graeber, who says he gets along just fine with his colleagues in London—and, indeed, with most of his former colleagues at Yale—has his own take on what scholars mean by "collegiality": "What collegiality means in practice is: 'He knows how to operate appropriately within an extremely hierarchical environment.' You never see anyone accused of lack of collegiality for abusing their inferiors. It means 'not playing the game in what we say is the proper way.'"

In his American Anthropologist essay, CUNY's Mr. Maskovsky said that the many graduate students who took part in Occupy Wall Street might view Mr. Graeber's difficulty finding a job as a cautionary tale. Would their advisers see their activism as, at the least, a distraction from their research?

Manissa Maharawal is one such student, at CUNY, a participant in Occupy now studying the activist projects that emerged from it. She says she has received nothing but support from her advisers and doesn't understand the politics of academic hiring, but finds the Graeber situation perplexing—in a bad way. "His work is really good, he's well reviewed, he's become pretty famous in the last year," she says. "I'm not sure what's going on. You can have all the boxes you're supposed to check checked and still not get a job. It's scary, for sure."
"Arrogance is experiential and environmental in cause. Human experience can make and unmake arrogance. Ours is about to get unmade."

~ Joe Bageant R.I.P.

OWS Photo Essay

OWS Photo Essay - Part 2
User avatar
Bruce Dazzling
 
Posts: 2306
Joined: Wed Dec 26, 2007 2:25 pm
Location: Yes
Blog: View Blog (0)

Re: Debt: The first five thousand years

Postby JackRiddler » Mon Apr 15, 2013 3:31 pm

There is some evidence of Mr. Graeber's contentiousness. During an online seminar about Debt on the blog Crooked Timber, Henry Farrell, an associate professor of political science at George Washington University, said Mr. Graeber had—for example—provided insufficient evidence that in the first Gulf War the United States had attacked Iraq partly because Iraq had stopped using dollars as its reserve currency and turned to the euro. In Mr. Graeber's response, he accused Mr. Farrell of "consummate dishonesty" and said he had failed to engage with the argument and instead sought to show its maker was a "lunatic." Mr. Farrell responded that he was "very unhappy" with Mr. Graeber's charges and tone.


Does this mean I've blown any chance of tenure with my stints at DU and RI?
We meet at the borders of our being, we dream something of each others reality. - Harvey of R.I.

To Justice my maker from on high did incline:
I am by virtue of its might divine,
The highest Wisdom and the first Love.

TopSecret WallSt. Iraq & more
User avatar
JackRiddler
 
Posts: 16007
Joined: Wed Jan 02, 2008 2:59 pm
Location: New York City
Blog: View Blog (0)

Re: Debt: The first five thousand years

Postby Elihu » Thu Apr 18, 2013 11:06 pm

WHO SAID THE HYDRA WOULD TAKE IT LYING DOWN
while its several heads were being chopped off one-by-one?
Antal E. Fekete
New Austrian School of Economics

I have never appealed to the so-called conspiracy theories in trying to explain the strange world of fluctuations in the price of monetary metals. But neither have I ever said that the fiat-money Hydra will take it lying down when it comes to chopping off its several heads one-by-one.

Markets for the monetary metals under fiat money

Here are the relevant facts:
(1) The U.S. government defaulted on its obligation to pay its short-term dollar debt to foreign governments and central banks in gold at a fixed rate, as confirmed by several international treaties and by the solemn pledges of several sitting presidents, on August 15, 1971. Subsequently it has been bankrolling a chorus of servile academic cheer-leaders and other sycophants to shout from the roof-top that the gold standard was a ‘barbarous relic’ anyway, quite ripe to be gotten rid of – in an effort to cover up the shame of fraudulent default (fraudulent because the U.S. did have the gold and could have lived up to its international obligations).

(2) Thus the U.S. confiscated some of the gold belonging to institutions outside its own jurisdiction, but could not confiscate all of it. University economics departments and research institutions have failed to investigate what gold at large will do in the long run. They just assumed that it will be business as usual without gold in eternity. Well, it didn’t quite turn out that way. Speculators soon started trading gold futures, first in Canada, then in 1975 in the U.S. as well. No universities and think-tanks showed an interest in studying gold futures trading and its long-run consequences. Why, gold has been reduced to the status of frozen pork bellies. We know all that is to be known about trading frozen pork bellies, don’t we? Supply and demand, right? And when push comes to shove, it is easier to increase the supply of paper gold than that of frozen pork bellies, isn’t it? (With due apologies to the late Fritz Machlup of Princeton University for this interpretation of his theory of gold futures trading.) We may bypass the question whether our institutions ignored problems connected with futures trading of monetary metals on their own volition, or whether they did so under duress. As it turned out two scores of years later, the failure to study the consequences of the so-called demonetization of gold (euphemism for highway robbery) has caused an unprecedented world disaster: the disintegration of the world’s payments system that is now unfolding before our very eyes.

(3) A scientific inquiry would have shown back in the 1970’s that the gold basis (defined as the difference between the nearby futures price and the price for immediate delivery of gold) would be robust, in fact, it would be at its maximum (equal to the carrying charge, or opportunity cost of holding gold). But soon it would start its relentless decline all the way to zero and beyond. A negative gold basis, a condition known as backwardation of gold, would create an extremely unstable situation in international finance because it meant risk free profits for holders of gold. Knowledgeable market participants realize that persistently falling basis means increasing scarcity which, in the case of gold, is not and cannot be alleviated by current output from the mines. Output ultimately proves no match for the mass movement of gold going into hiding, first gradually, eventually reaching crescendo when the threat of permanent gold backwardation starts looming large. At that point all deliverable supplies of physical gold would be gobbled up by gold hoarding. In case of monetary metals, in contrast with all other commodities, high and increasing prices may not bring out new supply. Rather, they might make supply shrink. Monetary metals are exempt from the law of supply and demand.

Under permanent backwardation, as no gold were offered for sale at any price, the ‘price of gold’ would become a vacuous concept. Gold, silver and,
soon enough, all other highly marketable goods would only be available through barter. In other words, paper money as we know it would simply cease to function. We cannot fathom how our complex world economy could operate under such circumstances. One thing was certain, though: the world economy would contract in a way that would make the contraction in the 1930’s appear as a blip on the screen.3

(4) All bubbles, all currency and financial crises of the past forty years are direct or indirect consequences of the vanishing gold basis – whether we admit it or not. A few years ago Professor Robert Mundell of Columbia University invited me to attend his annual seminar at Santa Colomba, with most of the leading monetary scientist in attendance. I circulated a statement warning of the danger of permanent gold backwardation and how it would adversely affect the world economy. I argued that permanent backwardation of gold would be a watershed event. As long as the gold futures markets are open, U.S. Treasury debt is still gold-convertible (albeit at a fluctuating rate, never mind that the rate is (minuscule). But no sooner had gold futures trading stopped after the advent of permanent backwardation than gold was no longer to be had in exchange for U.S. Treasury debt. The entire outstanding debt of the U.S. was worth not one ounce of gold. Not one gram of it. It is insane to pretend that this would make no difference in world trade, as pretended by official doctrine. This event would mark the transition from monetary economy to barter economy. My missive did not provoke a single rejoinder. It was simply ignored. All the same, I have reasons to believe that people in the U.S. Treasury and the Federal Reserve started to listen and they took a crash course on the problem of vanishing gold basis and the threat of permanent gold backwardation.

(5) To summarize, in forcing the world off the gold standard in 1971 the U.S. government created a many-headed Hydra. The problem was compounded by the apparent gag order, muzzling research on the gold basis – as a face saving exercise to cover up the fact of default.

Gold is not the same as frozen pork bellies after all.

In waking up too late that there was a problem after gold futures markets have been flirting with backwardation for a year or so, officialdom was forced to act. Act it did in a typically haphazard fashion. A few days ago, on April 12 and 15 the paper gold market was demoralized by a ferocious attack on the lofty gold price. This in and of itself is proof that Bernanke is fully aware that permanent gold backwardation is imminent, and that it will create and unmanageable situation. It’s got to be stopped in its track at all hazards.

Well, well, well. Gold is not the same as frozen pork bellies after all. The Hydra is not taking it lying down. The kid gloves have finally come off. 4

Bernanke is trying to stop gold backwardation by selling unlimited amount of gold futures contracts through his stooges, the bullion banks. He is
underwriting losses they are certain to suffer in due course. We can take it for granted that they haven’t got the gold to make delivery on their contracts. In fact, delivery of gold will be suspended under the force majeure clause. Short positions will have to be settled in cash, to be made available by the Fed’s printing presses. Gold futures trading will be a thing of the past.

Bernanke and columnist Paul Krugman, formerly his subaltern colleague at Princeton don’t understand that the issue is not the price of gold. The issue is backwardation or contango. In trying to wrestle the gold price to the ground the Fed makes “the last contango in Washington”* an accomplished fact.

From the frying pan into the fire

Ostensibly a lower gold price would solve the problem Bernanke has. Demoralized gold bugs would be forced out of their holdings through margin
calls. Disillusioned investors would shun gold. This would make physical gold available to rescue the strapped gold futures market.

In fact, however, a lower gold price is making the problem more intractable, not less. The Fed is diving from the frying pan into the fire. This is
the point missed by almost all observers and market analysts. They ignore the underlying flight into physical gold that continues unabated, in spite of (or,better still, because of) the panic in the paper gold market. The Fed’s intervention in bankrolling short interest is going to back-fire, for the following simple reason. The Fed’s strategy is inherently contradictory. A lower price for paper gold makes it easier, not harder, to demand delivery on maturing futures contracts.

The more paper gold Bernanke sells, the lower the cost of acquiring physical gold in exchange for paper gold becomes. The price of the nearby futures contract will drop to hitherto unimaginable depths, relative to the cash price, making backwardation worse, not better. Ultimately this will make backwardation irreversible. Welcome to the world of permanent gold backwardation.

From what hole does the evil deflationary wind blow?

Academia and the financial press have utterly failed to recognize the relevance of gold backwardation as regards deflation. They might fret about hyperinflation as a result of unbridled money-printing (euphemism for the monetization of government debt). Yet the real danger is not on the inflationary but on the deflationary front as realized even by Krugman – while he is perfectly clueless on the question from what hole the evil deflationary wind blows (other than conservative wishful thinking).

Well, I can pinpoint the location of the hole to within yards for the benefit of Krugman. It is on Constitution Avenue, in Washington, D.C. The evil deflationary wind is blowing from the building of Federal Reserve Board.

If Bernanke thought that his attacks on the gold price would stem deflation, well, his efforts were counter-productive, to put it mildly. They have,
in fact, made the flight into physical gold accelerate. Permanent backwardation of gold, and its concomitant, the re-invention of barter – the ultimate in deflation– will be the result.

There is no reason to fear that the Fed is pushing the world into hyperinflation. In fighting the gold price the Fed unwittingly pushes the world into hyper-deflation.

All the same, it is destroying the dollar and the international monetary and payments system.

April 18, 2013.

Endnote
* The Last Contango In Washington, http://www.professorfekete.com,
2006-06-30
But take heart, because I have overcome the world.” John 16:33
Elihu
 
Posts: 1432
Joined: Wed Mar 16, 2011 11:44 pm
Blog: View Blog (0)

PreviousNext

Return to General Discussion

Who is online

Users browsing this forum: No registered users and 167 guests